<PAGE>
===============================================================================

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

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

                                   FORM 10-K

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

(MARK ONE)

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

                  For the fiscal year ended December 31, 1997

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

                   For the transition period from        to
                        Commission file Number 33-82654

                         FIRST NATIONWIDE HOLDINGS INC.
             (Exact name of registrant as specified in its charter)

                 DELAWARE                                   13-3778552
      (State or other jurisdiction of                    (I.R.S. Employer
      incorporation or organization)                    Identification No.)

135 MAIN STREET, SAN FRANCISCO, CALIFORNIA                     94105
 (Address of principal executive offices)                   (Zip Code)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 415-904-0100
        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: N/A
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: N/A

         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   X  Yes       No
                                          -----     -----

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

         The aggregate market value of the voting stock held by non-affiliates
of the registrant as of the close of business on March 23, 1998: N/A.

         The number of shares outstanding of each of the registrant's classes
of $1.00 par value common stock, as of the close of business on March 23, 1998:
800 shares of class A common stock and 200 shares of class B common stock.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None

                           Exhibit Index on Page 96

===============================================================================
<PAGE>

                         FIRST NATIONWIDE HOLDINGS INC.

                        1997 ANNUAL REPORT ON FORM 10-K
                               TABLE OF CONTENTS

                                     PART I
                                                                           Page
                                                                           ----
ITEM 1.  Business..........................................................  3
                  General..................................................  3
                  Lending Activities.......................................  9
                  Non-performing Assets.................................... 16
                  Investment Activities.................................... 19
                  Sources of Funds......................................... 24
                  Other Activities......................................... 34
                  Dividend Policy of the Bank.............................. 36
                  Employees................................................ 36
                  Competition.............................................. 37
                  Regulation of FN Holdings................................ 37
                  Regulation of the Bank................................... 38
                  Taxation................................................. 44
ITEM 2.  Properties........................................................ 45
ITEM 3.  Legal Proceedings................................................. 46
ITEM 4.  Submission of Matters to a Vote of Security Holders............... 46
                                                                            
                                    PART II
                                                                            
ITEM 5.  Market for the Registrant's Common Equity and Related              
             Stockholder Matters........................................... 47
ITEM 6.  Selected Financial Data........................................... 48
ITEM 7.  Management's Discussion and Analysis                               
             of Financial Condition and Results of Operations.............. 51
                  General.................................................. 51
                  Results of Operations.................................... 55
                  Provision for Federal and State Income Taxes............. 65
                  Tax Effects of Dividend Payments by the Bank............. 66
                  Provision for Loan Losses................................ 67
                  Asset and Liability Management........................... 67
                  Liquidity................................................ 70
                  Impact of Inflation and Changing Prices.................. 74
                  Problem and Potential Problem Assets..................... 74
                  Mortgage Banking Operations.............................. 78
                  Capital Resources........................................ 80
                  Year 2000................................................ 81
ITEM 7A. Quantitative and Qualitative Disclosure about Market Rate Risk.... 82
ITEM 8.  Financial Statements and Supplementary Data....................... 84
ITEM 9.  Changes in and Disagreements with Accountants                      
             on Accounting and Financial Disclosure........................ 84
                                                                            
                                    PART III
                                                                            
ITEM 10. Directors and Executive Officers of the Registrant................ 85
ITEM 11. Executive Compensation............................................ 90
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.... 92
ITEM 13. Certain Relationships and Related Transactions.................... 92
                                                                            
                                    PART IV
                                                                            
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K... 96
                                                                           
Audited Financial Statements............................................... F-1

                                     Page 2

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     The statements contained in this Report on Form 10-K that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, intentions,
beliefs or strategies regarding the future. Forward-looking statements include
the Company's statements regarding liquidity, provision for loan losses,
capital resources and anticipated expense levels in "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition, in
those and other portions of this document, the words "anticipate," "believe,"
"estimate," "expect," "intend," and other similar expressions, as they relate
to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. It is important to note that the Company's
actual results could differ materially from those described herein as
anticipated, believed, estimated or expected. Among the factors that could
cause results to differ materially are the risks discussed in the "Risk
Factors" section included in the Company's Registration Statement on Form S-1
filed on February 3, 1997 (File No. 333-21015) and declared effective on
February 26, 1997. The Company assumes no obligation to update any such
forward-looking statement.

                                     PART I

ITEM 1.  BUSINESS

     First Nationwide Holdings Inc. ("FN Holdings" or the "Company") is a
holding company chartered under the laws of the State of Delaware whose only
significant asset is all of the common stock of California Federal Bank, A
Federal Savings Bank, ("California Federal" or "Bank"). As such, FN Holdings'
principal business operations are conducted by the Bank and its subsidiaries.

     FN Holdings is 80% owned indirectly by MacAndrews & Forbes Holdings, Inc.
("MacAndrews Holdings"), a corporation wholly owned through Mafco Holdings Inc.
("Mafco Holdings" and together with MacAndrews Holdings, "MacAndrews & Forbes")
by Ronald O. Perelman, and is 20% owned by Hunter's Glen/Ford Ltd. ("Hunter's
Glen"), a Texas limited partnership controlled by Gerald J. Ford, the Chairman
of the Board, Chief Executive Officer and a director of the Bank.

     First Nationwide Bank, A Federal Savings Bank ("First Nationwide"),
formerly First Madison Bank, FSB ("First Madison") and successor to First
Gibraltar Bank, FSB ("First Gibraltar"), was organized and chartered as a
federal stock savings bank in December 1988 under the Home Owners' Loan Act
("HOLA") to acquire substantially all of the assets and to assume deposits,
secured and certain other liabilities of five insolvent Texas savings and loan
associations ("Texas Closed Banks") from the FSLIC Resolution Fund
("FSLIC/RF"), as successor to the Federal Savings and Loan Insurance
Corporation ("FSLIC").

     On January 3, 1997, First Nationwide Bank, A Federal Savings Bank merged
with and into California Federal Bank, A Federal Savings Bank (the "Cal Fed
Acquisition"). Unless the context otherwise indicates, (i) "Cal Fed" and "Old
California Federal" refer to Cal Fed Bancorp Inc. and California Federal Bank,
A Federal Savings Bank, respectively, prior to the consummation of the Cal Fed
Acquisition and (ii) the "Bank" refers to California Federal Bank, A Federal
Savings Bank, as the surviving entity after the consummation of the Cal Fed
Acquisition, and to First Nationwide and its predecessors for periods prior to
the Cal Fed Acquisition.

GENERAL

     The Company's operations are significantly influenced by general economic
conditions in the markets and geographic areas in which the Bank conducts its
business, the monetary and fiscal policies of the federal government and the
regulatory policies of certain governmental agencies. Deposit balances and the
cost of borrowings are influenced by interest rates on competing investments
and general market interest rates. The Company's loan volume and yields are
also impacted by market interest rates on loans, the supply of and demand for
housing, and the availability of funds.

     The Company is a diversified financial services company whose principal
business, through California Federal, consists of (i) operating retail deposit
branches to serve consumers in California and, to a lesser extent, in Florida
and

                                     Page 3

<PAGE>



Nevada, (ii) originating and/or purchasing, on a nationwide basis, 1-4 unit
residential loans and, to a lesser extent, certain commercial real estate and
consumer loans, for investment and (iii) mortgage banking activities, including
originating and servicing 1-4 unit residential loans for others. Recently, with
its entry into the sub-prime automobile finance business, the Bank broadened
its complement of consumer lending products. These operating activities are
financed principally with customer deposits, secured short-term and long-term
borrowings, collections on loans, asset sales and retained earnings. Refer to
note 22 of the Company's consolidated financial statements for additional
information about the Company's business segments.

     The Bank is chartered as a federal stock savings bank under the HOLA and
regulated by the Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"), which, through the Savings Association
Insurance Fund ("SAIF"), insures the deposit accounts of the Bank, up to
applicable limits. The Bank is also a member of the Federal Home Loan Bank
System ("FHLBS").

     The Company's revenues are derived from interest earned on loans, interest
and dividends received on securities and mortgage-backed securities, gains on
sales of loans and other investments, fees received in connection with loan
servicing and securities brokerage and other customer service transactions.
Expenses primarily consist of interest on customer deposit accounts, interest
on short-term and long-term borrowings, general and administrative expenses
consisting of compensation and benefits, data processing, occupancy and
equipment, communications, deposit insurance assessments, advertising and
marketing, professional fees and other general and administrative expenses.

     As of December 31, 1997, FN Holdings had assets totalling $31.3 billion,
deposits totalling $16.2 billion and operated retail branch offices at 225
locations in three states.

     On February 1, 1993, First Gibraltar sold to Bank of America Texas, N.A.
and BankAmerica Corporation (collectively, "BankAmerica") certain assets,
liabilities and substantially all of the branch operations of First Gibraltar
located in Texas consisting of approximately $829 million of loans and 130
branches with approximately $6.9 billion in deposits (the "BAC Sale"). A gain
of $141 million was recorded in connection with this sale. Concurrently with
the BAC Sale, First Gibraltar changed its name to First Madison Bank, FSB.

     Following the BAC Sale, and through September 1994, First Madison's
principal business was the performance of its obligations under an assistance
agreement entered into with the FSLIC/RF at the time of First Gibraltar's
acquisition of the Texas Closed Branches ("Assistance Agreement") and the
funding of assets subject to the Assistance Agreement ("Covered Assets").
Subsequent to the BAC Sale, First Madison also managed four retail branches in
Texas and supplemented its retail deposit base with wholesale funds from
Brokered Deposits (as defined herein) and FHLB advances.

     On April 14, 1994, First Madison entered into the Asset Purchase Agreement
(the "Asset Purchase Agreement") with First Nationwide Bank, A Federal Savings
Bank ("Old FNB"), an indirect subsidiary of Ford Motor Company ("Ford Motor").
On October 3, 1994, effective immediately after the close of business on
September 30, 1994, First Madison acquired substantially all of the assets and
certain of the liabilities (the "FN Acquired Business") of Old FNB (the "FN
Acquisition") for $726.5 million. Effective on October 1, 1994, First Madison
changed its name from "First Madison Bank, FSB" to "First Nationwide Bank, A
Federal Savings Bank." Since October 1994, the Company has made several
acquisitions and has divested certain operations.

     In December 1994, the Bank's wholly-owned mortgage bank operating
subsidiary, First Nationwide Mortgage Corporation ("FNMC"), entered into a
series of agreements with Standard Federal Savings Association ("StanFed"), to
acquire certain of StanFed's mortgage servicing assets and assume certain of
StanFed's mortgage servicing liabilities for approximately $178 million (the
"Maryland Acquisition"). As a result of the Maryland Acquisition, FNMC acquired
a 1-4 unit residential loan servicing portfolio of approximately $11.4 billion
(including $1.8 billion of mortgage servicing rights that are owned by third
parties who have subcontracted the servicing function to FNMC (a "sub-servicing
portfolio")) and certain other assets and liabilities. The transaction was
consummated on February 28, 1995. In connection with the Maryland Acquisition,
FNMC moved its mortgage servicing operations to Maryland from its former
location in Sacramento, California.


                                     Page 4

<PAGE>



     On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc. ("LMUSA")
a 1-4 unit residential loan servicing portfolio of approximately $11.1 billion
(including a sub-servicing portfolio of $3.1 billion), a $2.9 billion master
servicing portfolio in which FNMC monitors the performance and consolidates the
reporting and remittances of multiple servicers for various investors (a
"master servicing portfolio") and other assets for $100.9 million, and the
assumption of certain indebtedness secured by the acquired loan portfolio (the
"LMUSA 1995 Purchase"). On January 31, 1996, FNMC purchased LMUSA's remaining
$14.1 billion loan servicing portfolio (including a sub-servicing portfolio of
$2.4 billion), a master servicing portfolio of $2.7 billion, $5.9 million in
foreclosed real estate, $46.8 million in net other servicing receivables, $2.6
million in mortgage loans, and $6.2 million in net other assets (including $1.4
million in cash and cash equivalents) for a purchase price of approximately
$160.9 million (the "LMUSA 1996 Purchase" and together with the LMUSA 1995
Purchase, the "LMUSA Purchases").

     During the first six months of 1996, the Company consummated the sale of
its retail branches in Ohio (the "Ohio Branch Sale"), New York and New Jersey
(the "Northeast Branch Sale") and Michigan (the "Michigan Branch Sale", and
together with the Ohio Branch Sale and the Northeast Branch Sale, the "Branch
Sales") at prices which represented an average premium of 7.96% of the
approximately $4.6 billion of deposits sold. The Company recorded a pre-tax
gain of $363.3 million in connection with the Branch Sales.

     On February 1, 1996, the Company acquired SFFed Corp. ("SFFed"), a savings
and loan holding company, and its wholly owned federal savings association, San
Francisco Federal Savings and Loan Association ("San Francisco Federal"), (the
"SFFed Acquisition"), for approximately $264.2 million. San Francisco Federal
operated 35 branches in the Northern California area and at February 1, 1996,
had approximately $4.0 billion in assets and approximately $2.7 billion in
deposits.

     On June 1, 1996, the Company acquired Home Federal Financial Corporation
("HFFC") and its wholly owned federally chartered savings association
subsidiary, Home Federal Savings and Loan Association of San Francisco ("Home
Federal"), (the "Home Federal Acquisition," and together with the SFFed
Acquisition, the "1996 Acquisitions"). The aggregate consideration paid in
connection with the Home Federal Acquisition was approximately $67.8 million.
At June 1, 1996, HFFC had approximately $717 million in assets and $632 million
in deposits.

     On January 3, 1997, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") among FN Holdings, Cal Fed and Old California Federal,
First Nationwide merged with and into Old California Federal and Cal Fed was
liquidated. The aggregate consideration paid under the Merger Agreement
consisted of approximately $1.2 billion in cash and the issuance of litigation
interests. Old California Federal, at December 31, 1996, had total assets of
approximately $14.1 billion and deposits of $8.9 billion, and operated 119
branches in California and Nevada. Effective with the merger, First
Nationwide's name changed to California Federal Bank, A Federal Savings Bank.

     On January 3, 1997 and prior to the consummation of the Cal Fed
Acquisition, First Nationwide Escrow Corp. ("FN Escrow"), an affiliate of FN
Holdings, was merged with and into FN Holdings, pursuant to a merger agreement
by and between FN Holdings and FN Escrow (the "FN Escrow Merger"). In
connection therewith, FN Holdings acquired the net proceeds from the issuance
of FN Escrow's $575 million of Senior Subordinated Notes due 2003 (the "10-5/8%
Notes") and assumed FN Escrow's obligations under the 10-5/8% Notes and
indenture. See "Certain Relationships and Related Transactions--FN Escrow
Merger and Issuance of FN Escrow Preferred Stock."

     FN Holdings financed the Cal Fed Acquisition with (i) the net proceeds of
approximately $555 million from the issuance of the 10-5/8% Notes, (ii) net
proceeds of $145 million from a newly formed Delaware corporation, all the
common stock of which is owned by Gerald J. Ford, the Chairman of the Board,
Chief Executive Officer and a director of the Bank ("Special Purpose Corp."),
in exchange for $150 million aggregate liquidation value of FN Holdings'
Cumulative Perpetual Preferred Stock ("FN Holdings Preferred Stock") and (iii)
existing cash. In connection with the Cal Fed Acquisition, FN Holdings made a
capital contribution to the Bank on January 3, 1997 of approximately $685
million.

     In November 1996, the Bank formed California Federal Preferred Capital
Corporation ("Preferred Capital Corp.") for the purpose of acquiring, holding
and managing real estate mortgage assets. All of Preferred Capital Corp.'s
common stock is owned by the Bank. Preferred Capital Corp. entered into a
subservicing agreement with FNMC pursuant to which FNMC services Preferred
Capital Corp.'s mortgage assets. On January 31, 1997, Preferred Capital

                                     Page 5

<PAGE>



Corp. issued to the public $500 million of its 9-1/8% Noncumulative Exchangeable
Preferred Stock (the "REIT Preferred Stock"). Preferred Capital Corp. used the
proceeds from such offering to acquire mortgage assets from the Bank.

     Effective May 31, 1997, FNMC acquired a residential mortgage loan
servicing portfolio of approximately $3.2 billion from WMC Mortgage Corporation
(the "Weyerhaeuser Purchase") for $37.1 million, of which $.7 million remains
payable at December 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Mortgage Banking Operations."

     On September 1, 1997, the Company acquired Auto One Acceptance Corporation
("Auto One") in a purchase transaction (the "Auto One Acquisition"). Auto One
primarily engages in indirect sub-prime auto financing activities, providing
loan processing, funding and loan servicing for over 800 franchised automobile
dealers. Auto One is a licensed lender in 47 states. Auto One is headquartered
in Dallas, Texas, and operates as a subsidiary of the Bank.

     On September 30, 1997, FNMC sold servicing rights for 51,626 loans with an
unpaid principal balance of approximately $2.3 billion, recognizing a pre-tax
gain of $14.0 million (the "Servicing Sale").

     On December 12, 1997, the Company sold its retail deposits and all related
retail banking facilities in the state of Texas (consisting of three branches)
with deposits of $57.6 million at a gross price representing a deposit premium
of 4.1% (the "Texas Branch Sale"). The Company recorded a pre-tax gain of $2.5
million in connection with the Texas Branch Sale.

     The 1996 Acquisitions, the Cal Fed Acquisition, the Branch Sales and the
Texas Branch Sale contributed to the restructuring of the Company's retail
branch network consistent with its strategy of strengthening its west coast
presence. The Company's retail deposits in California have increased from $2.3
billion, or 25%, of total retail deposits at the time of the FN Acquisition to
$13.0 billion, or 82%, of total retail deposits, at December 31, 1997. By
consolidating many of the functions in the operations acquired in the FN
Acquisition, the 1996 Acquisitions and the Cal Fed Acquisition, management
achieved economies of scale and cost savings. The efficiency of a financial
institution is often measured by its efficiency ratio, which represents the
ratio of adjusted noninterest expense to net interest income and adjusted
noninterest income. The Bank has improved its efficiency ratio from 63.47% for
the year ended December 31, 1995 to 51.16% for the year ended December 31,
1997. Finally, the Maryland Acquisition, the LMUSA Purchases and the
Weyerhaeuser Purchase have significantly increased the Company's mortgage
banking activities and its fee income. Since the FN Acquisition, the Company's
mortgage servicing portfolio has increased from $6.7 billion to $46.6 billion
at December 31, 1997. Net loan servicing fees have increased from $70.3 million
for the year ended December 31, 1995 to $143.9 million for the year ended
December 31, 1997.

     On February 3, 1998, the Company entered into an agreement with Gulf
States Acceptance Company, a Delaware limited partnership ("GSAC") and its
general partner, Gulf States Financial Services, Inc., a Texas corporation,
pursuant to which Auto One acquired 100% of the partnership interests in GSAC
and GSAC was liquidated and its assets and liabilities were transferred to Auto
One (the "GSAC Acquisition"). The aggregate consideration paid in connection
with the GSAC Acquisition, which was completed on February 4, 1998, was
approximately $22.5 million plus a 20% interest in the common stock of Auto
One.

     On February 4, 1998, First Nationwide (Parent) Holdings Inc. ("Parent
Holdings"), parent company of FN Holdings and the Bank, and Hunter's Glen
entered into a definitive merger agreement ("Golden State Merger Agreement")
with Golden State Bancorp Inc. ("Golden State"), the publicly traded parent
company of Glendale Federal Bank, Federal Savings Bank ("Glendale Federal"),
pursuant to which Parent Holdings, Hunter's Glen and Golden State agreed to a
tax-free exchange of shares in a merger transaction (the "Golden State
Merger"), to be accounted for under the purchase method of accounting. In
connection with the execution of the Golden State Merger Agreement, Golden
State, Glendale Federal, the Bank, Stephen J. Trafton, Chairman of the Board,
President and Chief Executive Officer of Golden State and Richard A. Fink, Vice
Chairman of Golden State, entered into a Litigation Management Agreement
("Litigation Management Agreement") pursuant to which, among other things,
Messrs. Trafton and Fink will oversee and manage the California Federal
Litigation (hereinafter defined) and continue to oversee and manage similar
litigation being prosecuted by Glendale Federal, following the consummation of
the Golden State Merger. Following the Golden State Merger, the combined parent
company, Golden State, will have 135 to 145 million common shares outstanding
and will continue to be a publicly traded company. As part of the Golden State
Merger Agreement, Glendale Federal will be merged with and into the Bank. At
December 31, 1997, Glendale Federal had total assets of approximately $16.0
billion and deposits of $9.5 billion and operated 181 branches and 26 loan
offices in California. The Golden State Merger is subject to regulatory and
stockholder approval and is expected to close during the third quarter of 1998.


                                     Page 6

<PAGE>



     The Company's ongoing strategic plan aims at achieving increased
profitability, revenue diversity and growth while preserving credit quality.
Key elements of the Company's business strategy include:

     Internal growth through expanding the core franchise, margin enhancement
     and new business initiatives by, among other things:

     --  Continuing to expand and enhance the Company's retail branch network
         in California with opportunities to gain customers, deposits and
         assets while obtaining economies of scale.

     --  Continuing to increase operating efficiency by, among other things,
         further expanding its customer base, increasing transaction volumes
         and reducing costs through consolidation of administrative and
         managerial functions.

     --  Continuing to increase noninterest income and to obtain incremental
         efficiencies through the Company's mortgage banking operations.

     --  Continuing to focus on risk management by seeking to protect the 
         credit quality of the assets of the Company.

     --  Identifying new business initiatives to serve the needs of the Bank's
         customers and the communities in which the Bank provides services.

     External growth and revenue diversification through selective acquisitions
     and opportunistic divestitures which are consistent with the Company's
     business strategy. This growth may include acquisitions of businesses that
     management believes offer the potential for higher growth and margin
     expansion, such as sub-prime automobile and mortgage loan origination.

     The implementation of the preceding strategies is subject to numerous
contingencies beyond management's control. These contingencies include general
and regional economic conditions, competition and changes in regulation and
interest rates. Accordingly, no assurance can be given that any of the
Company's strategies will prove to be effective or that the Company's goals
will be achieved.


                                     Page 7

<PAGE>

     The following chart sets forth in simplified form the ownership structure
of FN Holdings and the Bank.


               ==================================================
                               Ronald O. Perelman
               ==================================================

                                      100%

               ==================================================
                              Mafco Holdings Inc.
               ==================================================

                                      100%

               ==================================================
                       MacAndrews & Forbes Holdings Inc.
                            ("MacAndrews Holdings")
               ==================================================

                                      100%

               ==================================================
                     Trans Network Insurance Services Inc.
                                    ("TNIS")
               ==================================================

                                      100%

               ==================================================
                        First Gibraltar Guarantor Corp.
               ==================================================

                                      100%

               ==================================================
                         First Gibraltar Holdings Inc.
                          ("First Gibraltar Holdings")
               ==================================================

                                      100%

               ==================================================
                    First Nationwide (Parent) Holdings Inc.
                              ("Parent Holdings")
               ==================================================
 
                                      80%*

      =============================            ============================
         Hunter's Glen/Ford Ltd.                  Holder of FN Holdings
             (Hunter's Glen)                         Preferred Stock
      =============================            ============================

                   20%*                          100% of preferred stock

               ==================================================
                         FIRST NATIONWIDE HOLDINGS INC.
                                ("FN HOLDINGS")
               ==================================================

                                     100%

      ==============================                                        
      Holders of the Preferred Stock                             
      ==============================                                    
        
         100% of preferred stock

               ==================================================
                            California Federal Bank,
                      A Federal Savings Bank ("the Bank")
               ==================================================

                

     *Hunter's Glen, a limited partnership controlled by Gerald J. Ford,
Chairman of the Board, Chief Executive Officer and a director of the Bank, owns
100% of the class B common stock of FN Holdings, representing 20% of its voting
common stock (representing approximately 15% of the voting power of its common
stock), and Parent Holdings beneficially owns 100% of the class A common stock
of FN Holdings, representing 80% of its voting common stock (representing
approximately 85% of the voting power of its common stock).

                                     Page 8

<PAGE>



LENDING ACTIVITIES

     The Company's principal lending activity has been the origination of
adjustable and fixed rate mortgage loans secured by residential real estate. To
a lesser extent, the Company also originates consumer loans consisting
principally of adjustable rate home equity lines of credit. Prior to 1997, the
commercial lending activity of the Company has been limited to restructuring
and refinancing existing portfolio loans, and multi-family loans originated
under its affordable housing program. The Company commenced the origination of
commercial loans on a limited basis during 1997. The Company also participates
in a number of other affordable housing programs and initiatives.

     The Company's 1-4 unit residential loans are originated by FNMC.
Throughout this document, references to the Company and its 1-4 unit
residential loan origination or servicing activities relate to functions
performed by FNMC. In April 1995, the Company concluded that the costs of
operating retail offices outweighed the benefits and, accordingly, closed
substantially all of its retail real estate loan production offices.
Residential 1-4 unit loans continue to be originated through the Company's
wholesale origination offices (wherein loans are acquired from independent loan
brokers) and the Company's retail branches. The Company originates adjustable
rate mortgage ("ARM") loans on 1-4 unit residential real estate which, in the
case of ARMs originated prior to September 30, 1995 and after December 31,
1996, have generally been held for investment, and fixed rate 1-4 unit
residential loans, which are generally held for sale to the secondary mortgage
market. From September 30, 1995 through December 31, 1996, substantially all of
the ARMs originated were sold in the secondary market to provide funds for the
acquisition and divestiture activity occurring during the period. On October 2,
1995, the Company acquired the correspondent loan purchase operation of LMUSA
as well as contracts to administer various housing bond and other private
mortgage lending programs.

     The Company generates consumer loan applications at its retail branches.
In addition, the Company conducts direct-mail solicitations, principally of its
existing customers, for both secured and, to a much lesser extent, unsecured
revolving loans. All consumer loan processing, servicing and collection
operations were moved from a facility in Oak Brook, Illinois to Sacramento,
California during the second quarter of 1997.

     The following table reflects, for the periods indicated, activity related
to loans receivable, excluding loans held for sale:


                                                  Year Ended December 31,
                                                 -------------------------
                                                   1997             1996
                                                   ----             ----
                                                       (in millions)

Balance at beginning of period                   $10,605           $9,174
Originations                                       1,024              284
Purchases:
     1996 Acquisitions                                --            3,235
     Cal Fed Acquisition                          10,060               --
Sales                                                (21)            (123)
Foreclosures                                        (178)            (109)
Payments, payoffs and other                       (1,548)          (1,856)
                                                 -------          -------
Balance at end of period                         $19,942          $10,605
                                                 =======          =======

     Interest Rates, Terms and Fees

     The Company offers a variety of ARM products, generally with the
objectives of (i) matching, as closely as possible, the interest rate
sensitivity of its interest-earning assets with the interest rate sensitivity
of its interest-bearing liabilities and (ii) maintaining a relatively stable
net interest margin in varied interest rate environments. In response to
consumer demand, and in order to diversify its loan portfolio and help to
control its future interest rate risk, the Company's loan portfolio includes
several ARM products which vary as to (i) the frequency and amount of periodic
interest rate changes and (ii) the minimum and maximum rates applied to a
particular loan. ARMs have the advantage of reducing the lending institution's
sensitivity to interest rate fluctuations. However, they also present certain
risks not associated with traditional fixed rate mortgages, such as adjustments
in interest rates which could cause payment increases that some borrowers might
be unable to service.


                                     Page 9

<PAGE>



     The Company attempts to mitigate the credit risks associated with mortgage
lending activities by the use of carefully developed underwriting standards.
Substantially all 1-4 unit residential loans originated are underwritten to
conform with standards adopted by Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"),
the Government National Mortgage Association ("GNMA"), or other secondary
market investors. Accordingly, the Company's underwriting standards include
loan-to-value ("LTV") ratios and maximum loan amounts for both fixed rate loans
and ARMs that closely mirror secondary market requirements. Generally, where
these standards differ, specific strong compensating factors are required. With
respect to ARMs, the Company underwrites the borrower's ability to pay at the
maximum second year payment rate, consistent with secondary market
requirements.

     In addition to the interest earned on its loans, the Company charges fees
for loan originations, loan prepayments and modifications, late payments,
changes of property ownership and other similar services. The amount of this
fee income varies with the volume of loan originations, prepayments, the
general economic conditions affecting the portfolio and other competitive
factors affecting the mortgage market.

     Generally, late charges are assessed when payments are delinquent. On
loans secured by residential real estate, these charges are generally limited
to 4% to 6% of the overdue payment of principal and interest and cannot be
imposed until the payment is more than 15 days late, in accordance with the
contractual terms of the loans and regulatory requirements in effect when the
loans were made.

     Composition of Loan Portfolio

     The composition of the Company's loan portfolio, excluding loans held for
sale and Covered Assets, is set forth in the following table, at the dates
indicated:

<TABLE>
<CAPTION>
                                                              At December 31,
                                     -----------------------------------------------------------------
                                         1997           1996        1995          1994         1993
                                         ----           ----        ----          ----         ----
                                                                (in millions)
<S>                                   <C>           <C>          <C>          <C>              <C>
Real estate loans:                    
    1-4 unit residential               $14,071       $ 6,118      $ 5,423      $ 5,612          $19
    5+ unit residential                  3,035         2,164        1,854        2,178           --
    Commercial real estate               2,146         1,978        1,716        2,015           10
    Land                                     5            11            9           15           --
    Construction                             1             6           --            8           --
                                       -------       -------      -------      -------        -----
         Total real estate loans        19,258        10,277        9,002        9,828           29
                                       --------      -------      -------      -------        -----
Equity-line and consumer loans             676           298          170          492            5
Commercial loans                             8            30            2            1           --
                                       -------       -------      -------      -------        -----
         Total loans receivable         19,942        10,605        9,174       10,321           34
                                       -------       -------      -------      -------        -----
Less:                                 
    Unearned discounts and loan fees       (46)           (5)         (19)          --            3
    Allowance for loan losses              439           247          210          203            2
    Purchase accounting               
      adjustments, net                     125           150          153          151           --
                                       -------       -------      -------      -------        -----
         Loans receivable, net         $19,424       $10,213      $ 8,830      $ 9,967          $29
                                       =======       =======      =======      =======        =====
</TABLE>
                                     

                                    Page 10

<PAGE>



     The following table presents the Company's real estate loan portfolio
(excluding loans held for sale), by collateral type, interest rate type and
state concentration at December 31, 1997:


<TABLE>
<CAPTION>
                           1-4 unit              5+ unit             Commercial       
                         Residential           Residential            and Other       Total Real        
                     --------------------- --------------------- -------------------    Estate     % of 
       State         Variable     Fixed    Variable     Fixed    Variable    Fixed      Loans      Total
       -----         --------     -----    --------     -----    --------    -----      -----      -----
                                                (dollars in millions)
<S>                   <C>        <C>         <C>         <C>      <C>        <C>       <C>          <C>   
California            $10,299     $  869     $2,241      $147     $1,750      $ 89     $15,395      79.94%
New York                  332         73        176        20         28        22         651       3.38
Florida                   405         79         61        10         21         8         584       3.04
Nevada                    182         15         86         4         19         2         308       1.60
Illinois                  112         56         25         3         32         5         233       1.21
Texas                     129         59         --         2          1         4         195       1.01
Other states (1)        1,158        303        218        42        157        14       1,892       9.82
                      -------     ------     ------      ----     ------      ----     -------     ------
   Total              $12,617     $1,454     $2,807      $228     $2,008      $144     $19,258     100.00%
                      =======     ======     ======      ====     ======      ====     =======     ======
</TABLE>

------------------
(1)  Real estate loans involving property located in 44 states, Puerto Rico and
     the District of Columbia; not more than 1.0% of the total amount of such
     loans are located in any one state.

     The following table summarizes the Company's loan portfolio, excluding
loans held for sale, at December 31, 1997, based upon various contractually
scheduled principal payments allocated to the indicated maturity categories.
This table does not reflect expected prepayments.

<TABLE>
<CAPTION>
                                           Due       Over One
                                         Within     But Within        Over
                                        One Year    Five Years     Five Years       Total
                                        --------    ----------     ----------       -----
                                                         (in millions)
<S>                                       <C>         <C>             <C>           <C>    
Real estate loans:
    1-4 unit residential
         Fixed rate                       $  2        $ 1,320         $  132        $ 1,454
         Variable rate                      --         12,032            585         12,617
    5+ unit residential
         Fixed rate                         12             42            174            228
         Variable rate                     178            580          2,049          2,807
    Commercial real estate and other
         Fixed rate                          9             64             71            144
         Variable rate                     227            841            940          2,008
                                          ----        -------         ------        -------
             Total                         428         14,879          3,951         19,258
                                          ----        -------         ------        -------
Commercial and consumer loans:
         Fixed rate                         27            248             33            308
         Variable rate                      35             66            275            376
                                          ----        -------         ------        -------
             Total                          62            314            308            684
                                          ----        -------         ------        -------

             Total loans receivable       $490        $15,193         $4,259        $19,942
                                          ====        =======         ======        =======
</TABLE>


                                    Page 11

<PAGE>



     1-4 Unit Residential Lending

     The Company currently offers three primary 1-4 unit residential ARM
programs, and a variety of 1-4 unit fixed rate programs with maturities ranging
from 15 to 30 years. Adjustable rate programs include loans which: (i) provide
for monthly interest rate adjustments, after the third or sixth month from
inception of the loan, based on the Federal Home Loan Bank ("FHLB") 11th
District Cost of Funds, (ii) provide for annual rate adjustments based upon the
weekly average yield on U.S. Treasury Securities adjusted to a constant
maturity of one year, or (iii) provide for semi-annual rate adjustments based
on the weekly average of the secondary market rates on six-month negotiable
certificates of deposit. Some ARMs offer an option to convert to a fixed rate
after the first year through the fifth year of the loan term. A variety of
features are incorporated into ARM loans to protect borrowers from unlimited
adjustments in interest rates and payments. All ARMs have lifetime caps which
limit the amount of rate increases over the life of the loan. ARMs whose rates
adjust annually have rate caps which limit the amount that rates can change to
two percentage points per year. Loans which adjust monthly based upon the FHLB
11th District Cost of Funds limit payment changes to no more than 7.5% of the
payment amount per year. This may lead to monthly payments which are less than
the amount necessary to amortize the loan to maturity at the interest rate in
effect for any particular month. In the event that the monthly payment is not
sufficient to pay interest accruing on the loan during the month, this
deficiency is added to the loan's principal balance (i.e., negative
amortization). The total outstanding principal balance for a particular loan is
generally not allowed to exceed 125% of the original loan amount as a result of
negative amortization. If the loan reaches its maximum amount, the loan payment
is recalculated to the payment sufficient to repay the unpaid principal balance
in full at the maturity date. As of December 31, 1997, the Company's
capitalized interest relative to such 1-4 unit residential loans was
approximately $20.3 million. This amount represents approximately .42% of the
approximately $4.8 billion of 1-4 unit residential ARMs that have the potential
to experience negative amortization. The Company also originates 15 and 30 year
fully amortizing 1-4 unit fixed rate residential loans under a variety of fixed
rate programs, primarily for resale in the secondary mortgage market. When 1-4
unit residential loans are sold, FNMC normally retains the servicing of the
loan. See "--Mortgage Banking Operations" for a further discussion of these
activities.

     Multi-family, Commercial and Other Real Estate Lending

     While the Company has always originated multi-family, commercial and other
real estate loans as they relate to affordable housing programs, it began to
originate other commercial real estate loans during 1997 on a limited basis.
The Company's loan portfolio includes loans principally acquired through
acquisitions which are secured by multi-family residential, commercial,
industrial and unimproved real estate. The Company's variable rate multi-family
and commercial real estate loans have a maximum amortized loan term of 30 years
with some loans having balloon payments due in one to 15 years. ARMs primarily
adjust with the FHLB 11th District Cost of Funds or the six-month Treasury Bill
indices with a monthly or semi-annual rate adjustment. The terms and
characteristics of the ARMs originated for multi-family and commercial real
estate lending purposes are similar to those for residential lending. As such,
many of the same risks and protections related to residential borrowers are
present in the multi-family and commercial real estate portfolios, including
the potential for negative amortization. Negative amortization for multi-family
and commercial real estate loans is allowed to increase the outstanding
principal balance to 110% of the original loan amount. If the loan reaches 110%
of the original loan amount, all future interest rate increases will increase
the monthly payment to amortize the loan over the remaining life of the loan.
At December 31, 1997, the Company's capitalized interest relative to such loans
was approximately $1.5 million, which represents approximately .06% of the $2.7
billion of multi-family and commercial real estate loans that have the
potential to experience negative amortization.

     Real estate loans secured by multi-family and commercial property
represent a significant portion of the Company's portfolio. Management
periodically reviews the multi-family and commercial real estate loan
portfolio. At December 31, 1997 and 1996, the multi-family and commercial real
estate loan portfolio totalled $5.2 billion and $4.1 billion, respectively.
Included in the multi-family and commercial real estate loan portfolio at
December 31, 1997 are $28.9 million of loans with credit enhancement wherein
the lead participant subordinated its minority interest in a pool of loans to
the Company's interest in the corresponding pool of loans. No loans are subject
to be repurchased by the seller in the event such loans become 90 days
delinquent.



                                    Page 12

<PAGE>



     The Company's potential for loss on the multi-family and commercial loan
portfolio acquired from Old FNB and, to a lesser extent, the 1-4 unit
residential loan portfolio acquired from Old FNB, was mitigated by the terms of
the NonPerforming Asset Sale Agreement (the "Put Agreement") entered into by
the Bank with Granite Management and Disposition, Inc. ("Granite"), an
affiliate of Old FNB, in connection with the FN Acquisition. The Put Agreement
expired on November 30, 1996, at which time it had been fully utilized by the
Bank. The aggregate purchase price of assets which were put to Granite,
representing the outstanding principal balance, accrued interest and certain
other expenses, was $500 million, including assets put to Granite by Old FNB
from January 1 through October 1, 1994.

     A portion of the Company's mortgage servicing rights ("MSRs"), which are
rights to service mortgages held by others, were acquired from Old FNB and Old
California Federal which had sold multi-family and commercial real estate loans
subject to certain recourse provisions. These recourse liabilities were assumed
by the Company in the FN and Cal Fed Acquisitions and at December 31, 1997, the
balance of such loans sold with recourse totalled $653 million.

     Consumer Lending

     The Company's consumer loan originations are primarily concentrated in
home equity lending. The portfolio correlates closely to retail deposit branch
distribution. At December 31, 1997, the home equity portfolio totalled $355
million, or 52.5%, of the total consumer loan portfolio of $676 million. At
December 31, 1996, the home equity portfolio totalled $243 million, or 81.5%,
of the total consumer loan portfolio of $298 million.

     The Company offers an adjustable, prime interest rate-based home equity
line of credit on owner-occupied residential properties. In determining the
amount of credit to be extended, all loans secured by the collateral properties
are aggregated and compared to the appraised value of the properties. The
Company's policy is to extend credit up to a maximum combined LTV ratio of 80%.

     Other consumer loan products include: fixed rate home equity installment
loans; adjustable prime rate-based home equity loans which, while secured, are
based on repayment ability and credit history; auto and boat loans; unsecured
lines of credit; overdraft protection; and loans secured by certificates of
deposit.

     The Company has recently commenced sub-prime auto lending in connection
with the Auto One Acquisition. At December 31, 1997, the Company's sub-prime
auto loan portfolio totalled $190 million, which loans were purchased in bulk
from a third party or from independent automobile dealers after the
consummation of the Auto One Acquisition. Underwriting on loans purchased from
dealers is performed by Auto One personnel prior to the purchase.

     Loans Held for Sale

     Activity related to loans held for sale for the years ended December 31,
1997 and 1996 is summarized as follows:

                                                    1997            1996
                                                    ----            ----
                                                        (in millions)
Balance at beginning of period                      $  825         $ 1,203
Purchases and originations                           7,871           4,985
Sales                                               (5,511)         (5,157)
Other                                               (1,702)           (206)
                                                    ------         -------
Balance at end of period                            $1,483         $   825
                                                    ======         =======

     Loans held for sale are carried at the lower of aggregate amortized cost
or market value.

     Origination of 1-4 Unit Residential Loans

     The Company originates 1-4 unit residential loans principally through the
efforts of wholesale origination offices through which loans are purchased from
independent loan brokers and, to a lesser degree, staff loan agents. To promote
continuity of customer service, help meet credit needs and to increase
opportunities to sell customer deposit and other financial services offered by
the Company and its subsidiaries, loan inquiries from retail branch customers
and "walk-in" applicants are encouraged. These inquiries are initially
processed by retail branch office personnel, with support provided by regional
lending offices. The 1-4 unit residential loan agents are compensated
principally on a commission

                                    Page 13

<PAGE>



basis. Closed 1-4 unit residential loans are also acquired by FNMC through a
correspondent lending operation acquired from LMUSA in October 1995.

     The majority of 1-4 unit residential loans originated by the Company have
LTV ratios of 80% or less at the time of origination. The Company has
originated such loans with LTV ratios of up to 95%, with the portion of the
loan exceeding 80% guaranteed by private mortgage insurance, the premiums of
which are paid monthly by the borrower. Certain exceptions to this guideline
have been made for low and moderate income borrowers. However, the amount of
1-4 unit residential loans subject to such exceptions is not significant in
terms of the Company's total loan originations. The value of the property
offered as security for a 1-4 unit residential loan is determined by a
professionally qualified appraiser approved by the Company, who may or may not
be an employee of the Bank. As further security for its loan, the Company
requires title insurance and fire and casualty insurance on all loans secured
by liens on real property. The Company also requires flood insurance on any
loan secured by real property if the property lies within a U.S. Housing and
Urban Development Department ("HUD") designated flood hazard area.

     The following table summarizes 1-4 unit residential loan originations for
the years ended December 31, 1997 and 1996 (in millions):

<TABLE>
<CAPTION>
                                                1997                              1996
                                    ------------------------------   -----------------------------
Production Channel                    ARM       Fixed       Total      ARM        Fixed      Total
------------------                    ---       -----       -----      ---        -----      -----
<S>                                 <C>         <C>        <C>        <C>      <C>        <C>     
Retail and portfolio retention      $   74.4    $  580.3   $  654.7   $  7.3   $  265.3   $  272.6
Wholesale                              635.3     3,438.8    4,074.1    699.2    1,451.0    2,150.2
Correspondent lending                1,420.0     1,321.0    2,741.0       --    1,692.2    1,692.2
Other                                     --     1,040.3    1,040.3       --      892.9      892.9
                                    --------    --------   --------   ------   --------   --------
                                    $2,129.7    $6,380.4   $8,510.1   $706.5   $4,301.4   $5,007.9
                                    ========    ========   ========   ======   ========   ========
</TABLE>

     Mortgage Banking Operations

     Mortgage banking activities allow the generation of fee income without the
associated capital retention requirements attributable to traditional real
estate lending activities. Generally, the Company originates fixed rate 1-4
unit residential loans for sale in the secondary mortgage market. ARMs
originated prior to September 30, 1995 and after December 31, 1996 have
generally been held by the Company for investment. From September 30, 1995
through December 31, 1996, however, substantially all of the fixed and variable
rate 1-4 unit residential loans originated were sold in the secondary market to
provide funds for the acquisition and divestiture activity occurring during the
period. The Company employs forward sale hedging techniques to minimize the
interest rate and pricing risks associated with the origination and sale of
fixed rate 1-4 unit residential loans.

     At the time of origination, management identifies 1-4 unit residential
loans that are expected to be sold in the foreseeable future. At December 31,
1997, management had identified $1.5 billion of 1-4 unit residential loans as
held for sale. These loans have been classified as assets held for sale in the
consolidated balance sheet at December 31, 1997 and are recorded at the lower
of aggregate amortized cost or market value. At December 31, 1997, the Company
had forward commitments to sell loans totalling $1.4 billion. In addition, the
Company had entered into commitments to originate and purchase fixed and
variable rate loans (mortgage loan pipeline) of $1.7 billion.

     The servicing portfolio of FNMC (including loans subserviced for others
and excluding loans serviced for the Bank) approximates $46.6 billion and
695,237 loans as of December 31, 1997. The servicing portfolio of FNMC,
including loans serviced for the Bank, approximates $61.8 billion and 811,036
loans as of December 31, 1997. Substantially all of FNMC's loans are serviced
in a 230,000 square-foot facility in Frederick, Maryland.

     Since the FN Acquisition, the Company has sold fixed rate and adjustable
rate loans secured by 1-4 unit residential real estate to FNMA, FHLMC, and
private investors. Mortgage loan sales totalled $5.5 billion and $4.9 billion
in 1997 and 1996, respectively.

     Old FNB and Old California Federal occasionally sold 1-4 unit residential
loans under recourse provisions; such liabilities were assumed by the Company
in the FN and Cal Fed Acquisitions. As of December 31, 1997, the balance of 1-4
unit residential loans sold with certain recourse provisions was $355.8
million.


                                    Page 14

<PAGE>



     The Company, through FNMC, has generally retained the right to service the
loans it has sold. FNMC collects from the borrower payments of principal and
interest and, after retaining a servicing fee, remits the balance to the
investors.

     In accounting for its mortgage loan sales prior to April 1, 1995, a gain
or loss was recognized based on the sum of three components: (i) the difference
between the cash proceeds of the loan sales and the Company's book value of the
loans; plus (ii) the "excess servicing," if any; less (iii) provisions for
estimated losses to be incurred from limited recourse obligations, if any.
Excess servicing resulted in a capitalized asset that reflects the discounted
present value of any difference between the interest rate received from the
borrower and the interest rate passed through to the purchaser of the loan,
less a "normal servicing fee" (dependent upon loan type), which is retained as
compensation for future servicing costs. The amount of excess servicing
recognized in any particular loan sale depended significantly upon three
factors for which estimates or assumptions were employed: (i) the estimated
life of the loans, (ii) the discount rate used in calculating discounted
present value and (iii) the "normal servicing fee."

     Effective April 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 122, "Accounting for Mortgage Servicing
Rights" ("SFAS No. 122") which requires that, when a mortgage loan is sold and
MSRs are retained, a portion of the cost of originating a mortgage loan be
allocated to the MSR based on its fair market value. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Mortgage Banking Operations" for a description of SFAS No. 122.

     The servicing asset is amortized in proportion to, and over the period of,
estimated net servicing income. The Company monitors the prepayments on the
loans serviced for investors and reduces the balance of the asset if the actual
prepayments are in excess of the estimated prepayment trends used to record the
original asset. The Company's assumptions relative to the prepayment speed,
discount and servicing fee rates are revised periodically to reflect current
market conditions and regulatory requirements.

     At December 31, 1997, FNMC owned rights to service approximately $42.4
billion of whole loans, participation interests and mortgage-backed securities
for others. These loans had an average balance of $64,700, a weighted average
coupon rate of 8.10%, a weighted average maturity of 272 months and a service
fee spread of .43%. The greater than 30 day delinquency rate on these loans at
December 31, 1997 was 2.94%. The Company subserviced for others approximately
$4.2 billion of whole loans, participation interests and mortgage-backed
securities. These loans had an average balance of $90,616, a weighted average
coupon rate of 8.09% and a weighted average remaining maturity of 270 months.
The servicing fee collected on these loans is passed through to the primary
servicer with the Company retaining a flat subservice fee that is netted out of
the monthly remittance. The greater than 30 day delinquency rate on these loans
is 5.22%. For the year ended December 31, 1997, gross revenue for servicing
activities (residential loan servicing and ancillary fees) totalled $235.7
million.

     A decline in long-term interest rates generally results in an acceleration
of mortgage loan prepayments. Higher than anticipated levels of prepayments
generally cause the accelerated amortization of MSRs and generally will result
in a reduction of the market value of MSRs and in the Company's servicing fee
income. To reduce the sensitivity of its earnings to interest rate and market
value fluctuations, the Company hedged the change in value of its MSRs based on
changes in interest rates.

     At December 31, 1997, the Company, through FNMC, was a party to several
interest rate floor contracts maturing from October 2001 through June 2002. The
Company paid counterparties a premium in exchange for cash payments in the
event that the 10-year Constant Maturity Treasury rate falls below the
negotiated strike prices. At December 31, 1997, the notional amount of the
interest rate floors was $970 million and the negotiated strike prices were
between 5.0% and 6.5%. In addition, the Company, through FNMC, entered into
principal-only swap agreements with a notional amount of $99 million. The
estimated market values of the interest rate floor contracts and swaps
designated as hedges against MSRs at December 31, 1997 were $18.0 million and
$13.5 million, respectively.

     On October 2, 1995, in the LMUSA 1995 Purchase, FNMC purchased the stock
of Lomas Mortgage Services Inc. (now known as FNMC Mortgage Services, Inc.),
which was a 33% owner of Lomas Mortgage Partnership L.P. (now known as First
Nationwide Mortgage Partnership LP ("FNMP")) and its managing general partner.
FNMP owned the MSRs to approximately $2.3 billion of loans serviced for FNMA,
GNMA, FHLMC and private investors. FNMP's investment in such MSRs and its other
assets were partially funded by independent bank lines of credit totalling

                                    Page 15

<PAGE>



approximately $24.8 million and its servicing duties were performed by FNMC
under a subservicing contract. As of January 1, 1998, FNMC purchased the other
67% of FNMP.

NON-PERFORMING ASSETS

     Non-performing assets consist of non-performing loans, foreclosed real
estate and repossessed assets. The Company's exposure to losses relative to
certain assets acquired in the FN Acquisition that became non-performing or
otherwise problematic prior to November 30, 1996 was mitigated to the extent
the Bank was able to put such loans to Granite under the Put Agreement. See "--
Other Activities -- the Put Agreement."

     Classification of Assets

     Savings associations are required to classify their assets on a regular
basis, establish prudent allowances for loan losses and make quarterly reports
of troubled asset classification to the OTS. Assets must be classified as
"pass," "special mention," "substandard," "doubtful" or "loss." An asset is
generally designated as "special mention" if potential weaknesses are
identified that, if left uncorrected, would result in deterioration of the
repayment prospects for the asset. An asset, or a portion thereof, is generally
classified as "substandard" if it possesses a well-defined weakness which could
jeopardize the timely liquidation of the asset or realization of the collateral
at the asset's book value. Thus, these assets are characterized by the
possibility that the association will sustain some loss if the deficiencies are
not corrected. An asset, or portion thereof, is classified as "doubtful" if
identified weaknesses make collectibility or liquidation in full highly
questionable and improbable. An asset, or a portion thereof, that is considered
to be uncollectible is classified "loss." It should be noted that the Bank does
not maintain assets in a loss classification category; rather, the carrying
value of all troubled assets is reduced by any amount considered to be
uncollectible. The OTS has the authority to approve, disapprove or modify any
asset classification or any amount established as an allowance pursuant to such
classification. Savings associations must maintain adequate general valuation
allowances in accordance with generally accepted accounting principles and
federal regulations for assets classified as "substandard" or "doubtful" and
either immediately write off assets classified as "loss" or establish specific
valuation allowances equal to the amounts classified as "loss."

     The Bank has a comprehensive process for classifying assets, and asset
reviews are performed on a periodic basis. Such reviews are prioritized
according to an asset's risk characteristics, such as loan size, collateral
type and/or location, and potential loan performance problems. The objective of
the review process is to identify significant trends and determine the levels
of loss exposure to the Company that would require increases to specific and
general valuation allowances.

     Loan Portfolio Risk Elements

     When a borrower fails to make a contractually required payment on a loan,
the loan is characterized as delinquent. In most cases delinquencies are cured
promptly; however, foreclosure proceedings, and in some cases workout
proceedings, are generally commenced if the delinquency is not cured. The
procedures for foreclosure actions vary from state to state, but generally if
the loan is not reinstated within certain periods specified by statute, the
property securing the loan can be acquired through foreclosure by the lender.
While deficiency judgments against the borrower are available in some of the
states in which the Company originates loans, the value of the underlying
collateral property is usually the principal source of recovery available to
satisfy the loan balance.

     In general, loans are placed on nonaccrual status after being
contractually delinquent for more than 90 days. When a loan is placed on
nonaccrual status, all interest previously accrued but not received is reversed
and the loan is considered non-performing. The Company may modify or
restructure a loan as a result of a borrower's inability to service the
obligation under the original terms of the loan agreement.


                                    Page 16

<PAGE>



     The following table indicates the carrying value of the Company's loans,
excluding Covered Assets, which have been placed on nonaccrual status, as well
as the carrying value of foreclosed real estate and repossessed assets, at the
dates indicated:

<TABLE>
<CAPTION>
                                                          December 31
                                           -----------------------------------------
                                            1997      1996      1995    1994   1993
                                            ----      ----      ----    ----   ----
                                                      (dollars in millions)
<S>                                        <C>       <C>       <C>     <C>     <C>
     Non-performing loans:
         Real estate:
              1-4 unit residential           $165      $146      $136    $133    $  2
              5+ unit residential              12        13        23      24       9
              Commercial and other              6         9         9      11     --
              Land                            --        --        --        7     --
              Construction                      2         1       --        2     --
                                             ----      ----      ----    ----    ----
                  Total real estate           185       169       168     177      11
         Equity-line and consumer               7         3         3       4     --
                                             ----      ----      ----    ----    ----
              Total non-performing loans      192       172       171     181      11
     Foreclosed real estate, net               77        52        49      37     --
     Repossessed assets                         3       --        --      --      --
                                             ----      ----      ----    ----    ----
              Total non-performing assets    $272(a)   $224(b)   $220    $218    $ 11
                                             ====      ====      ====    ====    ====

     Non-performing loans as a percentage
         of the Bank's loans receivable      0.99%     1.69%     1.94%   1.81%   37.61%(c)
                                             ====      ====      ====    ====    ====

     Non-performing assets as a percentage
         of the Bank's total assets          0.87%     1.36%     1.50%   1.49%   0.98%
                                             ====      ====      ====    ====    ====
</TABLE>

------------------
(a)  Includes $70.2 million of assets acquired in the Cal Fed Acquisition.

(b)  Includes $74.5 million of non-performing assets acquired in the 1996
     Acquisitions and in the LMUSA 1996 Purchase.

(c)  The significant percentage of non-performing loans to loans receivable at
     December 31, 1993 reflects the small balance of loans receivable of $29
     million at December 31, 1993.

     Interest income of $6.8 million was received and recognized by the Company
for nonaccrual loans during the year ended December 31, 1997, instead of $15.9
million which would have been recognized had the loans performed in accordance
with their original terms. FN Holdings has had no loans contractually past due
90 days or more on accrual status in the past five years.

     The following table indicates loans classified by the Company as troubled
debt restructurings, net of purchase accounting adjustments, and excluding
Covered Assets, at the dates indicated:

                                                      At December 31,
                                           ------------------------------------
                                           1997    1996     1995   1994    1993
                                           ----    ----     ----   ----    ----
                                                       (in millions)
Real estate:
     1-4 unit residential                   $  2    $  3    $  8    $ 19    $--
     5+ unit residential                       7      55     147     204     --
     Commercial and other                     26      29      79     110     --
                                            ----    ----    ----    ----    ---

         Total restructured loans           $ 35    $ 87    $234    $333    $--
                                            ====    ====    ====    ====    ===

     For the year ended December 31, 1997, interest income of $3.5 million was
recognized on restructured loans instead of the $3.6 million which would have
been recognized had the loans been performing in accordance with their original
terms. There were no non-real estate restructured loans in any of the past five
years.

                                    Page 17

<PAGE>



     Allowance for Loan Losses

     The Company charges current earnings with a provision for estimated credit
losses on loans receivable to bring the total allowance to a level deemed
appropriate by management. The provision considers both specifically identified
problem loans and credit risks not specifically identified in the loan
portfolio. The allowance for loan losses is based on such factors as the
financial condition of the borrowers, the fair value of the loan collateral,
recourse to guarantors, analysis of delinquency trends, geographic and
collateral-type concentrations, past loss experience, regulatory policies, and
other factors related to the collectibility of the Company's loan portfolio.

     The following table summarizes activity in the Company's allowance for
loan losses during the periods indicated:

<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                                           --------------------------------------------------
                                                            1997      1996       1995        1994       1993
                                                            ----      ----       ----        ----       ----
                                                                                  (in millions)
<S>                                                            <C>    <C>        <C>        <C>        <C> 
Balance at beginning of period                                 $247   $210       $203       $  2       $ 15
     Purchases - SFFed Acquisition                               --     40         --         --         --
     Purchases - Home Federal Acquisition                        --      5         --         --         --
     Purchases - FN Acquisition                                  --     --         --        202         --
     Purchases - Cal Fed Acquisition                            144     --         --         --         --
     Allowance on purchased indirect auto loans                  20     --         --         --         --
     Provision for loan losses                                   80     40         37          6          1
     Charge-offs:
         1-4 unit residential                                   (38)   (35)       (28)        (4)        --
         5+ unit residential and commercial real estate          (8)    (4)(a)     -- (a)     (4)(a)     --
         Consumer and other                                     (10)    (6)        (5)        (1)        (1)
         Non-real estate commercial                              --     --         --         --         (1)
                                                               ----   ----       ----       ----       ---- 
              Total charge offs                                 (56)   (45)       (33)        (9)        (2)
     Recoveries                                                   4      3          3          2          1
                                                               ----   ----       ----       ----       ---- 
         Net charge-offs                                        (52)   (42)       (30)        (7)        (1)
     Allowance for losses assigned to loans sold                 --     (6)        --         --        (13)
                                                               ----   ----       ----       ----       ---- 
Balance at end of period                                       $439   $247       $210       $203       $  2
                                                               ====   ====       ====       ====       ====
</TABLE>
------------------

(a)  Lack of activity reflects the utilization of the Put Agreement, which
     expired in November 1996.

     Although the general loan loss allowance has been allocated by type of
loan for internal valuation purposes, all such allowance, with the exception of
the $20 million applicable to Auto One loans (which are accounted for on a
static pool method), is available to support any losses which may occur,
regardless of type, in the Company's loan portfolio.

                                    Page 18

<PAGE>



     The following table sets forth the allocation of the Company's allowance
for loan losses at the dates indicated:

                                        Year ended December 31,
                                    --------------------------------
                                    1997   1996   1995   1994   1993
                                    ----   ----   ----   ----   ----
                                             (in millions)
Specific allowance:
  Real estate loans:
    1-4 unit residential            $ --   $ --   $  1   $  4   $ --
    5+ unit residential and
      commercial real estate           8      6     --     --     --
                                    ----   ----   ----   ----   ----
         Total specific allowance      8      6      1      4     --
                                    ----   ----   ----   ----   ----
General allowance:
  Real estate loans:
    1-4 unit residential             202    123    115    105      2
    5+ unit residential and
      commercial real estate         190    109     85     85     --
                                    ----   ----   ----   ----   ----
         Total real estate loans     392    232    200    190      2
  Equity-line and consumer loans      39      9      9      9     --
                                    ----   ----   ----   ----   ----
         Total general allowance     431    241    209    199      2
                                    ----   ----   ----   ----   ----
         Total allowance for
           loan losses              $439   $247   $210   $203   $  2
                                    ====   ====   ====   ====   ====

     The table below provides the Company's ratios of net charge-offs on loans
during the period indicated to average outstanding loan balances for the years
indicated:

                                            Year ended December 31,
                                     ------------------------------------
                                     1997    1996    1995    1994    1993
                                     ----    ----    ----    ----    ----
Real estate:
    1-4 unit residential             0.25%   0.55%   0.47%   0.06%   1.26%
    5+ unit residential and
         commercial real estate      0.15    0.09      --    0.10    0.19
Consumer and other                   1.72    1.86    1.00    0.23    0.24
Non-real estate commercial             --      --      --      --    1.29

     Impaired Loans

     See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Problem and Potential Problem Assets" for a discussion
of the Company's impaired loans as of December 31, 1997 and 1996.

INVESTMENT ACTIVITIES

     The Bank is required by OTS regulations to maintain a specified minimum
amount of liquid assets which may be invested in specified securities. The Bank
is also permitted to invest in certain other types of securities. Securities
balances (including cash equivalent securities) exceeding minimum federal
requirements are subject to change over time based on the Bank's
asset/liability funding needs and interest rate risk management objectives. The
Bank's liquidity levels take into consideration anticipated future cash flows
and all available sources of credit. Liquidity is maintained at levels
management believes are appropriate to assure future flexibility in meeting
anticipated funding needs including deposit withdrawal requests, loan funding
commitments, and other investment or restructuring requirements. See
"--Regulation of the Bank--Liquid Assets."

     Cash Equivalents

     The Company sells federal funds, purchases securities under agreements to
resell, and invests in interest-bearing deposits in other banks from time to
time to help meet the Bank's regulatory liquidity requirements and as temporary
holdings until the funds can be otherwise deployed or invested.

                                    Page 19

<PAGE>



     Securities Available for Sale

     FN Holdings adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115") effective January 1, 1994. On
November 15, 1995, the Financial Accounting Standards Board ("FASB") issued "A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities" (the "Special Report"). The Special Report
provided all entities an opportunity to reassess their ability and intent to
hold securities to maturity and allowed a one-time reclassification of
securities from held-to-maturity to available-for-sale without "tainting" the
remaining held-to-maturity securities. On December 29, 1995, the Company
reclassified $231.8 million in carrying value of U.S. government and agency
securities from held-to-maturity to securities available for sale, and recorded
an increase of $2.4 million in stockholders' equity for the net unrealized gain
on such securities.

     The following summarizes the amortized cost and estimated fair value of
the Company's securities available for sale at the dates indicated (in
thousands):

<TABLE>
<CAPTION>
                                                                         December 31, 1997
                                                   -------------------------------------------------------------
                                                                                             Net
                                                   Amortized   Unrealized   Unrealized   Unrealized     Carrying
                                                     Cost         Gains       Losses        Gain         Value
                                                   ---------   ----------   ----------   ----------     --------
<S>                                                <C>            <C>         <C>          <C>          <C>     
     Marketable equity securities                  $     --       $ --        $   --       $ --         $     --
     U.S. government and agency obligations         812,716        957          (588)       369          813,085
                                                   ---------      ----        -------      ----         --------
         Total                                     $812,716       $957        $ (588)       369         $813,085
                                                   ========       ====        =======                   ========
     Estimated tax effect                                                                   (47)
                                                                                           ---- 
         Net unrealized holding gain
              in stockholders' equity                                                      $322
                                                                                           ==== 
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 31, 1996
                                                   -------------------------------------------------------------
                                                                                              Net
                                                    Amortized   Unrealized   Unrealized   Unrealized     Carrying
                                                      Cost        Gains        Losses        Gain         Value
                                                   ---------   ----------   ----------   ----------     --------
<S>                                                <C>           <C>        <C>           <C>           <C>      
     Marketable equity securities                   $ 27,034     $34,954    $    --       $34,954       $  61,988
     U.S. government and agency obligations          480,317         936     (1,222)         (286)        480,031
                                                    --------     --------   --------     --------       ---------
         Total                                      $507,351     $35,890    $(1,222)       34,668       $ 542,019
                                                    ========     ========   ========                    =========
     Estimated tax effect                                                                  (3,466)
                                                                                         --------
         Net unrealized holding gain
              in stockholders' equity                                                     $31,202
                                                                                         ========
</TABLE>

<TABLE>
<CAPTION>
                                                                          December 31, 1995
                                                   -------------------------------------------------------------
                                                                                              Net
                                                    Amortized   Unrealized   Unrealized   Unrealized     Carrying
                                                      Cost        Gains        Losses        Gain         Value
                                                   ---------   ----------   ----------   ----------     --------
<S>                                                  <C>           <C>          <C>          <C>           <C>     
     Marketable equity securities                     $ 34,000     $80,068      $ --      $ 80,068      $114,068
     U.S. government and agency obligations            231,794       2,768       (69)        2,699       234,493
                                                      --------     -------      ----      --------      --------
         Total                                        $265,794     $82,836      $(69)       82,767      $348,561
                                                      ========     =======      ====                    ========
     FDIC portion of unrealized gain on
         marketable equity securities                                                      (34,534)
     Estimated tax effect                                                                   (4,822)
                                                                                          --------
         Net unrealized holding gain
              in stockholders' equity                                                     $ 43,411
                                                                                          ========
</TABLE>

<PAGE>

     Marketable equity securities available for sale at December 31, 1996
represented approximately 5.93% of the outstanding stock of Affiliated Computer
Services ("ACS"), with a cost basis of $27 million. The ACS stock represents
the only marketable equity security classified as available for sale at
December 31, 1996 and 1995. Pursuant to the terms of a settlement agreement
dated June 17, 1991, between the Bank, ACS, and the FDIC, the FDIC was entitled
to share in a defined portion of the proceeds from the sale of the stock,
which, at December 31, 1995, approximated $34.5 million and which was recorded
in other liabilities. On June 28, 1996, the Bank sold 2,000,000 shares of its
investment

                                    Page 20

<PAGE>



in common stock of ACS for gross proceeds totalling $92.3 million from which it
satisfied its full obligation to the FDIC and recognized a pre-tax gain of
$40.4 million. The Bank's remaining shares of ACS stock were sold in October
1997, resulting in a pre-tax gain of approximately $25.0 million.

     Securities Held to Maturity

     The following summarizes the amortized cost and estimated fair value of
the Company's securities held to maturity at the dates indicated:

<TABLE>
<CAPTION>
                                                                     December 31,
                                      ---------------------------------------------------------------------------
                                                1997                    1996                      1995
                                      ----------------------    ----------------------   ------------------------
                                                   Estimated                 Estimated                  Estimated
                                      Amortized      Fair       Amortized      Fair       Amortized       Fair
                                        Cost         Value        Cost         Value        Cost          Value
                                      ---------    ---------    ---------    ---------    ---------     ---------
                                                                     (in millions)
<S>                                    <C>           <C>            <C>          <C>          <C>          <C>
     U. S. government and agency
         obligations                    $--          $ --           $ 4          $ 4          $--          $--
     Municipal and other securities      --            --            --           --            1            1
     Commercial paper                    58            58            --           --           --           --
                                        ---          ----           ---          ---          ---          ---
         Total                          $58           $58           $ 4          $ 4          $ 1          $ 1
                                        ===          ====           ===          ===          ===          ===
</TABLE>

     The weighted average stated interest rate on the Company's securities held
to maturity was 5.32%, 6.85% and 8.25% at December 31, 1997, 1996 and 1995,
respectively.

      Mortgage-Backed Securities Available for Sale

     The following summarizes the amortized cost and estimated fair value of
the Company's mortgage-backed securities ("MBS") available for sale at the
dates indicated (in thousands):


<TABLE>
<CAPTION>
                                                                           December 31, 1997
                                                     ------------------------------------------------------------
                                                                   Gross        Gross         Net
                                                     Amortized   Unrealized  Unrealized    Unrealized    Carrying
                                                       Cost        Gains       Losses         Gain         Value
                                                     ---------   ----------  ----------    ----------    --------
<S>                                                 <C>           <C>       <C>              <C>       <C>        
Mortgage-backed securities:
   GNMA                                              $  249,023    $ 2,710     $    --     $  2,710     $  251,733
   FNMA                                               2,408,173     17,519      (5,923)      11,596      2,419,769
   FHLMC                                              1,197,867     20,097        (548)      19,549      1,217,416
   Other MBS                                            574,625      5,371        (111)       5,260        579,885
   Collateralized mortgage obligations                  606,965      2,698      (1,868)         830        607,795
                                                     ----------    -------     -------     --------     ----------
     Total                                           $5,036,653    $48,395     $(8,450)      39,945     $5,076,598
                                                     ==========    =======     =======                  ==========
Estimated tax effect                                                                         (5,105)   
                                                                                           --------    
   Net unrealized holding gain                                                                         
     in stockholders' equity                                                                $34,840 
                                                                                           ========
</TABLE>
   


                                                     Page 21

<PAGE>



<TABLE>
<CAPTION>
                                                                           December 31, 1996
                                                     -----------------------------------------------------------
                                                                                             Net
                                                     Amortized   Unrealized   Unrealized  Unrealized    Carrying
                                                       Cost         Gains       Losses       Gain         Value
                                                     ---------   ----------   ----------  ----------    --------
<S>                                                 <C>             <C>        <C>           <C>        <C>         
Mortgage-backed securities:
   GNMA                                              $   67,130    $    652    $   (95)    $    557     $   67,687
   FNMA                                                 523,894       5,113     (5,042)          71        523,965
   FHLMC                                                626,267      17,115       (310)      16,805        643,072
   Collateralized mortgage obligations                  364,675         497     (1,244)        (747)       363,928
                                                     ----------    --------    --------    ---------    ----------
     Total                                           $1,581,966    $ 23,377    $(6,691)      16,686     $1,598,652
                                                     ==========    ========    ========                 ==========
Estimated tax effect                                                                         (1,669)
                                                                                           ---------
   Net unrealized holding gain
     in stockholders' equity                                                               $ 15,017
                                                                                           =========
</TABLE>


<TABLE>
<CAPTION>
                                                                           December 31, 1995
                                                     -----------------------------------------------------------
                                                                    Gross       Gross        Net
                                                     Amortized   Unrealized   Unrealized  Unrealized    Carrying
                                                       Cost         Gains       Losses       Gain         Value
                                                     ---------   ----------   ----------  ----------    --------
<S>                                                 <C>             <C>       <C>           <C>         <C>         
Mortgage-backed securities:
   GNMA                                             $   14,018    $     906    $    --     $    906     $   14,924
   FNMA                                                294,070        5,643         --        5,643        299,713
   FHLMC                                               801,393       19,671         (1)      19,670        821,063
   Collateralized mortgage obligations                 345,699          793     (4,678)      (3,885)       341,814
                                                    ----------    ---------    -------     --------     ----------
     Total                                          $1,455,180    $  27,013    $(4,679)      22,334     $1,477,514
                                                    ==========    =========    =======                  ==========
Estimated tax effect                                                                         (2,233)
                                                                                           --------
   Net unrealized holding gain
     in stockholders' equity                                                               $ 20,101
                                                                                           ========
</TABLE>

     On December 29, 1995, the Company reclassified $1.5 billion in carrying
value of mortgage-backed securities from held-to-maturity to mortgage-backed
securities available for sale. This reclassification resulted in a net
after-tax increase in the unrealized gain account in stockholders' equity of
$20.1 million.

     At December 31, 1997, 1996 and 1995, mortgage-backed securities available
for sale included securities totalling $1.4 billion, $53.0 million and $63.4
million, respectively, which resulted from the securitization of certain
qualifying mortgage loans from the Bank's, Old California Federal's and San
Francisco Federal's loan portfolios.

     Mortgage-backed securities available for sale included $4.6 billion, $1.1
billion and $979.0 million of variable-rate securities as of December 31, 1997,
1996 and 1995, respectively.

     FN Holdings maintains a significant portfolio of mortgage-backed
securities as a means of investing in housing-related mortgage instruments
without the costs associated with originating mortgage loans for portfolio
retention and the credit risk of default which arises in holding a portfolio of
loans to maturity. By investing in mortgage-backed securities, management seeks
to achieve a positive spread over the cost of funds used to purchase these
securities. Mortgage-backed securities available for sale are carried at fair
value, with unrealized gains and losses excluded from earnings and reported in
a separate component of stockholders' equity. Premiums and discounts on the
purchase of mortgage-backed securities are amortized or accreted as a yield
adjustment over the life of the securities using the interest method, with the
amortization or accretion effect of prepayments being adjusted based on revised
estimates of future repayments.

     Mortgage-backed securities generally yield less than the loans which
underlie such securities because of their payment guarantees or credit
enhancements which reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings. Mortgage-backed securities issued or guaranteed by GNMA are
generally weighted at 0% for risk-based capital purposes. Mortgage-backed
securities issued or guaranteed by FNMA or FHLMC (except interest-only
securities or the residual interests in collateralized mortgage obligations
("CMOs")) are generally weighted at 20% for risk-based capital purposes,
compared to a weight of 50% to 100% for residential loans. See
"--Regulation--Regulation of the Bank."

                                    Page 22

<PAGE>



     The Company held privately issued CMOs with an aggregate carrying value of
$316.1 million at December 31, 1997. The largest such investment held by the
Company at December 31, 1997 is a CMO issued by Salomon Brothers Inc., with an
aggregate carrying value and market value of $54 million and $55 million,
respectively.

     At December 31, 1997, all of the mortgage-backed securities held by FN
Holdings had one of the two highest credit ratings from one or more of the
national securities rating agencies except for $76 million, of which $74
million are non-rated CMO residual class securities formed by Old California
Federal from its own originations of residential mortgages. Such credit rating,
however, may be subject to revision or withdrawal at any time by such rating
agencies. The mortgage-backed securities which FN Holdings purchases and
maintains in its portfolio include certain CMOs. A CMO is a special type of
pay-through debt obligation in which the stream of principal and interest
payments on the underlying mortgages or mortgage-backed securities is used to
create classes with different maturities and, in some cases, amortization
schedules and a residual class of the CMO security being sold, with each such
class possessing different risk characteristics. The residual interest sold
represents any residual cash flows which result from the excess of the monthly
receipts generated by principal and interest payments on the underlying
mortgage collateral and any reinvestment earnings thereon, less the cash
payments to the CMO holders and any administrative expenses. As a matter of
policy, due to the risk associated with residual interests, the Company does
not invest in the residual interests of CMOs.

     Mortgage-backed Securities Held to Maturity

     A summary of the Company's mortgage-backed securities held to maturity at
the dates indicated is as follows:

                                     December 31,
             --------------------------------------------------------------
                   1997                  1996                1995
             -------------------- --------------------  -------------------
                        Estimated            Estimated            Estimated
             Amortized    Fair    Amortized    Fair     Amortized   Fair
               Cost       Value     Cost       Value      Cost      Value
             ---------  --------- ---------  ---------  --------- ---------
                                     (in millions)
FNMA          $1,018     $1,038     $1,214    $1,232    $   533    $   548
FHLMC            318        333        406       420        988      1,016
Other              2          2          2         2          3          3
              ------     ------     ------    ------     ------     ------
    Total     $1,338     $1,373     $1,622    $1,654     $1,524     $1,567
              ======     ======     ======    ======     ======     ======


     The weighted average stated interest rate on the Company's mortgage-backed
securities held to maturity was 7.33%, 7.27% and 7.46% at December 31, 1997,
1996 and 1995, respectively. At December 31, 1997, 1996 and 1995,
mortgage-backed securities held to maturity included variable rate securities
totalling $1.3 billion, $1.6 billion and $1.5 billion, respectively, which
resulted from the securitization with FNMA and FHLMC of certain qualifying
mortgage loans from the Bank's, Old California Federal's and San Francisco
Federal's loan portfolios with full recourse to the Bank.

     For the years ended December 31, 1997, 1996 and 1995, the Company did not
sell any of its mortgage-backed securities held to maturity.

     Mortgage-backed securities held to maturity are carried at amortized cost
rather than the lower of cost or market, unless there is evidence of a decline
other than a temporary decline in value. Permanent declines in value are
charged to income in the periods in which the declines are determined. Premiums
and discounts on the purchase of mortgage-backed securities are amortized or
accreted as a yield adjustment over the life of the securities using the
interest method, with the amortization or accretion effect of prepayments being
adjusted based on revised estimates of future repayments.



                                    Page 23

<PAGE>



SOURCES OF FUNDS

     General

     Deposits, sales of securities under agreements to repurchase, advances
from the FHLB of San Francisco, sales, maturities and principal repayments on
loans and mortgage-backed securities and issuances of preferred stock have been
the major sources of funds for use in the Company's lending and investment
activities and other general business purposes. Management closely monitors
rates and terms of competing sources of funds on a daily basis and utilizes the
source which is most cost-effective. The availability of funds from sales of
loans and securities is influenced by the levels of general interest rates and
other market conditions. For additional information regarding the Company's
sources of funds, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity" and the Company's Consolidated
Statements of Cash Flows set forth in its Consolidated Financial Statements.

     Loan principal and interest payments are a relatively stable source of
funds, while customer deposit inflows and outflows and loan repayments and
prepayments are influenced significantly by the levels of general interest
rates and money market conditions, and may fluctuate widely. Borrowings may be
used to compensate for reductions in normal sources of funds such as customer
deposits.

     Deposits

     The Company, through the Bank, offers a variety of deposit accounts
designed to attract both short-term and long-term deposits. There are no rate
limitations on any type of deposit account presently offered by the Bank. The
ability of the Bank to retain and attract new deposits is dependent upon the
variety and effectiveness of its customer account products, customer service
and convenience, and prevailing market conditions. The following table shows
the distribution of deposits by type of account at the dates indicated:

<TABLE>
<CAPTION>
                                                                At December 31,
                                       --------------------------------------------------------------------
                                               1997                   1996                   1995
                                       ---------------------   --------------------  ----------------------
                                                   Percent                Percent                 Percent
                                       Amount    of Deposits   Amount   of Deposits  Amount     of Deposits
                                       ------    -----------   ------   -----------  ------     -----------
                                                             (dollars in millions)
<S>                                    <C>           <C>      <C>           <C>      <C>              <C> 
Transaction accounts:
    Passbook accounts                  $ 2,162       13.4%    $   841       10.0%    $   664          6.5%
    Demand deposits:                                                                 
         Interest-bearing                1,149        7.1         510        6.0         684          6.7
         Noninterest-bearing             1,179        7.3         729        8.6         697          6.8
    Money market deposit accounts        1,270        7.9         881       10.4       1,443         14.2
                                       -------     ------     -------     ------     -------      -------
         Total transaction accounts      5,760       35.7       2,961       35.0       3,488         34.2
Term accounts                           10,390       64.3       5,503       65.0       6,696         65.8
                                       -------     ------     -------     ------     -------      -------
                                        16,150      100.0%      8,464      100.0%     10,184        100.0%
                                                   ======                 ======                  =======
Accrued interest payable                    52                     32                     51
Purchase accounting adjustments, net         1                      6                      7
                                       -------                -------                -------
Total                                  $16,203                $ 8,502                $10,242
                                       =======                =======                =======
</TABLE>
 
     Total deposits at December 31, 1997, 1996 and 1995 include escrow balances
for loans serviced for others of $702 million, $550 million and $348 million,
respectively. Deposit balances, excluding purchase accounting adjustments,
averaged $16.7 billion, $9.2 billion and $9.9 billion during 1997, 1996 and
1995, respectively, with average interest rates of 4.55%, 4.66% and 4.67%,
respectively. The weighted average stated interest rates on deposits at
December 31, 1997, 1996 and 1995 were 4.52%, 4.53% and 4.67%, respectively.



                                    Page 24

<PAGE>



     The following table presents the average balance and weighted average rate
paid on each deposit type of California Federal for the periods indicated,
excluding the impact of purchase accounting adjustments:


<TABLE>
<CAPTION>
                                                                Years ended December 31,
                                        ----------------------------------------------------------------------
                                                 1997                    1996                     1995
                                        ----------------------    ---------------------    -------------------
                                        Average       Average     Average      Average     Average    Average
                                        Balance      Rate Paid    Balance     Rate Paid    Balance   Rate Paid
                                        -------      ---------    -------     ---------    -------   ---------
                                                                (dollars in millions)
<S>                                    <C>           <C>          <C>         <C>        <C>         <C>
Transaction accounts:
   Passbook accounts                    $ 1,874        3.65%       $1,154       2.72       $  666       2.20%
   Demand deposits:                                                                        
     Interest-bearing                     1,150        1.07           289       1.87          699       1.00
     Noninterest-bearing                  1,280          --           825         --          583         --
   Money market deposit accounts          1,408        3.56           946       3.39        1,581       3.22
Term accounts                            11,008        5.73         6,032       6.00        6,398       6.10
                                        -------        ----        ------       ----       ------       ----
                                                                                           
   Total                                $16,720        4.55%       $9,246       4.66%      $9,927       4.67%
                                        =======        ====        ======       ====       ======       ====
</TABLE>

     The following table sets forth the scheduled maturities of California
Federal's term accounts by stated interest rate at December 31, 1997:

                                                          2001 and
                             1998      1999       2000   thereafter  Total
                             ----      ----       ----   ----------  -----
                                             (in millions)
3.00% or less               $     1   $    --   $    --   $    --   $     1
3.01 - 4.00%                     --        --        --        --        --
4.01 - 5.00%                    229        13        --         1       243
5.01 - 6.00%                  6,753     1,776        80       119     8,728
6.01 - 7.00%                    754       249       102       145     1,250
7.01 - 8.00%                     50        23        37        44       154
8.01 - 9.00%                      6         5        --        --        11
9.01 - 10.00%                     2        --        --        --         2
Over 10.00%                      --        --         1        --         1
                            -------   -------   -------   -------   -------
      Total term accounts   $ 7,795   $ 2,066   $   220   $   309   $10,390
                            =======   =======   =======   =======   =======

     The following table sets forth remaining maturities for California
Federal's term deposits in amounts of $100,000 or more at December 31, 1997 (in
millions):

         3 months or less                                 $  501
         Over 3 months but within 6 months                   242
         Over 6 months but within 12 months                  729
         Over 12 months                                      508
                                                          ------
                                                          $1,980
                                                          ======

     At December 31, 1997, the aggregate amount outstanding of certificates of
deposit of $100,000 or larger at the Company was $1.98 billion, compared with
$871 million and $690 million at December 31, 1996 and 1995, respectively.
Deposits held by foreign investors at the Bank totalled $93 million, $58
million and $63 million at December 31, 1997, 1996 and 1995, respectively.

     The Bank's deposit accounts are held primarily by individuals residing in
the vicinity of its retail branch offices located in California, Florida and
Nevada. The Bank has emphasized, and will continue to emphasize, a retail
branch network for attracting deposits. Key market areas, particularly the West
Coast region, will continue to be targeted for expansion of retail deposits and
the cross-selling of additional consumer products.


                                    Page 25

<PAGE>



     When cost-effective relative to other sources of funding, the Bank issues
certificates of deposit through direct placement programs and national
investment banking firms ("Brokered Deposits"). These deposits are usually in
amounts less than $100,000 and are obtained from a diverse customer base. While
these funds are generally more costly than traditional passbook and money
market deposits and more volatile as a source of funds because of their
sensitivity to the rates offered, they supplement retail customer deposits in
raising funds for financing and liquidity purposes. At December 31, 1997,
California Federal had $363 million of Brokered Deposits outstanding,
representing 2.25% of total deposits.

     Borrowings

     The Company and the Bank utilize various borrowings as alternative sources
of funds for its business needs. These sources have included securities sold
under agreements to repurchase, FHLB advances, subordinated debentures and the
purchase of federal funds.

     Short-term Borrowings

     Short-term borrowings consist of (i) securities sold under agreements to
repurchase, (ii) federal funds purchased and (iii) short-term FHLB advances.
These instruments are discussed more fully in the subsequent sections.

     The following table sets forth for the Company each category of borrowings
due within one year: (i) for the periods presented, the average amount
outstanding, the maximum amount outstanding at any month end and the average
interest rate paid, and (ii) at period end, the amount outstanding and average
interest rate paid. Amounts and rates reflected in the table exclude accrued
interest payable and purchase accounting adjustments.

                                                      At or for the year 
                                                      ended December 31,
                                                  --------------------------
                                                   1997      1996      1995
                                                   ----      ----      ----
                                                    (dollars in millions)
Securities sold under agreements to repurchase:
    Average balance outstanding                   $2,275    $1,931    $1,351
    Maximum amount outstanding at any
         month end during the period               2,870     2,424     1,965
    Balance outstanding at end of period           1,829     1,510       698
    Average interest rate during the period         5.68%     5.70%     6.53%
    Average interest rate at end of period          5.78%     5.88%     6.06%

Federal Funds Purchased
    Average balance outstanding                   $   95    $   65    $   37
    Maximum amount outstanding at any
         month end during the period                 153       135        75
    Balance outstanding at end of period             130        25        55
    Average interest rate during the period         5.59%     5.41%     6.09%
    Average interest rate at end of period          6.50%     7.50%     6.00%

FHLB advances:
    Average balance outstanding                   $5,561    $2,455    $  862
    Maximum amount outstanding at any
         month end during the period               6,606     3,141     1,487
    Balance outstanding at end of period           5,263     2,741     1,487
    Average interest rate during the period         5.76%     5.83%     7.19%
    Average interest rate at end of period          5.88%     5.78%     6.12%

     At December 31, 1997, the Company had an estimated additional secured
borrowing capacity of $4.9 billion with the FHLB and other sources.



                                    Page 26

<PAGE>



     Securities Sold Under Agreements to Repurchase

     The Company enters into reverse repurchase agreements whereby it sells
marketable U.S. government and mortgage-backed securities and CMOs with a
commitment to repurchase the securities at a specified price and on a specified
date. These agreements are recorded as financings, and the obligation to
repurchase assets sold is reflected as a liability on the consolidated balance
sheet. The dollar amount of assets underlying the agreements remains in the
asset accounts. The securities underlying the agreements are delivered to the
dealers who arranged the transactions. The counterparty to the repurchase
agreement may have loaned the securities to other parties in the normal course
of their operations; however, all agreements require that the identical
securities be resold to the Company at the maturity of the agreements. In order
to reduce possible risks associated with these borrowing transactions, the
reverse repurchase agreements are generally entered into with national
investment banking firms and major commercial banks which are primary dealers
in these securities.

     Federal Funds Purchased

     California Federal must meet legal reserve requirements on a daily basis
by (i) maintaining a specified total amount of deposits at the Federal Reserve
Bank and (ii) vault cash. Occasionally, the Bank may borrow funds from another
bank with excess reserves to meet its requirements for the day. These
borrowings are repaid with interest at maturity based on the federal funds
rate. The Bank places U.S. government securities in a custody account for the
seller until the funds are repaid and records a liability on its books.

     FHLB Advances

     The FHLB functions in a credit capacity for savings institutions and
certain other home financing institutions. A savings association may generally
borrow from its district FHLB through advances secured by its home mortgages
and other assets (principally securities which are obligations of, or
guaranteed by, the U.S. government). A savings association is required to hold
a minimum amount of capital stock of the FHLB based upon a percentage of its
outstanding home mortgage loans and similar obligations, a percentage of its
outstanding advances from the FHLB or a certain percentage of total assets.
Such advances may be made pursuant to several different credit programs made
available from time to time by the FHLB to meet seasonal activity and other
withdrawals of deposit accounts and to expand lending, each of which has its
own interest rate and range of maturities. The FHLB prescribes the acceptable
uses, as well as limitations on the size of such advances. Depending on the
program, such limitations are based either on a fixed percentage of the
institution's net worth or on the FHLB's assessment of the institution's
creditworthiness.

     The following table presents the carrying value and weighted average rate
paid on FHLB advances for the periods indicated, excluding accrued interest
payable and the impact of purchase accounting adjustments (dollars in
millions):

                                1997              1996               1995
                          ----------------  ----------------  -----------------
                          Carrying Average  Carrying Average  Carrying  Average
                            Value   Rate      Value   Rate      Value    Rate
                           ------   ----     ------   ----      ------   ----
Fixed-rate borrowings      $5,447   5.88%    $3,565   5.93%     $1,790   6.68%
Variable-rate borrowings    4,074   5.95        854   5.67         250   6.02
                           ------   ----     ------   ----      ------   ----
     Total FHLB advances   $9,521   5.91%    $4,419   5.88%     $2,040   6.60%
                           ======   ====     ======   ====      ======   ====

     The following table sets forth remaining maturities and weighted average
stated interest rates of FHLB advances at December 31, 1997, not including
accrued interest payable or purchase accounting adjustments (dollars in
millions):


                                       Balance        Weighted
                                       Maturing     Average Rate
                                       --------     ------------
1998                                    $5,263          5.88%
1999                                     3,090          5.94
2000                                     1,150          5.93
2001                                        11          6.50
2002                                         5          6.94
2003 and thereafter                          2          7.83
                                        ------          ----
                                        $9,521          5.91%
                                        ======          ====
                                    Page 27
<PAGE>
                                                  
     During 1995, the Company prepaid $250 million in FHLB advances resulting
in a $2 million extraordinary gain on the early extinguishment of debt, net of
tax.

     Interest Rate Swap Agreements

     The Company has used interest rate swap agreements to adjust its interest
rate risk exposure on fixed rate FHLB advances. The Company had interest rate
swap agreements with a notional principal amount of $400 million outstanding at
December 31, 1997. The notional amount does not represent amounts exchanged by
the parties and thus, is not a measure of the Company's exposure. The Company
pays the variable rate and receives the fixed rate based on LIBOR under these
agreements. The differential between these two amounts may change significantly
in the future due to fluctuations in market interest rates.

     In order to reduce possible counterparty nonperformance risk, the Company
has entered into interest rate swap agreements only with national investment
banking firms and the FHLB of San Francisco.

     12-1/4% Senior Notes Due 2001

     In connection with the FN Acquisition, the Company issued $200 million
principal amount of 12-1/4% Senior Notes ("12-1/4% Senior Notes"), including
$5.5 million principal amount of 12-1/4% Senior Notes to certain directors and
officers of the Bank. The notes will mature on May 15, 2001 with interest
payable semiannually on May 15 and November 15. Deferred issuance costs
associated with the 12-1/4% Senior Notes' issuance totalling $9.9 million were
recorded in other assets and are being amortized over the term of the 12-1/4%
Senior Notes.

     The notes are redeemable at the option of the Company, in whole or in
part, during the 12-month period beginning May 15, 1999, at a redemption price
of 106.125% plus accrued interest to the date of redemption, and thereafter at
100% plus accrued interest. The notes are subordinated to all existing and
future liabilities, including deposits and other borrowings of the Bank, the
Bank Preferred Stock (as defined herein) and the REIT Preferred Stock.

     The terms and conditions of the 12-1/4% Senior Notes indenture impose
restrictions that affect, among other things, the ability of FN Holdings to
incur debt, pay dividends, make acquisitions, create liens, sell assets and
make certain investments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity."

     9-1/8% Senior Subordinated Notes Due 2003

     On January 31, 1996, the Company issued $140 million principal amount of
the 9-1/8% Senior Subordinated Notes. The 9-1/8% Senior Subordinated Notes will
mature on January 15, 2003 with interest payable semiannually on January 15 and
July 15. Deferred issuance costs associated with the issuance of the 9-1/8%
Senior Subordinated Notes totalling $7.0 million were recorded in other assets
and are being amortized over the term of the 9-1/8% Senior Subordinated Notes.

     The 9-1/8% Senior Subordinated Notes are redeemable at the option of the
Company, in whole or in part, during the 12-month period beginning January 1,
2001, at a redemption price of 104.5625% of the principal amount thereof, plus
accrued interest and unpaid interest to the date of redemption, and thereafter
at 100% of the principal amount thereof, plus accrued and unpaid interest.

     The 9-1/8% Senior Subordinated Notes are unsecured senior subordinated
obligations of the Company and are subordinated in right of payment to all
existing and future senior indebtedness of the Company and to all future
subordinated debt, if any is issued. The 9-1/8% Senior Subordinated Notes are
subordinated to all existing and future liabilities, including deposits,
indebtedness and trade payables of the Company's subsidiaries, including the
Bank, and to the Bank Preferred Stock and the REIT Preferred Stock.

     The terms and conditions of the 9-1/8% Senior Subordinated Notes indenture
impose restrictions that affect, among other things, the ability of FN Holdings
to incur debt, pay dividends or make distributions, engage in a business other

                                    Page 28

<PAGE>



than holding the common stock of the Bank and similar banking institutions,
make acquisitions, create liens, sell assets and make certain investments.

     10-5/8% Senior Subordinated Notes Due 2003

     In connection with the Cal Fed Acquisition, FN Holdings acquired the net
proceeds from the issuance of FN Escrow's 10-5/8% Notes and assumed FN Escrow's
obligations under the 10-5/8% Notes and indenture. Deferred issuance costs
associated with the 10-5/8% Notes of $19 million, recorded in other assets, are
being amortized over the term of the 10-5/8% Notes.

     The 10-5/8% Notes are redeemable at the option of the Company, in whole or
in part, during the 12-month period beginning January 1, 2001, at a redemption
price of 105.313% plus accrued and unpaid interest to the date of redemption,
during the 12-month period beginning January 1, 2002 at a redemption price of
102.656% plus accrued and unpaid interest to the date of redemption, and
thereafter at 100% plus accrued and unpaid interest to the date of redemption.

     The 10-5/8% Notes are subordinate in right of payment to all existing and
future subordinated debt, if any is issued, of FN Holdings. The 10-5/8% Notes
are subordinated to all existing and future liabilities, including deposits,
indebtedness and trade payables, of the subsidiaries of FN Holdings, including
the Bank Preferred Stock and REIT Preferred Stock.

     The terms and conditions of the 10-5/8% Notes indenture impose
restrictions that affect, among other things, the ability of FN Holdings to
incur debt, pay dividends, make acquisitions, create liens, sell assets and
make certain investments.

     10% Subordinated Debentures Due 2006

     As part of the FN Acquisition, the Company assumed subordinated
debentures, which bear interest at 10% per annum and mature on October 1, 2006
(the "10% Subordinated Debentures Due 2006"). At December 31, 1997, the
aggregate principal amount of the 10% Subordinated Debentures Due 2006
outstanding was $92.1 million.

     Events of Default under the indenture governing the 10% Subordinated
Debentures Due 2006 (the "Old FNB Indenture") include, among other things: (i)
a default in the payment of interest when due and such default continues for 30
days, (ii) a default in the payment of any principal when due, (iii) the
failure to comply with covenants in the Old FNB Indenture, provided that the
trustee or holders of at least 25% in principal amount of the outstanding 10%
Subordinated Debentures Due 2006 notify the Bank of the default and the Bank
does not cure the default within 60 days after receipt of such notice, (iv)
certain events of bankruptcy, insolvency or reorganization of the Bank, (v) the
FSLIC/RF (or a comparable entity) is appointed to act as conservator,
liquidator, receiver or other legal custodian for the Bank and (vi) a default
under other indebtedness of the Bank in excess of $10 million resulting in such
indebtedness becoming due and payable, and such default or acceleration has not
been rescinded or annulled within 60 days after the date on which written
notice of such failure has been given by the trustee to the Bank or by holders
of at least 25% in principal amount of the outstanding 10% Subordinated
Debentures Due 2006 to the Bank and the trustee.

     11.20% Senior Notes Due 2004

     As part of the SFFed Acquisition, the Company assumed $50 million of SFFed
11.20% Senior Notes due September 1, 2004 (the "11.20% Senior Notes"). In
connection with the assumption of the 11.20% Senior Notes, the Bank and all of
the holders of the 11.20% Senior Notes entered into an agreement amending
certain provisions of the note purchase pursuant to which the 11.20% Senior
Notes were sold (as amended, the "Note Purchase Agreement"). On September 12,
1996, the Bank repurchased $44.0 million aggregate principal amount of the
11.20% Senior Notes at a price of approximately 116.45% of the principal
amount, plus the accrued interest thereon. The Bank recorded an extraordinary
loss, net of tax, of $1.6 million in connection with such repurchase. At
December 31, 1997, the aggregate principal amount of the 11.20% Senior Notes
outstanding was $6.0 million.

     Events of Default under the note purchase agreement include, among other
things: (i) failure to make any payment of principal when due; (ii) any failure
to make any payment of interest when due and such payment is not made within 15
days after the date such payment was due; (iii) failure to comply with certain
covenants in the Note Purchase

                                    Page 29

<PAGE>



Agreement, provided that such failure continues for more than 60 days; (iv)
failure to deliver to holders a notice of default, notice of event of default,
or notice of claimed default as provided in the Note Purchase Agreement; (v)
failure to comply with any provision of the Note Purchase Agreement, provided
that such failure continues for more than 60 days after notice is delivered to
the Bank; (vi) a default under other indebtedness provided that the aggregate
amount of all obligations in respect of such indebtedness exceeds $15 million;
(vii) one or more final, non-appealable judgments outstanding against the Bank
or its subsidiaries for the payment of money aggregating in excess of $15
million, any one of which has been outstanding for 45 days and shall not have
been discharged in full or stayed; (viii) any warranty, representation or other
statement contained in the Note Purchase Agreement by the Bank or any of its
subsidiaries being false or misleading in any material respect when made; or
(ix) certain events of bankruptcy, insolvency or reorganization of the Bank or
its subsidiaries.

     As a result of the Cal Fed Acquisition, the Bank is obligated with respect
to the following three debt securities of Old California Federal:

     10.668% Subordinated Notes Due 1998

     The Company assumed 10.668% unsecured senior subordinated notes which
mature on December 22, 1998 (the "10.668% Subordinated Notes"). At December 31,
1997, the aggregate principal amount of the notes outstanding was $50 million.

     Events of Default under the note agreement governing the 10.668%
Subordinated Notes include, among other things: (i) failure to make any payment
of principal when due; (ii) any failure to make any payment of interest when
due and such payment is not made within ten business days after the date such
payment was due; (iii) failure to comply with certain covenants in the note
agreement provided that such failure continues for more than 60 days after
notice is delivered to the Bank; (iv) the default or any event which, with the
giving of notice or the lapse of time or both, would constitute a default under
any indebtedness of the Bank and cause such indebtedness with an aggregate
principal amount exceeding $15 million to accelerate; and (v) certain events of
bankruptcy, insolvency or reorganization of the Bank.

     6-1/2% Convertible Subordinated Debentures Due 2001

     In 1986, Cal Fed Inc., Old California Federal's former parent company,
issued $125 million of 6.5% convertible subordinated debentures due February
20, 2001 (the "6-1/2% Convertible Subordinated Debentures"). As a result of a
corporate restructuring in December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance Corporation ("XCF"), a subsidiary of Old California Federal. The
6-1/2% Convertible Subordinated Debentures are redeemable at the option of the
holders on February 20, 2000, at 123% of their principal amount. At December
31, 1997, $2.6 million of the 6-1/2% Convertible Subordinated Debentures were
outstanding. Due to the purchase of all of the Cal Fed stock by FN Holdings in
the Cal Fed Acquisition on January 3, 1997, the common stock conversion feature
has been eliminated.

     Events of Default under the indenture governing the 6-1/2% Convertible
Subordinated Debentures include, among other things: (i) any failure to make
any payment of interest when due and such payment is not made within 30 days
after the date such payment was due; (ii) failure to make any payment of
principal when due; (iii) default in the performance, or breach, of any
covenant or warranty in the indenture, provided that such default or breach
continues for more than 60 days after notice is delivered to the Bank; or (iv)
certain events of bankruptcy, insolvency or reorganization of the Bank or its
subsidiaries.

     10% Subordinated Debentures Due 2003

     On December 16, 1992, Old California Federal issued $13.6 million of 10.0%
unsecured subordinated debentures due 2003 (the "10% Subordinated Debentures
Due 2003"). During 1996 and 1995, Old California Federal repurchased $0.6
million and $8.7 million, respectively, of the debentures, leaving $4.3 million
outstanding at December 31, 1997.

     Events of Default under the indenture governing the 10% Subordinated
Debentures Due 2003 include, among other things: (i) failure to make any
payment of principal when due; (ii) any failure to make any payment of interest
when due and such payment is not made within 30 days after the date such
payment was due; (iii) failure to comply with

                                    Page 30

<PAGE>



certain covenants in the indenture; (iv) failure to comply with certain
covenants in the indenture provided that such failure continues for more than
60 days after notice is delivered to the Bank; (v) certain events of
bankruptcy, insolvency or reorganization of the Bank; or (vi) the default or
any event which, with the giving of notice or lapse of time or both, would
constitute a default under any indebtedness of the Bank and cause such
indebtedness with an aggregate principal amount exceeding $15 million to
accelerate.

     FN Holdings Preferred Stock

     On September 19, 1996, the Company issued 10,000 shares of the FN Holdings
Preferred Stock. The FN Holdings Preferred Stock has a stated liquidation value
of $15,000 per share, plus accrued and unpaid dividends, if any. Dividends on
the FN Holdings Preferred Stock are cumulative and are payable (i) in cash at
an annual floating rate of the cost of funds to an affiliate of FN Holdings
under such affiliate's bank credit facility (without taking into account any
default interest that may be payable under such bank credit facility) (such
rate, the "Cost of Funds Rate") and (ii) in newly issued shares of another
series of Cumulative Perpetual Preferred Stock of FN Holdings (the "Additional
FN Holdings Preferred Stock") at an annual rate of 2% of the stated liquidation
value of the FN Holdings Preferred Stock, in each case, if, when and as
declared by the Board of Directors of FN Holdings. Dividends on the Additional
FN Holdings Preferred Stock are cumulative and accrue and are payable in shares
of Additional FN Holdings Preferred Stock at an annual rate equal to the Cost
of Funds Rate plus 2% of the stated liquidation value of the Additional FN
Holdings Preferred Stock if, when and as declared by the Board of Directors of
FN Holdings. Additional FN Holdings Preferred Stock has substantially the same
relative rights, terms and preferences as the FN Holdings Preferred Stock
except as set forth above with respect to the payment of dividends. If all of
the outstanding shares of the FN Holdings Preferred Stock are not redeemed by
FN Holdings before January 1, 2000, all dividends on the FN Holdings Preferred
Stock and the Additional FN Holdings Preferred Stock accruing thereafter will
be payable in cash. Dividends on the FN Holdings Preferred Stock are payable
quarterly on January 1, April 1, July 1 and October 1 of each year, commencing
January 1, 1997, out of funds legally available therefor. The FN Holdings
Preferred Stock ranks prior to the common stock of FN Holdings and to all other
classes and series of equity securities subsequently issued.

     Except as required by law, the holders of the FN Holdings Preferred Stock
and the Additional FN Holdings Preferred Stock are not entitled to any voting
rights unless the equivalent of four quarterly dividends are in arrears or
certain bankruptcy-related events occur, in which case the number of directors
of FN Holdings will be increased by two and the holders of the FN Holdings
Preferred Stock and the Additional FN Holdings Preferred Stock, voting together
as a class, separately from any other class, will be entitled to elect two
directors, who shall serve until all dividends in arrears have been paid or
declared and set apart for payment or such bankruptcy-related event has been
cured.

     The FN Holdings Preferred Stock and the Additional FN Holdings Preferred
Stock will be redeemable so long as Special Purpose Corp. is the sole holder
thereof, at any time, and, if Special Purpose Corp. is not the sole holder
thereof, at any time after the fifth anniversary of the issuance of the FN
Holdings Preferred Stock, in each case, upon prior written notice, at the
option of FN Holdings, in whole or in part, at a redemption price equal to the
stated liquidation value of $15,000 per share plus any accrued and unpaid
dividends. Upon any redemption of the FN Holdings Preferred Stock by the
Company, a pro rata portion of the outstanding Additional FN Holdings Preferred
Stock will be contributed to the capital of the Company, without any payment
therefor, and such shares will be retired and canceled. If all of the shares of
the FN Holdings Preferred Stock are redeemed on or before December 31, 1999,
all outstanding shares of the Additional FN Holdings Preferred Stock will be
contributed to the capital of the Company, without any payment therefor, and
such shares will be retired and canceled. If all of the shares of the FN
Holdings Preferred Stock are redeemed on or before December 31, 1999, all
outstanding shares of the Additional FN Holdings Preferred Stock will be
contributed to the capital of the Company, without any payment therefor, and
such shares will be retired and canceled.

     At December 31, 1997, the issued and outstanding FN Holdings Preferred
Stock and Additional FN Holdings Preferred Stock had a combined liquidation
value of $25.7 million.

     11-1/2% Preferred Stock -- Minority Interest

     In connection with the FN Acquisition, California Federal issued 3,007,300
shares of its 11-1/2% Noncumulative Perpetual Preferred Stock ("11-1/2%
Preferred Stock"). The 11-1/2% Preferred Stock has a stated liquidation value
of $100 per share, plus declared and unpaid dividends, if any. Cash dividends
are noncumulative and are payable at an annual rate of 11-1/2% per share if,
when and as declared by the Board of Directors of the Bank.


                                    Page 31

<PAGE>



     The 11-1/2% Preferred Stock ranks prior to the common stock of the Bank
and to all other classes and series of equity securities subsequently issued,
other than any class or series expressly designated as being on a parity with
or senior to the 11-1/2% Preferred Stock as to dividends and liquidating
distributions. The 10-5/8% Preferred Stock (as defined herein) ranks on a
parity with the 11-1/2% Preferred Stock as to dividends and liquidating
distributions.

     The terms of the 11-1/2% Preferred Stock provide that the Bank may not
declare or pay any dividends or other distributions (other than in shares of
common stock of the Bank or other classes of equity securities of the Bank
ranking junior to the 11-1/2% Preferred Stock (collectively, "Junior Stock"))
with respect to any Junior Stock or redeem or otherwise acquire, or set apart
funds for the repurchase, redemption or other acquisition of any Junior Stock
(including the common stock held by FN Holdings), through a sinking fund or
otherwise, unless and until: (i) the Bank has paid full dividends on the 11-1/2%
Preferred Stock for the four most recent dividend periods, or funds have
been paid over to the dividend disbursing agent of the Bank for payment of such
dividends, and (ii) the Bank has declared a cash dividend on the 11-1/2%
Preferred Stock at the annual dividend rate for the current dividend period,
and sufficient funds have been paid over to the dividend disbursing agent of
the Bank for the payment of a cash dividend for such current dividend period.
The Bank is currently in compliance with both of such requirements.

     Holders of the 11-1/2% Preferred Stock have no voting rights, except as
required by law or in certain limited circumstances.

     Except in the event of a change of control, the 11-1/2% Preferred Stock is
not redeemable prior to September 1, 1999. The 11-1/2% Preferred Stock is
redeemable solely at the option of the Bank or its successor or any acquiring
or resulting entity with respect to the Bank (including by any parent or
subsidiary of the Bank, any such successor, or any such acquiring or resulting
entity), as applicable, at any time on and after September 1, 1999, in whole or
in part, at $105.75 per share on or after September 1, 1999 and prior to
September 1, 2000, and at prices decreasing pro rata annually thereafter to the
stated liquidation value of $100 per share on or after September 1, 2004, plus
declared and unpaid dividends, if any, without interest. Upon a change of
control, the 11-1/2% Preferred Stock is redeemable on or prior to September 1,
1999 at the option of the Bank or its successor or any acquiring or resulting
entity with respect to the Bank (including by any parent or subsidiary of the
Bank, any such successor, or any such acquiring or resulting entity), as
applicable, in whole, but not in part, at a price per share equal to: (i) $100,
plus (ii) an amount equal to declared and unpaid dividends, if any, to the date
fixed for redemption, without interest, and without duplication, an additional
amount equal to the amount of dividends that would be payable on the 11-1/2%
Preferred Stock in respect of the period from the first day of the dividend
period in which the date fixed for redemption occurs to the date fixed for
redemption (assuming all such dividends were to be declared), plus (iii) a
specified make whole premium.

     10-5/8% Preferred Stock -- Minority Interest

     In connection with the Cal Fed Acquisition, the Bank assumed Old
California Federal's 10-5/8% Noncumulative Perpetual Preferred Stock with a
liquidation value of $172.5 million (the "10-5/8% Preferred Stock" and together
with the 11-1/2% Preferred Stock, the "Bank Preferred Stock"). The 10-5/8%
Preferred Stock has a stated liquidation value of $100 per share, plus declared
and unpaid dividends, if any, without interest. Cash dividends are
noncumulative and are payable at an annual rate of 10-5/8% per share if, when
and as declared by the Board of Directors of the Bank.

     The 10-5/8% Preferred Stock ranks prior to the common stock of the Bank
and to all other classes and series of equity securities subsequently issued,
other than any class or series expressly designated as being on a parity with
or senior to the 10-5/8% Preferred Stock as to dividends and liquidating
distributions. The 11-1/2% Preferred Stock ranks on a parity with the 10-5/8%
Preferred Stock as to dividends and liquidating distributions.

     The terms of the 10-5/8% Preferred Stock provide that the Bank may not
declare or pay any full dividends with respect to any parity stock, such as the
11-1/2% Preferred Stock, unless and until the Bank has paid full dividends on
the 10-5/8% Preferred Stock for the most recent dividend period.

     The terms of the 10-5/8% Preferred Stock provide that the Bank may not
declare or pay any dividends or other distributions (other than in shares of
common stock of the Bank or other Junior Stock) with respect to any Junior
Stock or repurchase, redeem or otherwise acquire, or set apart funds for the
repurchase, redemption or other acquisition of, any Junior Stock through a
sinking fund or otherwise, unless and until: (i) the Bank has paid full
dividends on the 10-5/8% Preferred Stock for the four most recent dividend
periods, or funds have been paid over to the dividend disbursing agent

                                    Page 32

<PAGE>



of the Bank for payment of such dividends, and (ii) the Bank has declared a
cash dividend on the 10-5/8% Preferred Stock at the annual dividend rate for
the current dividend period, and sufficient funds have been paid over to the
dividend disbursing agent of the Bank for the payment of a cash dividend for
such current period. The Bank is currently in compliance with both of such
requirements.

     Holders of the 10-5/8% Preferred Stock have no voting rights, except as
required by law or in certain limited circumstances.

     Except in the event of a change of control, the 10-5/8% Preferred Stock is
not redeemable prior to April 1, 1999. The 10-5/8% Preferred Stock is
redeemable solely at the option of the Bank or its successor or any acquiring
or resulting entity with respect to the Bank (including by any parent or
subsidiary of the Bank, any such successor or any such acquiring or resulting
entity), as applicable, at any time on or after April 1, 1999, in whole or in
part, at $105.313 per share on or after April 1, 1999 and prior to April 1,
2000, and at prices decreasing pro rata annually thereafter to a stated
liquidation value of $100 per share on or after April 1, 2003, plus declared
and unpaid dividends, if any, without interest. Upon a change in control, the
10-5/8% Preferred Stock is redeemable on or prior to April 1, 1999 at the
option of the Bank or its successor or any acquiring or resulting entity with
respect to the Bank (including by any parent or subsidiary of the Bank, any
such successor, or any such acquiring or resulting entity), as applicable, in
whole, but not in part, at a price per share equal to $114.50, plus an amount
equal to declared and unpaid dividends (whether or not declared) from the date
of consummation of the change of control to the date fixed for redemption,
without interest.

     REIT Preferred Stock -- Minority Interest

     On January 31, 1997, Preferred Capital Corp. issued 20,000,000 shares of
REIT Preferred Stock. The REIT Preferred Stock has a stated liquidation value
of $25 per share, plus declared and unpaid dividends, if any. Cash dividends
are noncumulative and are payable at an annual rate of 9-1/8% per share if,
when and as declared by the Board of Directors of Preferred Capital Corp.

     The REIT Preferred Stock ranks prior to the common stock of Preferred
Capital Corp. and to all other classes and series of equity securities
subsequently issued, other than any class or series expressly designated as
being on a parity with or senior to the REIT Preferred Stock as to dividends
and liquidating distributions.

     The terms of the REIT Preferred Stock provide that Preferred Capital Corp.
may not declare or pay any dividends or other distributions (other than in
shares of common stock of Preferred Capital Corp. or other classes of equity
securities of Preferred Capital Corp. ranking junior to the REIT Preferred
Stock) with respect to any Preferred Capital Corp. junior stock or repurchase,
redeem or otherwise acquire, or set apart funds for the repurchase, redemption
or other acquisition of any Preferred Capital Corp. junior stock (including the
common stock held by the Bank) through a sinking fund or otherwise, unless and
until: (i) Preferred Capital Corp. has paid in full dividends on the REIT
Preferred Stock for the four most recent dividend periods (or such lesser
number of dividend periods during which shares of REIT Preferred Stock have
been outstanding), or funds have been paid over to the dividend disbursing
agent of Preferred Capital Corp. for payment of such dividends, and (ii)
Preferred Capital Corp. has declared a cash dividend on the REIT Preferred
Stock at the annual dividend rate for the current dividend period, and
sufficient funds have been paid over to the dividend disbursing agent of
Preferred Capital Corp. for the payment of a cash dividend for such current
dividend period. The initial dividend payment date was March 31, 1997.
Preferred Capital Corp. is currently in compliance with both such requirements.

     Holders of the REIT Preferred Stock have no voting rights, except as
required by law or in certain limited circumstances.

     Except in the event of a change of control or upon certain tax events, the
REIT Preferred Stock is not redeemable prior to January 31, 2002. The REIT
Preferred Stock is redeemable solely at the option of Preferred Capital Corp.
or its successor or any acquiring or resulting entity with respect to Preferred
Capital Corp. (including by any parent or subsidiary of Preferred Capital
Corp., any such successor or any such acquiring or resulting entity), as
applicable, at any time on and after January 31, 2002 in whole or in part, at
$26.14 per share on or after January 31, 2002 and prior to January 31, 2003,
and at prices decreasing pro rata annually thereafter to the stated liquidation
value of $25 per share on or after January 31, 2007, plus declared and unpaid
dividends, if any, without interest. Upon a change of control, the REIT
Preferred Stock is redeemable on or prior to January 31, 2002 at the option of
Preferred Capital Corp. or its

                                    Page 33

<PAGE>



successor or any acquiring or resulting entity with respect to the Bank
(including by any parent or subsidiary of Preferred Capital Corp., any such
successor or any such acquiring or resulting entity), as applicable, in whole,
but not in part, at a price per share equal to: (i) $25, plus (ii) an amount
equal to declared and unpaid dividends, if any, to the date fixed for
redemption, without interest, and without duplication, an additional amount
equal to the amount of dividends that would be payable on the REIT Preferred
Stock in respect of the period from the first day of the dividend period in
which the date fixed for redemption occurs to the date fixed for redemption
(assuming all such dividends were to be declared), plus (iii) a specified make
whole premium.

     Each share of REIT Preferred Stock will be exchanged automatically for one
newly issued share of preferred stock of the Bank having substantially the same
terms as the REIT Preferred Stock (the "9-1/8% Preferred Stock") if the
appropriate federal regulatory agency directs in writing such exchange because
(i) the Bank becomes "undercapitalized" under prompt corrective action
regulations, (ii) the Bank is placed into conservatorship or receivership or
(iii) the appropriate federal regulatory agency, in its sole discretion,
anticipates the Bank becoming "undercapitalized" in the near term. If issued,
the 9-1/8% Preferred Stock will rank on a parity with the Bank Preferred Stock.

OTHER ACTIVITIES

     Cal Fed Contingent Litigation Recovery Participation Interests. In July
1995, Old California Federal distributed to its common shareholders its
Contingent Litigation Recovery Participation Interests (the "Litigation
Interests"), each entitling the holder thereof to receive an amount (the
aggregate of such payments being referred to as the "Recovery Payment") equal
to five millionths of one percent (0.000005%) of the cash payment (the "Cash
Payment"), if any, actually received by the Bank pursuant to a final,
nonappealable judgment in or final settlement of its claim against the United
States in the lawsuit, California Federal Bank v. United States, Civil Action
No. 92-138C (the "California Federal Litigation"), after deduction of (i) the
aggregate expenses incurred by the Bank in prosecuting the California Federal
Litigation and obtaining such Cash Payment, including, but not limited to, a
portion of the annual salaries in the aggregate amount of $1,000,000, an
incentive fee in the amount of 0.25% of the aggregate value of the pre-tax
recovery from the California Federal Litigation, annual pension benefits
aggregating $1,325,000, and certain medical benefits and expenses, for Messrs.
Trafton and Fink under the Litigation Management Agreement, (ii) any income tax
liability of the Bank, computed on a pro forma basis, as a result of the Bank's
receipt of such Cash Payment (net of any income tax benefit to the Bank from
making the Recovery Payment, and disregarding for purposes of this clause (ii)
the effect of any net operating loss carryforwards or other tax attributes held
by the Bank or any of its subsidiaries or affiliated entities) and (iii) the
expenses incurred by the Bank in connection with the creation, issuance and
trading of the Litigation Interests, including without limitation, legal and
accounting fees and the fees and expenses of the interest agent.

     Pursuant to the Merger Agreement, Cal Fed distributed to common
shareholders entitled to receive the merger consideration one-tenth of a
Secondary Contingent Litigation Recovery Participation Interest (each a
"Secondary Litigation Interest") for each share of Cal Fed common stock held.
Each Secondary Litigation Interest will entitle the holder thereof to receive
an amount equal to twenty millionths of one percent (0.000020%) of the
"Secondary Recovery Payment," if any, as defined below. "Secondary Recovery
Payment" means sixty percent (60%) of the amount obtained from the following
equation: (A) the Cash Payment, if any, actually received by the Bank in
respect of a final, nonappealable judgment in or final settlement of the
California Federal Litigation, minus (B) the sum of the following: (i) the
aggregate expenses incurred by the Bank in prosecuting the California Federal
Litigation and obtaining such Cash Payment, including, but not limited to, a
portion of the annual salaries in the aggregate amount of $1,000,000, an
incentive fee in the amount of 0.25% of the aggregate value of the pre-tax
recovery from the California Federal Litigation, annual pension benefits
aggregating $1,325,000, and certain medical benefits and expenses, for Messrs.
Trafton and Fink under the Litigation Management Agreement, (ii) any income tax
liability of the Bank, computed on a pro forma basis, as a result of the Bank's
receipt of such Cash Payment (net of any income tax benefit to the Bank,
computed on a pro forma basis, from the payment of a portion of the Secondary
Recovery Payment to the holders of Secondary Litigation Interests), (iii) the
expenses incurred by the Bank in connection with the creation, issuance and
trading of the Litigation Interests and the Secondary Litigation Interests,
including without limitation, legal and accounting fees and the fees and
expenses of the interest agent, (iv) the payment due to the holders of the
Litigation Interests and (v) one hundred twenty-five million dollars
($125,000,000). "Income tax liability of the Bank computed on a pro forma
basis" means the aggregate amount of any and all relevant items of income,
gain, loss, or deduction associated with the receipt by the Bank of the Cash
Payment multiplied by the highest, combined marginal rate of federal, state and
local income taxes in the relevant year and disregarding for purposes of such
computation the effect of any net operating loss carryforwards or other tax
attributes of the Bank or any of its subsidiaries or affiliated entities.
"Income tax benefit to the Bank computed on a pro forma basis" means the
aggregate amount of any and all relevant items of income, gain, loss, or
deduction associated with the payment by the Bank of the Secondary Recovery
Payment multiplied by the highest, combined marginal rate of federal, state and
local income taxes in the relevant year and disregarding for purposes of such
computation the effect of any net operating loss carryforwards or other tax
attributes of the Bank or any of its subsidiaries or affiliated entities. Any
distribution with respect to the Litigation Interests will be subject to the
OTS capital distribution regulations.


                                    Page 34

<PAGE>



     In the California Federal Litigation, the Bank alleges, among other
things, that the United States breached certain contractual commitments
regarding the computation of its regulatory capital for which the Bank seeks
damages and restitution. The Bank's claims arose from changes, mandated by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA"),
with respect to the rules for computing Old California Federal's regulatory
capital.

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

     On October 30, 1996, Old California Federal filed a motion for partial
summary judgment as to the Federal government's liability to the Bank for
breach of contract, which has been opposed by the Federal government in briefs
filed on December 30, 1996 and February 27, 1997. In addition, the government
filed a cross-motion for partial summary judgment as to certain liability
issues on December 30, 1996. A hearing on the motions for partial summary
judgment on liability was held on August 7, 1997. On December 22, 1997, a U.S.
Claims Court Judge ruled in favor of this motion to establish the government's
liability. The trial of the damages phase of the Bank's case is expected to
begin in early 1999.

     In connection with the Cal Fed Acquisition, the Bank recorded as an asset
part of the estimated after-tax cash recovery from the California Federal
Litigation that will inure to the Bank, net of amounts payable to holders of
the Litigation Interests and the Secondary Litigation Interests in any such
recovery (the "Goodwill Litigation Asset"). The Goodwill Litigation Asset was
recorded at its estimated fair value of $100 million, net of estimated tax
liabilities, as of January 3, 1997, and is included in the audited consolidated
balance sheet as of December 31, 1997.

     The Put Agreement

     In connection with the FN Acquisition, Granite and the Bank entered into
the Put Agreement. Pursuant to the Put Agreement, the Bank had the right, on a
quarterly basis (the "Put Option"), to require Granite to purchase certain
commercial real estate loans, commercial real estate loans serviced by others
and 1-4 unit residential loans with an original principal balance greater than
$250,000, and to take certain actions to protect the Bank from losses with
respect to certain Letters of Credit ("LOC") transactions, in each case, only
if such asset was purchased by the Bank from Old FNB pursuant to the Asset
Purchase Agreement. The Put Option expired on November 30, 1996. The balance
available under the Put Agreement ($500 million) was fully utilized by the Bank
prior to the expiration of the Put Option.

     The Assistance Agreement

     The Texas Closed Banks were purchased effective December 28, 1988 pursuant
to five acquisition agreements and the Assistance Agreement among the FSLIC/RF,
the Bank, and certain affiliates of the Bank. The Assistance Agreement
generally provided for guaranteed yield amounts to be paid on the book value of
the Covered Assets, and paid for 90% of the losses incurred upon disposition of
the Covered Assets. The remaining 10% not reimbursed, net of 10% of all asset
recoveries and certain agreed-upon Covered Asset disposition fees ("Shared
Gain"), was remitted quarterly to the FSLIC/RF.

     In 1995, the FDIC, acting as manager for the FSLIC/RF, exercised its right
under the Assistance Agreement to purchase substantially all of the remaining
Covered Assets at the fair market value of such assets (the "FDIC Purchase").
Under the terms of the Assistance Agreement, losses sustained by the Bank from
the FDIC Purchase were reimbursed by the FSLIC/RF. There was no material impact
on the consolidated financial statements of the Bank as a result of the FDIC
Purchase.

     On August 19, 1996, the Bank and the FSLIC/RF executed an agreement which
resulted in the termination of the Assistance Agreement. As a result of the
agreement, the FSLIC/RF paid the Bank the remaining Covered Asset balance of
$39 million and, among other things, assumed the responsibility for the
disposition of several litigation matters

                                    Page 35

<PAGE>



involving Covered Assets which had been retained by the Bank following the FDIC
Purchase. The Bank recorded a gain of $25.6 million as a result of this
settlement.

     FNMA Letters of Credit

     On September 28, 1994, California Federal entered into an agreement with
FNMA pursuant to which FNMA provided credit enhancements for certain
bond-financed real estate projects originated by Old FNB. The agreement
requires that the Bank pledge to FNMA collateral in the form of certain
eligible securities which are held by a third party trustee. The collateral
requirement varies based on the balance of the bonds outstanding, losses
incurred (if any), as well as other factors. At December 31, 1997, California
Federal had pledged as collateral certain securities available for sale and
short-term investment securities with a carrying value of $78.2 million.

     FGB Realty Advisors, Inc.

     FGB Realty Advisors, Inc. ("FGB Realty"), a wholly owned subsidiary of the
Bank, previously provided asset management, disposition and advisory services
to institutional owners of real estate. Fee revenues from unaffiliated parties
were $1.7 million, $10.1 million, and $14.0 million for the years ended
December 31, 1997, 1996, and 1995, respectively. These revenues are included in
management fees in the Company's respective consolidated statements of income.
During 1997, substantially all the asset management and disposition contracts
held by FGB Realty have expired, and operations of this subsidiary have
substantially ceased.

     FN Investment Center

     FN Investment Center ("FNIC"), a wholly owned subsidiary of the Bank which
was acquired as part of the FN Acquisition, offers securities and insurance
products to both existing and prospective customers of the Bank. FNIC is
subject to the guidelines established by the OTS for broker-dealer subsidiaries
of savings associations, and is a member of the National Association of
Securities Dealers. In addition, FNIC is registered as a broker-dealer with the
Securities and Exchange Commission and the Securities Investor Protection
Corporation. FNIC receives commission revenue for acting as a broker-dealer on
behalf of its customers, but FNIC does not maintain customer accounts or take
possession of customer securities. Commission revenues of $27.5 million, $10.0
million and $8.5 million for the years ended December 31, 1997, 1996 and 1995,
respectively, are included in fees and service charges in the Company's
consolidated statements of income for such years.

DIVIDEND POLICY OF THE BANK

     The dividend policy of the Bank complies with applicable legal and
regulatory restrictions. Before declaring any dividend, the directors of the
Bank consider the following factors: (i) the quality and stability of the
Bank's net income, (ii) the availability of liquid assets to make dividend
payments, (iii) the level of earnings retention as it impacts the Bank's
capital needs and projected growth and funding levels, both internal and
external, and (iv) the adequacy of capital after the payment of a dividend.
Under the Bank's dividend policy, a dividend will not be declared or paid which
would: (i) cause the capital level of the Bank to be reduced below "adequately
capitalized" levels, or (ii), together with any other dividends declared during
the same calendar year, exceed 100% of the net income to date for that calendar
year plus 50% of the Bank's surplus capital at the beginning of that calendar
year, so long as the Bank is a Tier 1 association (as defined herein).

EMPLOYEES

     FN Holdings has no employees.

     At December 31, 1997, California Federal and its subsidiaries had 5,235
employees, compared to 3,547 employees at December 31, 1996. None of the Bank's
employees is represented by any collective bargaining group and management
considers its relations with its employees to be good. The Bank maintains a
comprehensive employee benefits program providing, among other benefits, health
and welfare benefits, long and short-term disability insurance, and life
insurance. Additionally, the Bank offers employees a defined contribution
investment plan which is a qualified plan under Section 401(a) of the Internal
Revenue Code.


                                    Page 36

<PAGE>



COMPETITION

     The Company experiences significant competition in both attracting and
retaining deposits and in originating real estate and consumer loans.

     The Company, through the Bank, competes with other savings associations,
commercial banks, insurance companies, credit unions, savings and loan
associations, money market mutual funds and brokerage firms in attracting and
retaining deposits. Competition for deposits from large commercial banks is
particularly strong. Many of the nation's savings associations and commercial
banks have a significant number of branch offices in the areas in which the
Bank operates.

     In addition, there is strong competition in originating and purchasing
real estate and consumer loans, principally from other savings and loan
associations, commercial banks, mortgage banking companies, insurance
companies, consumer finance companies, pension funds and commercial finance
companies. The primary factors in competing for loans are the quality and
extent of service to borrowers and brokers, economic factors such as interest
rates, interest rate caps, rate adjustment provisions, loan maturities, LTV
ratios, loan fees, and the amount of time it takes to process a loan from
receipt of the loan application to date of funding. The Company's future
performance will depend on its ability to originate a sufficient volume of
mortgage loans in its local market areas and through its wholesale network and,
if it is unable to originate a sufficient volume of mortgage loans, to purchase
a sufficient quantity of high-quality mortgage-backed securities with adequate
yields.

REGULATION

     General

     FN Holdings is a savings and loan holding company within the meaning of
the HOLA and, as such, is registered with the OTS and is subject to
comprehensive OTS regulation. The Bank is a federally chartered and insured
stock savings bank subject to extensive regulation and supervision by the OTS,
as the primary federal regulator of savings associations, and the FDIC, as the
administrator of the SAIF.

     The federal banking laws contain numerous provisions affecting various
aspects of the business and operations of savings associations and savings and
loan holding companies. The following description of statutory and regulatory
provisions and proposals, which is not intended to be a complete description of
these provisions or their effects on FN Holdings or the Bank, is qualified in
its entirety by reference to the particular statutory or regulatory provisions
or proposals. The primary purpose of the statutory and regulatory scheme is to
protect deposits, the financial institutions and the financial system as a
whole.

REGULATION OF FN HOLDINGS

     Holding Company Acquisitions

     FN Holdings is a registered savings and loan holding company. The HOLA and
OTS regulations thereunder generally prohibit a savings and loan holding
company, without prior OTS approval, from acquiring, directly or indirectly,
the ownership or control of any other savings association or savings and loan
holding company, or all, or substantially all, of the assets or more than 5% of
the voting shares thereof. These provisions also prohibit, among other things,
any director or officer of a savings and loan holding company, or any
individual who owns or controls more than 25% of the voting shares of such
holding company, from acquiring control of any savings association not a
subsidiary of such savings and loan holding company, unless the acquisition is
approved by the OTS.

     Holding Company Activities

     FN Holdings currently operates as a unitary savings and loan holding
company. Generally, there are limited restrictions on the activities of a
unitary savings and loan holding company and its non-savings association
subsidiaries. If FN Holdings ceases to be a unitary savings and loan holding
company, by, for example, acquiring another savings association in a
non-supervisory transaction, the activities of FN Holdings and its non-savings
association subsidiaries would thereafter be subject to substantial
restrictions. In addition, proposed legislation that would eliminate the
savings

                                    Page 37

<PAGE>



association charter could also remove protections from activity restrictions
currently accorded a unitary savings and loan holding company in the absence of
appropriate "grandfather" provisions. See "--Regulation of the Bank --Savings
Association Charter."

     Dividends

     The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least a 30 day advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock. Dividends declared in violation of such notice
requirement are invalid. See "--Regulation of the Bank--Capital Distribution
Regulation."

     Affiliate Restrictions

     Transactions between a savings association and its "affiliates" are
subject to quantitative and qualitative restrictions under Sections 23A and 23B
of the Federal Reserve Act. Affiliates of a savings association include, among
other entities, the savings association's holding company and non-banking
companies that are under common control with the savings association. In
general, the restrictions of Sections 23A and 23B do not apply to transactions
between a savings association and its parent, subsidiary or sister
organizations that themselves are banks or savings associations.

     In general, Sections 23A and 23B and OTS regulations issued in connection
therewith limit the extent to which a savings association or its subsidiaries
may engage in certain "covered transactions" with affiliates to an amount equal
to 10% of the association's capital and surplus, in the case of covered
transactions with any one affiliate, and to an amount equal to 20% of such
capital and surplus, in the case of covered transactions with all affiliates.
In addition, a savings association and its subsidiaries may engage in covered
transactions and certain other transactions only on terms and under
circumstances that are substantially the same, or at least as favorable to the
savings association or its subsidiary, as those prevailing at the time for
comparable transactions with nonaffiliated companies. A "covered transaction"
is defined to include a loan or extension of credit to an affiliate; a purchase
of investment securities issued by an affiliate; with certain exceptions, a
purchase of assets from an affiliate; the acceptance of securities issued by an
affiliate as collateral for a loan or extension of credit to any party; or the
issuance of a guarantee, acceptance or letter of credit on behalf of an
affiliate.

     In addition, a savings association may not make a loan or extension of
credit to an affiliate unless the affiliate is engaged only in activities
permissible for bank holding companies; a savings association may not purchase
or invest in securities of an affiliate other than shares of a subsidiary; a
savings association and its subsidiaries may not purchase a low-quality asset
from an affiliate; and covered transactions and certain other transactions
between a savings association or its subsidiaries and an affiliate must be on
terms and conditions that are consistent with safe and sound banking practices.
With certain exceptions, each loan or extension of credit by a savings
association to an affiliate must be secured by collateral with a market value
ranging from 100% to 130% (depending on the type of collateral) of the amount
of the loan or extension of credit.

REGULATION OF THE BANK

     Regulatory System

     As a federal savings bank, lending activities and other investments of the
Bank must comply with various statutory and regulatory requirements. California
Federal is regularly examined by the OTS and must file periodic reports
concerning its activities and financial condition.

     Although the OTS is the Bank's primary regulator, the FDIC has "backup
enforcement authority" over the Bank. The Bank's eligible deposit accounts are
insured by the FDIC under the SAIF, up to applicable limits.

     Federal Home Loan Banks

     California Federal is a member of the FHLBS. Among other benefits, FHLB
membership provides the Bank with a central credit facility, from which it may
borrow generally on a secured basis in amounts determined by reference to
available collateral. The Bank is required to own capital stock in the FHLB in
an amount equal to the greater of: (i) 1%

                                    Page 38

<PAGE>



of its aggregate outstanding principal amount of its residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
calendar year, (ii) 0.3% of total assets, or (iii) 5% of its FHLB advances
(borrowings).

     Liquid Assets

     Under OTS regulations, for each calendar quarter, a savings bank is
required to maintain an average daily balance of liquid assets (including cash,
certain time deposits and savings accounts, bankers' acceptances, certain
government obligations and certain other investments) not less than a specified
percentage of the average daily balance of its net withdrawable accounts plus
short-term borrowings (its liquidity base) during the preceding calendar month.
This liquidity requirement, which currently equals 4% (having been lowered from
5% on November 24, 1997), may be changed from time to time by the OTS to any
amount between 4% and 10%, depending upon certain factors. The Bank has
maintained liquid assets in compliance with the regulations in effect
throughout 1997, 1996 and 1995.

     Regulatory Capital Requirements

     OTS capital regulations require savings banks to satisfy minimum capital
standards: risk-based capital requirements, a leverage requirement and a
tangible capital requirement. Savings banks must meet each of these standards
in order to be deemed in compliance with OTS capital requirements. In addition,
the OTS may require a savings association to maintain capital above the minimum
capital levels.

     All savings associations are required to meet a minimum risk-based capital
requirement of total capital (core capital plus supplementary capital) equal to
8% of risk-weighted assets (which includes the credit risk equivalents of
certain off-balance sheet items). In calculating total capital for purposes of
the risk-based requirement, supplementary capital may not exceed 100% of core
capital. Under the leverage requirement, a savings association is required to
maintain core capital equal to a minimum of 3% of adjusted total assets. The
OTS and the other banking agencies recently proposed to amend the minimum
capital requirements to establish a minimum leverage requirement of 4% for all
but the strongest savings associations, which is consistent with the
requirements for an "adequately capitalized" institution, under the prompt
corrective action provisions of the OTS regulations. See "--Prompt Corrective
Action." A savings association is also required to maintain tangible capital in
an amount at least equal to 1.5% of its adjusted total assets.

     Under OTS regulations, a savings association with a greater than "normal"
level of interest rate exposure must deduct an interest rate risk ("IRR")
component in calculating its total capital for purposes of determining whether
it meets its risk-based capital requirement. Interest rate exposure is
measured, generally, as the decline in an institution's net portfolio value
that would result from a 200 basis point increase or decrease in market
interest rates (whichever would result in lower net portfolio value), divided
by the estimated economic value of the savings association's assets. The
interest rate risk component to be deducted from total capital is equal to
one-half of the difference between an institution's measured exposure and
"normal" IRR exposure (which is defined as 2%), multiplied by the estimated
economic value of the institution's assets. In August 1995, the OTS
indefinitely delayed implementation of its IRR regulation; however, based on
internal measures of interest rate risk at December 31, 1997, the Bank would
not have been required to deduct an IRR component in calculating total
risk-based capital had the IRR component of the capital regulations been in
effect.

     These capital requirements are viewed as minimum standards by the OTS, and
most institutions are expected to maintain capital levels well above the
minimum. In addition, the OTS regulations provide that minimum capital levels
higher than those provided in the regulations may be established by the OTS for
individual savings associations upon a determination that the savings
association's capital is or may become inadequate in view of its circumstances.
The OTS regulations provide that higher individual minimum regulatory capital
requirements may be appropriate in circumstances where, among others: (1) a
savings association has a high degree of exposure to interest rate risk,
prepayment risk, credit risk, concentration of credit risk, certain risks
arising from nontraditional activities, or similar risks or a high proportion
of off-balance sheet risk; (2) a savings association is growing, either
internally or through acquisitions, at such a rate that supervisory problems
are presented that are not dealt with adequately by OTS regulations; and (3) a
savings association may be adversely affected by activities or conditions of
its holding company, affiliates, subsidiaries or other persons or savings
associations with which it has significant business relationships. The Bank is
not subject to any such individual minimum regulatory capital requirement.


                                    Page 39

<PAGE>



     California Federal's total capital to risk-based assets ratio was 11.93%,
its core capital to risk-based assets ratio was 10.14%, its leverage capital
ratio was 5.65% and its tangible capital ratio was 5.65% at December 31, 1997.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Resources."

     Certain Consequences of Failure to Comply with Regulatory Capital
Requirements

     A savings association's failure to maintain capital at or above the
minimum capital requirements may be deemed an unsafe and unsound practice and
may subject the savings association to enforcement actions and other
proceedings. Any savings association not in compliance with all of its capital
requirements is required to submit a capital plan that addresses the
association's need for additional capital and meets certain additional
requirements. While the capital plan is being reviewed by the OTS, the savings
association must certify, among other things, that it will not, without the
approval of its appropriate OTS Regional Director, grow beyond net interest
credited or make capital distributions. If a savings association's capital plan
is not approved, the association will become subject to additional growth and
other restrictions. In addition, the OTS, through a capital directive or
otherwise, may restrict the ability of a savings association not in compliance
with the capital requirements to pay dividends and compensation, and may
require such association to take one or more of certain corrective actions,
including, without limitation: (i) increasing its capital to specified levels,
(ii) reducing the rate of interest that may be paid on savings accounts, (iii)
limiting receipt of deposits to those made to existing accounts, (iv) ceasing
issuance of new accounts of any or all classes or categories except in exchange
for existing accounts, (v) ceasing or limiting the purchase of loans or the
making of other specified investments, and (vi) limiting operational
expenditures to specified levels.

     The HOLA permits savings associations not in compliance with the OTS
capital standards to seek an exemption from certain penalties or sanctions for
noncompliance. Such an exemption will be granted only if certain strict
requirements are met, and must be denied under certain circumstances. If an
exemption is granted by the OTS, the savings association still may be subject
to enforcement actions for other violations of law or unsafe or unsound
practices or conditions.

     Prompt Corrective Action

     The prompt corrective action regulation of the OTS, promulgated under
FDICIA, requires certain mandatory actions and authorizes certain other
discretionary actions to be taken by the OTS against a savings association that
falls within certain undercapitalized capital categories specified in the
regulation.

     The regulation establishes five categories of capital classification:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." Under the
regulation, the ratio of total capital to risk-weighted assets, core capital to
risk-weighted assets and the leverage capital ratio are used to determine an
association's capital classification. The Bank met the capital requirements of
a "well capitalized" institution under the FDICIA prompt corrective action
standards as of December 31, 1997. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Capital Resources."

     In general, the prompt corrective action regulation prohibits an insured
depository institution from declaring any dividends, making any other capital
distribution, or paying a management fee to a controlling person if, following
the distribution or payment, the institution would be within any of the three
undercapitalized categories. In addition, adequately capitalized institutions
may accept Brokered Deposits only with a waiver from the FDIC and are subject
to restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew or roll-over Brokered
Deposits.

     Savings associations that are classified as undercapitalized are subject
to certain mandatory supervisory actions, including: (i) increased monitoring
by the appropriate federal banking agency for the association and periodic
review of the association's efforts to restore its capital, (ii) a requirement
that the association submit a capital restoration plan acceptable to the
appropriate federal banking agency and implement that plan, and that each
company having control of the association guarantee compliance with the capital
restoration plan in an amount not exceeding the lesser of 5% of the
association's total assets at the time it received notice of being
undercapitalized, or the amount necessary to bring the association into
compliance with applicable capital standards at the time it fails to comply
with the plan, and (iii) a limitation on the association's ability to make any
acquisition, open any new branch offices, or engage in any new line of business
without the prior approval of the appropriate federal banking agency for the
institution or the FDIC.

                                    Page 40

<PAGE>



     The regulation also provides that the OTS may take any of certain
additional supervisory actions against an undercapitalized association if the
agency determines that such actions are necessary to resolve the problems of
the association at the least possible long-term cost to the deposit insurance
fund. These supervisory actions include: (i) requiring the association to raise
additional capital or be acquired by another association or holding company if
certain grounds exist, (ii) restricting transactions between the association
and its affiliates, (iii) restricting interest rates paid by the association on
deposits, (iv) restricting the association's asset growth or requiring the
association to reduce its assets, (v) requiring replacement of senior executive
officers and directors, (vi) requiring the association to alter or terminate
any activity deemed to pose excessive risk to the association, (vii)
prohibiting capital distributions by bank holding companies without prior
approval by the Board of Governors of the Federal Reserve Board (the "FRB"),
(viii) requiring the association to divest certain subsidiaries, or requiring
the association's holding company to divest the association or certain
affiliates of the association, and (ix) taking any other supervisory action
that the agency believes would better carry out the purposes of the prompt
corrective action provisions of FDICIA.

     Savings associations classified as undercapitalized that fail to submit a
timely, acceptable capital restoration plan or fail to implement such a plan
are subject to the same supervisory actions as significantly undercapitalized
associations. Significantly undercapitalized associations are subject to the
mandatory provisions applicable to undercapitalized associations. The
regulation also makes mandatory for significantly undercapitalized associations
certain of the supervisory actions that are discretionary for associations
classified as undercapitalized, creates a presumption in favor of certain
discretionary supervisory actions, and subjects significantly undercapitalized
associations to additional restrictions, including a prohibition on paying
bonuses or raises to senior executive officers without the prior written
approval of the appropriate federal bank regulatory agency. In addition,
significantly undercapitalized associations may be subjected to certain of the
restrictions applicable to critically undercapitalized associations.

     The regulation requires that an association be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with the concurrence of the FDIC, determines that other action
would better achieve the purposes of the prompt corrective action provisions of
FDICIA. Any such determination must be renewed every 90 days. A savings
association also must be placed into receivership if the association continues
to be critically undercapitalized, on average, during the fourth quarter after
the association initially became critically undercapitalized, unless the
association's federal bank regulatory agency, with the concurrence of the FDIC,
makes certain positive determinations with respect to the association.

     Critically undercapitalized associations are also subject to the
restrictions generally applicable to significantly undercapitalized
associations and to a number of other severe restrictions. For example,
beginning 60 days after becoming critically undercapitalized, such associations
may not pay principal or interest on subordinated debt without the prior
approval of the FDIC. (However, the regulation does not prevent unpaid interest
from accruing on subordinated debt under the terms of the debt instrument, to
the extent otherwise permitted by law.) In addition, critically
undercapitalized associations may be prohibited from engaging in a number of
activities, including entering into certain transactions or paying interest
above a certain rate on new or renewed liabilities.

     If the OTS determines that an association is in an unsafe or unsound
condition, or if the association is deemed to be engaging in an unsafe or
unsound practice, the OTS may, if the association is well-capitalized,
reclassify it as adequately capitalized; if the association is adequately
capitalized, require it to comply with restrictions applicable to
undercapitalized associations; and, if the association is undercapitalized,
require it to comply with certain restrictions applicable to significantly
undercapitalized associations.

     Conservatorship/Receivership

     In addition to the grounds discussed under "--Prompt Corrective Action,"
the OTS (and, under certain circumstances, the FDIC) may appoint a conservator
or receiver for a savings association if any one or more of a number of
circumstances exist, including, without limitation, the following: (i) the
association's assets are less than its obligations to creditors and others,
(ii) a substantial dissipation of assets or earnings due to any violation of
law or any unsafe or unsound practice, (iii) an unsafe or unsound condition to
transact business, (iv) a willful violation of a final cease-and-desist order,
(v) the concealment of the association's books, papers, records or assets or
refusal to submit such items for inspection to any examiner or lawful agent of
the OTS or FDIC, (vi) the association is likely to be unable to pay its
obligations or meet its depositors' demands in the normal course of business,
(vii) the association has incurred, or is likely to incur, losses that will
deplete all or substantially all of its capital, and there is no reasonable
prospect for

                                    Page 41

<PAGE>



the association to become adequately capitalized without federal assistance,
(viii) any violation of law or unsafe or unsound practice that is likely to
cause insolvency or substantial dissipation of assets or earnings, weaken the
association's condition, or otherwise seriously prejudice the interests of the
association's depositors or the federal deposit insurance fund, (ix) the
association consents to the appointment of the conservator or receiver, (x) the
association ceases to be an insured association, (xi) the association is
undercapitalized and the association has no reasonable prospect of becoming
adequately capitalized, fails to become adequately capitalized when required to
do so, fails to submit a timely and acceptable capital restoration plan, or
materially fails to implement an accepted capital restoration plan, (xii) the
association is critically undercapitalized or otherwise has substantially
insufficient capital, or (xiii) the association is found guilty of certain
criminal offenses related to money laundering.

     Liability of Commonly Controlled Depository Institutions

     In general, savings associations and other depository institutions can be
held liable for any loss which the FDIC incurs or reasonably anticipates
incurring in connection with either the default of a commonly controlled
depository institution or any assistance provided by the FDIC to a commonly
controlled institution in danger of default. A depository institution is
required to pay the amount of such liability upon receipt of written notice
from the FDIC unless such written notice is received more than two years from
the date the FDIC incurred the loss. Liability for the losses of commonly
controlled institutions can lead to the failure of all depository institutions
in a holding company structure if the remaining institutions are unable to pay
the liability assessed by the FDIC.

     In general, for purposes of this provision, depository institutions are
deemed to be "commonly controlled" if they are controlled by the same holding
company or if one depository institution is controlled by another; "default" of
a depository institution occurs when there is an official determination
pursuant to which a conservator, receiver or other legal custodian is appointed
for the institution; and a depository institution is deemed to be "in danger of
default" when its federal or state supervisory agency determines that the
institution is not likely to be able to meet the demands of its depositors or
pay its obligations in the normal course of business and there is no reasonable
prospect that it will be able to do so, or determines that the institution has
incurred or is likely to incur losses that will deplete substantially all of
its capital and there is no reasonable prospect that the institution's capital
can be replenished without federal assistance. The Bank is not currently under
common control with any other depository institution.

     Enforcement Powers

     The OTS and, under certain circumstances, the FDIC, have substantial
enforcement authority with respect to savings associations, including authority
to bring various enforcement actions against a savings association and any of
its "institution-affiliated parties" (a term defined to include, among other
persons, directors, officers, employees, controlling stockholders, agents and
shareholders who participate in the conduct of the affairs of the institution).
This enforcement authority includes, without limitation: (i) the ability to
terminate a savings association's deposit insurance, (ii) institute
cease-and-desist proceedings, (iii) bring suspension, removal, prohibition and
criminal proceedings against institutionaffiliated parties, and (iv) assess
substantial civil money penalties. As part of a cease-and-desist order, the
agencies may require a savings association or an institution-affiliated party
to take affirmative action to correct conditions resulting from that party's
actions, including to make restitution or provide reimbursement,
indemnification or guarantee against loss; restrict the growth of the
institution; and rescind agreements and contracts.

     Capital Distribution Regulation

     In addition to the prompt corrective action restriction on paying
dividends described above, OTS regulations limit certain "capital
distributions" by savings associations. Capital distributions are defined to
include, in part, dividends and payments for stock repurchases and cash-out
mergers.

     Under the regulation, an association that meets its fully phased-in
capital requirements both before and after a proposed distribution and has not
been notified by the OTS that it is in need of more than normal supervision (a
"Tier 1 association") may, after prior notice to but without the approval of
the OTS, make capital distributions during a calendar year up to the higher of:
(i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its surplus capital ratio at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. A Tier 1 association may make capital distributions in excess of the
above amount if it gives notice to the OTS and the OTS does not object to the
distribution. A savings association that meets its regulatory

                                    Page 42

<PAGE>



capital requirements both before and after a proposed distribution but does not
meet its fully phased-in capital requirement (a "Tier 2 association") is
authorized, after prior notice to the OTS but without OTS approval, to make
capital distributions in an amount up to 75% of its net income over the most
recent four-quarter period, taking into account all prior distributions during
the same period. Any distribution in excess of this amount must be approved in
advance by the OTS. A savings association that does not meet its current
regulatory capital requirements (a "Tier 3 association") cannot make any
capital distribution without prior approval from the OTS, unless the capital
distribution is consistent with the terms of a capital plan approved by the
OTS.

     At December 31, 1997, the Bank qualified as a Tier 1 association for
purposes of the capital distribution rule. The OTS may prohibit a proposed
capital distribution that would otherwise be permitted if the OTS determines
that the distribution would constitute an unsafe or unsound practice. The
requirements of the capital distribution regulation supersede less stringent
capital distribution restrictions in earlier agreements or conditions.

     The OTS has proposed to amend its capital distribution regulation to
conform its requirements to the OTS prompt corrective action regulation. Under
the proposed regulation, an association that would remain at least adequately
capitalized after making a capital distribution, and that was owned by a
holding company, would be required to provide notice to the OTS prior to making
a capital distribution. "Troubled" associations and undercapitalized
associations would be allowed to make capital distributions only by filing an
application and receiving OTS approval, and such applications would be approved
under certain limited circumstances.

     Qualified Thrift Lender Test

     In general, savings associations are required to maintain at least 65% of
their portfolio assets in certain qualified thrift investments (which consist
primarily of loans and other investments related to residential real estate and
certain other assets). A savings association that fails the qualified thrift
lender test is subject to substantial restrictions on activities and to other
significant penalties.

     Legislation permits a savings association to qualify as a qualified thrift
lender ("QTL") not only by maintaining 65% of portfolio assets in qualified
thrift investments (the "QTL test") but also, in the alternative, by meeting
the asset composition test under the Internal Revenue Code for a "domestic
building and loan association." The Bank currently is a domestic building and
loan association as defined in the Internal Revenue Code and, consequently is a
QTL for purposes of HOLA.

     Legislation enacted in 1996 also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and educational loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10 percent of total assets, plus an
additional 10 percent for small business loans. Loans for personal, family, and
household purposes (other than credit card, small business, and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. At December 31, 1997 under the
expanded QTL test, approximately 94.01% of the Bank's portfolio assets were
qualified thrift investments.

     FDIC Assessments

     The deposits of the Bank are insured by the SAIF of the FDIC, up to
applicable limits, and are subject to deposit premium assessments by the SAIF.
Under the FDIC's risk-based insurance system, SAIF-assessed deposits are
currently subject to insurance premiums of between 0 and 27 basis points,
depending upon the institution's capital position and other supervisory
factors. The rate applicable to the Bank at December 31, 1997 was 0 basis
points.

     Since January 1997, institutions with Bank Insurance Fund ("BIF") deposits
have been required to share the cost of funding debt obligations issued by the
Financing Corporation ("FICO"), a corporation established by the federal
government in 1987 to finance the recapitalization of FSLIC. However, until the
earlier of December 31, 1999 or the date of elimination of the thrift charter
(see "--Savings Association Charter"), the FICO assessment rate for BIF
deposits is only one-fifth of the rate applicable to SAIF deposits.
Consequently, the annual FICO assessments to be added to deposit insurance
premiums, which may be periodically adjusted, are expected to equal
approximately 6.4 basis points for SAIF deposits and 1.3 basis points for BIF
deposits from January 1, 1997 through December 31, 1999, and an equal

                                    Page 43

<PAGE>



amount for both BIF and SAIF deposits thereafter. Since January 1, 1997, FICO
payments have been paid directly by SAIF and BIF institutions in addition to
deposit insurance assessments.

     Savings Association Charter

     Congress has been considering legislation in various forms that would
require federal thrifts, such as the Bank, to convert their charters to
national bank charters. In the absence of appropriate "grandfather" provisions,
legislation eliminating the savings association charter could have a material
adverse effect on the Bank and its parent holding companies because, among
other things, these holding companies engage in activities that are not
permissible for bank holding companies and the regulatory capital and
accounting treatment for banks and savings associations differs in certain
significant respects. The Bank cannot determine whether, or in what form, such
legislation may eventually be enacted and there can be no assurance that any
legislation that is enacted would contain adequate grandfather rights for the
Bank and its parent holding companies.

     Non-Investment Grade Debt Securities

     Savings associations and their subsidiaries are prohibited from investing
in any corporate debt security that, at the time of acquisition, is not rated
in one of the four highest rating categories by at least one nationally
recognized statistical rating organization. The Bank does not own any
non-investment grade debt securities.

     Community Reinvestment Act and the Fair Lending Laws

     Savings associations have a responsibility under the Community
Reinvestment Act ("CRA") and related regulations of the OTS to help meet the
credit needs of their communities, including low- and moderate-income
neighborhoods. In addition, the Equal Credit Opportunity Act and the Fair
Housing Act (together, the "Fair Lending Laws") prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An association's failure to comply with the
provisions of CRA could, as a minimum, result in regulatory restrictions on its
activities, and failure to comply with the Fair Lending Laws could result in
enforcement actions by the OTS, as well as other federal regulatory agencies
and the Department of Justice.

     Change of Control

     Subject to certain limited exceptions, no company can acquire control of a
savings association without the prior approval of the OTS, and no individual
may acquire control of a savings association if the OTS objects. Any company
that acquires control of a savings association becomes a savings and loan
holding company subject to extensive registration, examination and regulation
by the OTS. Conclusive control exists, among other ways, when an acquiring
party acquires more than 25% of any class of voting stock of a savings
association or savings and loan holding company, or controls in any manner the
election of a majority of the directors of the company. In addition, a
rebuttable presumption of control exists if, among other things, a person
acquires more than 10% of any class of voting stock of the savings association
or savings and loan holding company (or 25% of any class of stock, whether or
not voting) and, in either case, any of certain additional control factors
specified in OTS regulations exist.

     Under 1996 legislation, companies subject to the Bank Holding Company Act
that acquire or own savings associations are no longer defined as savings and
loan holding companies under the HOLA and, therefore, are not generally subject
to supervision and regulation by the OTS. OTS approval is no longer required
for a bank holding company to acquire control of an existing savings
association, although the OTS has a consultative role with the FRB in
examination, enforcement and acquisition matters.

TAXATION

     For federal income tax purposes, FN Holdings is included in the Mafco
Group and accordingly, its federal taxable income and loss will be included in
the consolidated federal income tax return filed by Mafco Holdings. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Provision for Federal and State Income Taxes."



                                    Page 44

<PAGE>



ITEM 2. PROPERTIES

     The Company neither owns nor leases any properties directly. The executive
offices of the Bank are located at 135 Main Street, San Francisco, California,
94105, and its telephone number is (415) 904-0100. The Bank leases
approximately 92,000 square feet in the building in which its executive offices
are located, under a ten-year lease expiring in 2001. In addition, the Bank
leases approximately 216,000 square feet in a multiple-building administrative
facility in West Sacramento, California under a ten-year lease expiring in
2001. The Bank leases additional administrative office space in Dallas which
includes approximately 46,000 square feet of space under a lease expiring in
1999.

     As part of the Cal Fed Acquisition, the Bank assumed the lease on
executive offices and an office building of approximately 513,000 square feet.
The Bank vacated all but approximately 44,000 square feet of this facility
during the first half of 1997. The office lease was to expire in 2007, however,
the Bank terminated its remaining liability on all space other than
approximately 44,000 square feet by payment of approximately $28 million. The
lease on the remaining 44,000 square feet terminates in 2003. In addition, Old
California Federal had certain operating and administrative departments in a
leased facility containing approximately 225,000 square feet located in
Rosemead, California. The Bank vacated the Rosemead facility during the first
half of 1997. The Rosemead lease expires in 2008.

     At December 31, 1997, California Federal operated a total of 225 retail
branches and maintained 22 vacant branch facilities which were consolidated as
a result of the Branch Purchases (as defined herein), the 1996 Acquisitions,
the Cal Fed Acquisition and various consolidations of operations to West
Sacramento. Of the 225 total operating retail branches, 62 were owned and 163
were leased. Some of these retail branches are multi-purpose facilities,
housing loan production and administrative facilities in addition to retail
space. Of the 22 vacant facilities (one owned and 21 leased, all in
California), 14 locations have been subleased.

     At December 31, 1997, there were 16 separate loan production offices, all
of which were leased, and which include three offices housing operations
acquired in the LMUSA Purchases and 13 offices housing wholesale lending
operations. There are no vacant loan production facilities at December 31,
1997.

     In addition, the Bank operated 11 separate administrative facilities (two
owned and nine leased) and maintained 13 vacant administrative facilities (five
owned and eight leased). Of the 13 vacant administrative facilities, eight were
subleased. The administrative facilities include a 230,000 square foot owned
building in Frederick, Maryland, which houses FNMC's operations and
approximately 39,000 square feet of leased space in Dallas, which houses Auto
One. A state-by-state breakdown of all retail branches, administrative
facilities and loan production offices operated by the Bank at December 31,
1997 is shown in the following table:

                                      Administrative        Loan Production
                   Branches             Facilities             Facilities
             --------------------- ---------------------  ---------------------
             Owned  Leased  Vacant Owned  Leased  Vacant  Owned  Leased  Vacant
             -----  ------  ------ -----  ------  ------  -----  ------  ------
                           
Arizona        --      --     --     --       1      --     --       2     --
California     55     139     22      1       4      10     --       4     --
Florida         6      18     --     --       1       1     --       1     --
Georgia        --      --     --     --      --      --     --       1     --
Illinois       --      --     --     --      --       1     --       1     --
Maryland       --      --     --      1      --      --     --       1     --
Minnesota      --      --     --     --      --      --     --       1     --
Montana        --      --     --     --       1      --     --      --     --
Nevada          1       6     --     --      --      --     --       1     --
Pennsylvania   --      --     --     --      --      --     --       1     --
Texas          --      --     --     --       2       1     --       1     --
Washington     --      --     --     --      --      --     --       2     --
              ---    ----    ---    ---     ---     ---    ---     ---    ---
   Total       62     163     22      2       9      13     --      16     --
              ===    ====    ===    ===     ===     ===    ===     ===    ===
                                                                              
     In April 1995, FNMC closed substantially all of its retail mortgage loan
production offices. Costs associated with such closure approximated $2 million
and are included in noninterest expense in the Company's 1995 consolidated

                                    Page 45

<PAGE>



statement of income. On a continuing basis, the Bank evaluates the adequacy of
its office premises. As a result, surplus office facilities may be sold or
subleased to maintain cost-effective operations and minimize vacant facilities.

ITEM 3. LEGAL PROCEEDINGS

     The Company is involved in legal proceedings on claims incidental to the
normal conduct of its business. See also "Business--Other Activities--Cal Fed
Contingent Litigation Recovery Participation Interests." Although it is
impossible to predict the outcome of any outstanding legal proceedings,
management believes that such legal proceedings and claims, individually or in
the aggregate, will not have a material effect on FN Holdings or the Bank.


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

     None.



                                    Page 46

<PAGE>



                                    PART II

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

     Ronald O. Perelman, a Director of the Bank and Chairman of the Board,
Chief Executive Officer and a Director of FN Holdings, 35 East 62nd Street, New
York, New York 10021, through MacAndrews Holdings, beneficially owns 100% of
the class A common stock of FN Holdings, representing 80% of its voting common
stock (representing approximately 85% of the voting power of its common stock).
Hunter's Glen, a limited partnership controlled by Gerald J. Ford, Chairman of
the Board, Chief Executive Officer and a Director of the Bank, 200 Crescent
Court, Suite 1350, Dallas, Texas 75201, owns 100% of the class B common stock
of FN Holdings, representing 20% of its voting common stock (representing
approximately 15% of the voting power of its common stock).

     FN Holdings is an 80% owned indirect subsidiary of MacAndrews & Forbes. As
a result, MacAndrews & Forbes is able to direct and control the policies of the
Company, California Federal and its subsidiaries, including mergers, sales of
assets and similar transactions.

     MacAndrews & Forbes is a diversified holding company with interests in
several industries. Through its 83% ownership of Revlon, Inc. ("Revlon"),
MacAndrews & Forbes is engaged in the cosmetics and skin care, fragrance and
personal care products business. MacAndrews & Forbes also owns 82% of The
Coleman Company, Inc. ("Coleman"), which is engaged in the manufacture and
marketing of recreational outdoor products, portable generators, spas and hot
tubs, and 65% of Meridian Sports Incorporated ("Meridian Sports"), a
manufacturer and marketer of specialized boats and water sports equipment. On
February 27, 1998, MacAndrews & Forbes entered into an agreement with Sunbeam
Corporation pursuant to which MacAndrews & Forbes' ownership interest in
Coleman will be sold to Sunbeam Corporation. The sale is expected to be
consummated in late March or early April 1998. Through its 64% ownership of
Consolidated Cigar Holdings Inc. ("Cigar Holdings"), MacAndrews & Forbes is
engaged in the manufacture and distribution of cigars and pipe tobacco. Through
its 36% ownership of M&F Worldwide Corp. ("MFW") (assuming conversion of
certain preferred stock), MacAndrews & Forbes is in the business of processing
licorice and other flavors. On December 18, 1997, MacAndrews & Forbes entered
into an agreement pursuant to which MacAndrews & Forbes will acquire a
controlling interest in Panavision Inc., a manufacturer and supplier of film
camera systems to the motion picture and television industries. MacAndrews &
Forbes is also in the financial services business through the Bank. The
principal executive offices of MacAndrews & Forbes are located at 35 East 62nd
Street, New York, New York 10021.

     Dividends

     During 1997, 1996 and 1995, dividends on FN Holdings' common stock
totalled $71.1 million, $74.2 million and $29.2 million, respectively. See
further discussion of dividend restrictions in Note 25 of FN Holdings' 1997
audited consolidated financial statements.

     Unregistered Sales of Equity Securities

     On September 27, 1996, the Company sold $150 million aggregate liquidation
value of the FN Holdings Preferred Stock to Special Purpose Corp. for net
proceeds of $145 million. The transaction was exempt from the registration
requirements of the Securities Act in reliance on Section 4 (2) of the
Securities Act of 1933, as amended, on the basis that such transaction did not
involve a public offering.

                                    Page 47

<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

     The data presented below represents selected financial data relative to
the Company for, and as of the end of, each of the years in the five-year
period ended December 31, 1997.

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                               ------------------------------------------------------------------
                                                    1997 (1)   1996 (2)       1995         1994 (3)      1993 (4)
                                                    ----       ----           -----        ----          ----
                                                                 (dollars in thousands)
<S>                                            <C>          <C>           <C>           <C>             <C>    
SELECTED OPERATING DATA                        
Interest income                                $2,102,700   $1,233,799    $1,075,845    $ 293,139       $95,264
Interest expense                                1,440,804      807,800       734,815      199,845        74,728
Net interest income                               661,896      425,999       341,030       93,294        20,536
Provision for loan losses                          79,800       39,600        37,000        6,226         1,402
Noninterest income                                364,484      653,378       150,973       41,158       190,876
Noninterest expense                               648,719      490,569       332,553       96,298        63,392
Income before taxes, extraordinary item          
    and minority interest                         297,861      549,208       122,450       31,928       146,618
Income tax expense (benefit) (5)                   47,148      (73,131)      (57,185)       2,558         2,500
Income before extraordinary item                 
    and minority interest                         250,713      622,339       179,635       29,370       144,118
Extraordinary item: (loss)/gain on early         
    extinguishment of debt, net                        --       (1,586)        1,967        1,376            --
Income before minority interest                   250,713      620,753       181,602       30,746       144,118
Minority interest (6)                              89,344       43,230        34,584           --            --
Net income                                        161,369      577,523       147,018       30,746       144,118
                                                 
SELECTED PERFORMANCE RATIOS                      
Return on average assets (7)                         0.52%        3.37%         1.00%        0.69%         7.84%
Return on average common equity (8)                 19.11        72.71         39.33        16.05         69.41
Average equity to average assets                     2.83         4.85          2.54         3.90         11.31
Yield on interest-earning assets (9)                 7.53         7.76          7.71         6.85          5.42
Cost of interest-bearing liabilities (10)            5.16         5.15          5.35         4.83          4.70
Net interest margin (11)                             2.37         2.68          2.44         2.18          1.14
                                                                                                       
RATIO OF EARNINGS TO COMBINED                                                                          
  FIXED CHARGES, MINORITY INTEREST                                                                     
  AND PREFERRED STOCK DIVIDENDS (12)                                                                   
Excluding interest on deposits                       1.24x        2.13x         1.27x        1.32x         9.59x
Including interest on deposits                       1.13         1.58          1.11         1.16          3.02
</TABLE>


                                    Page 48

<PAGE>

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                             ------------------------------------------------------------------
                                                  1997 (1)   1996 (2)       1995         1994 (3)      1993 (4)
                                                  ----       ----           -----        ----          ----
                                                                   (dollars in thousands)
<S>                                          <C>            <C>             <C>          <C>           <C>    
SELECTED FINANCIAL DATA                        
Securities available for sale (13)            $   813,085   $   542,019  $   348,561  $    45,000   $       --
Securities held to maturity (13)                   58,299         4,272        1,455      411,859       15,118
Mortgage-backed securities available          
    for sale                                    5,076,598     1,598,652    1,477,514           --           --
Mortgage-backed securities held               
    to maturity (13)                            1,337,877     1,621,662    1,524,488    3,153,812      341,224
Loans receivable, net                          19,424,410    10,212,583    8,829,974    9,966,886       29,244
Covered Assets, net                                    --            --       39,349      311,603      592,593
Total assets                                   31,347,079    16,618,168   14,666,781   14,683,559    1,125,222
                                              
Deposits                                       16,202,605     8,501,883   10,241,628    9,196,656      431,788
Securities sold under agreements              
    to repurchase                               1,842,442     1,583,387      969,510    1,883,490      119,144
Borrowings                                     10,769,594     4,902,696    2,392,862    2,808,979      440,792
Total liabilities                              29,517,116    15,389,575   13,903,635   14,029,957    1,012,328
Minority interest                                 986,456       309,376      300,730      300,730           --
Stockholders' equity                              843,507       919,217      462,416      352,872      112,894
                                              
REGULATORY CAPITAL RATIOS OF THE BANK         
Tangible capital                                     5.65%         7.17%        5.84%        5.50%        9.50%
Core capital                                         5.65          7.17         5.84         5.50         9.50
Risk-based capital:                               
    Core capital                                    10.14         11.50         9.14         8.86        67.71
    Total capital                                   11.93         13.62        11.34        11.01        68.97
                                                 
SELECTED OTHER DATA                           
Number of full service customer facilities            225           116          160          156            4
Loans serviced for others (14)                $47,933,469   $44,034,194  $27,900,528  $ 7,475,119   $  327,449
Number of employees                                 5,235         3,547        3,619        3,573          317
Non-performing assets as a                    
    % of the Bank's total assets                     0.87%        1.36%         1.50%       1.49%         0.98%
</TABLE>

------------------
                                          
(1)  On January 3, 1997, the Company acquired assets with fair values totalling
     approximately $14.2 billion and liabilities (including deposit
     liabilities) with fair value totalling approximately $12.9 billion in the
     Cal Fed Acquisition. In addition, on May 31, 1997, the Company consummated
     the Weyerhaeuser Purchase, acquiring a $3.2 billion loan servicing
     portfolio. Noninterest income for the year ended December 31, 1997
     includes pre-tax gains of $14.0 million on the sale of MSRs, $25 million
     on the sale of ACS stock, and $3.6 million on the sale of deposits.
     Noninterest expense for the year ended December 31, 1997, includes a $29.0
     million provision for professional fees and unreimbursable costs related
     to the foreclosure of 1-4 unit residential loans serviced for others.

(2)  On January 31, 1996, FNMC consummated the LMUSA 1996 Purchase, acquiring a
     $14.1 billion loan servicing portfolio. On February 1, 1996, the Company
     acquired SFFed, with assets at fair values totalling approximately $4
     billion and liabilities (including deposit liabilities) with fair values
     totalling approximately $3.8 billion. During the year ended December 31,
     1996, the Company closed the Branch Sales, with associated deposit
     accounts totalling $4.6 billion. Noninterest income for the year ended
     December 31, 1996 includes pre-tax gains of $363.3 million related to the
     Branch Sales. Noninterest expense for the year ended December 31, 1996
     includes a pre-tax charge of $60.1 million for the Special SAIF Assessment
     (as defined herein).

(3)  On October 3, 1994, effective immediately following the close of business
     on September 30, 1994, the Company acquired assets with fair values
     totalling approximately $14.1 billion and liabilities (including deposit
     liabilities) with fair values totalling approximately $13.4 billion from
     Old FNB.


                                    Page 49

<PAGE>



(4)  During the first quarter of 1993, the Company sold certain assets,
     liabilities, and substantially all of its branch operations located in
     Texas, including $829 million of loans and 130 branches with $6.9 billion
     in deposits, in the BAC Sale. A net gain of $141 million was recorded in
     connection with this sale.

(5)  Income tax expense of $2.5 million was recorded in the first quarter of
     1993 representing AMT (as defined herein) expense related to the gain
     recognized on the BAC Sale (see Footnote 4). Income tax expense recorded
     in 1994 after the FN Acquisition represents federal AMT reduced, to the
     extent of 90%, by net operating loss carryovers, and state tax at an
     assumed rate of 8%. Income tax benefit for 1996 and 1995 includes the
     recognition of a deferred tax benefit of $125 million and $69 million,
     respectively, offset by federal AMT tax reduced, to the extent of 90%, by
     net operating loss carryovers and state tax generally at an assumed rate
     of 8%. Income tax expense for 1997 represents federal AMT reduced, to the
     extent of 90%, by net operating loss carryovers, and state tax at an
     assumed rate of 11%.

(6)  Represents dividends on the REIT Preferred Stock, net of related tax
     benefit and the Bank Preferred Stock. The REIT Preferred Stock was issued
     on January 31, 1997.

(7)  Return on average assets represents net income as a percentage of average
     assets for the periods presented.

(8)  Return on average common equity represents net income available to common
     stockholders as a percentage of average common equity for the periods
     presented.

(9)  Yield on interest-earning assets represents interest income as a
     percentage of average interest-earning assets.

(10) Cost of interest-bearing liabilities represents interest expense as a
     percentage of average interest-bearing liabilities.

(11) Net interest margin represents net interest income as a percentage of
     average interest-earning assets.

(12) Earnings used in computing the ratio of earnings to combined fixed
     charges, minority interest and preferred stock dividends consist of income
     before income taxes, extraordinary item and minority interest. Fixed
     charges consist of interest expense on borrowings, the interest component
     of lease expense and, where indicated, interest expense on deposits.

(13) Fluctuation in securities and mortgage-backed securities held to maturity
     and securities and mortgage-backed securities available for sale from
     December 31, 1994 to December 31, 1995 resulted from the reclassification
     of substantially all securities and mortgage-backed securities (except for
     mortgage-backed securities resulting from the securitization with recourse
     of certain of the Bank's loans) from held to maturity to securities
     available for sale on December 29, 1995.

(14) Includes loans serviced by the Bank and its subsidiaries, excluding loans
     serviced for the Bank by FNMC.



                                    Page 50

<PAGE>



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

     FN Holdings is a holding company whose only significant asset is all of
the common stock of California Federal. As such, FN Holdings' principal
business operations are conducted by California Federal and its subsidiaries.

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of FN Holdings and the notes thereto included
elsewhere in this Form 10-K. The following discussion includes historical
information relating to FN Holdings, including the effect of the Cal Fed
Acquisition for the period since consummation on January 3, 1997.

GENERAL

     FN Holdings is a diversified financial services company whose principal
business, through California Federal, consists of (i) operating retail deposit
branches to serve consumers in California and, to a lesser extent, in Florida
and Nevada, (ii) originating and/or purchasing, on a nationwide basis, 1-4 unit
residential loans and, to a lesser extent, certain commercial real estate and
consumer loans, for investment and (iii) mortgage banking activities, including
originating and servicing 1-4 unit residential loans for others. Revenues are
derived primarily from interest earned on loans, interest received on
government and agency securities and mortgage-backed securities, gains on sales
of loans and other investments, and fees received in connection with loan
servicing, securities brokerage and other customer service transactions.
Expenses primarily consist of interest on customer deposit accounts, interest
on short-term and long-term borrowings, provisions for losses, general and
administrative expenses consisting of compensation and benefits, occupancy and
equipment, advertising and marketing, loan expenses, professional fees, data
processing and other general and administrative expenses.

     The following is a description of the significant acquisitions and
dispositions which have occurred since the FN Acquisition. Each of the
acquisitions was recorded using the purchase method of accounting. Under this
method of accounting, the purchase price of the acquisition is allocated to the
assets and liabilities acquired based on their fair market values as of the
date of the acquisition.

     The Cal Fed Acquisition

     On January 3, 1997, FN Holdings acquired Cal Fed and Old California
Federal for approximately $1.2 billion in cash and the issuance of the
Secondary Litigation Interests. At December 31, 1996, Old California Federal
had approximately $14.1 billion in assets, $8.9 billion in deposits and
operated 119 branches in California and Nevada. Upon consummation of the Cal
Fed Acquisition, the Bank merged with Old California Federal, with Old
California Federal surviving.

     As a result of the Cal Fed Acquisition, the Company gained a substantial
presence in Southern California. In order to realize economies of scale and
cost reduction opportunities presented by the Cal Fed Acquisition, the Company
began to consolidate or eliminate duplicative back office operations and
administrative and management functions. The Company presently estimates that,
as a result of these measures, it saved approximately $68 million in
noninterest expense during the first twelve months of operations following the
Cal Fed Acquisition as compared to operating Old California Federal on a
stand-alone basis.

     As a result of the Cal Fed Acquisition, the Company became obligated with
respect to the following outstanding debt securities of Old California Federal:
(i) $50 million of the 10.668% Subordinated Notes, (ii) $2.6 million of the
6-1/2% Convertible Subordinated Debentures and (iii) $4.3 million of the 10%
Subordinated Debentures Due 2003. See "Business--Sources of Funds."



                                    Page 51

<PAGE>



     Impact of Other Acquisitions and Dispositions

     On February 28, 1995, FNMC consummated the Maryland Acquisition and
acquired a 1-4 unit residential loan servicing portfolio of approximately $11.4
billion, including a subservicing portfolio of $1.8 billion, and certain assets
and liabilities for approximately $178 million. The Company's consolidated
statement of income for the year ended December 31, 1995 includes the results
of operations of the acquired mortgage servicing operation for the period from
March 1, 1995 through December 31, 1995.

     In April, August and December 1995, the Company acquired seven retail
branches with approximately $513 million in deposits located in California (the
"Branch Purchases"). The weighted average deposit premium paid in connection
with the Branch Purchases was 3.78%. The results of operations of the acquired
retail deposit operations are included in the Company's consolidated statement
of income for the year ended December 31, 1995 from the date each of the
transactions was consummated.

     On October 2, 1995, FNMC consummated the LMUSA 1995 Purchase, acquiring a
loan servicing portfolio of approximately $11.1 billion (including a
subservicing portfolio of $3.1 billion), a master servicing portfolio of $2.9
billion and other assets, principally existing loans and loan production
operations for approximately $100 million and the assumption of certain
indebtedness secured by the acquired loan portfolio totalling approximately
$274 million. The Company's consolidated statement of income for the year ended
December 31, 1995 includes the results of operations of the acquired mortgage
servicing operations for the period from October 3, 1995 through December 31,
1995.

     On January 31, 1996, FNMC consummated the LMUSA 1996 Purchase, acquiring a
loan servicing portfolio of approximately $14.1 billion (including a
subservicing portfolio of $2.4 billion), a master servicing portfolio of $2.7
billion, LMUSA's real estate acquired through loan foreclosures in connection
with its servicing operations and LMUSA's trade names for approximately $160.0
million, subject to certain adjustments, and the assumption of certain of
LMUSA's obligations secured by its mortgage servicing operations. The Company's
consolidated statement of income for the year ended December 31, 1996 includes
the results of operations of the acquired mortgage servicing operations for the
period from February 1, 1996 through December 31, 1996.

     On February 1, 1996, the Company consummated the SFFed Acquisition
involving assets totalling $4.0 billion and retail deposits totalling $2.7
billion. The Company's consolidated statement of income for the year ended
December 31, 1996 includes the results of operations of the acquired operations
of SFFed for the period from February 1, 1996 through December 31, 1996.

     On June 1, 1996, the Company consummated the Home Federal Acquisition,
involving approximately $717 million in assets and $632 million in deposits.
The Company's consolidated statement of income for the year ended December 31,
1996 includes the results of operations of the acquired operations of HFFC for
the period from June 1, 1996 through December 31, 1996.

     During the first half of 1996, the Company closed the Branch Sales with
associated deposit accounts totalling $4.6 billion, resulting in pre-tax gains
totalling $363.3 million, which represented an average premium of 7.96% of the
approximately $4.6 billion of deposits sold. The Company's consolidated
statement of income for the year ended December 31, 1996 includes the results
of operations of those branches sold in the Branch Sales for the period prior
to sale.

     On May 31, 1997, FNMC consummated the Weyerhaeuser Purchase, acquiring a
residential mortgage loan servicing portfolio of approximately $3.2 billion for
$37.1 million. The Company's consolidated statement of income for the year
ended December 31, 1997 includes the results of operations of the acquired 1-4
unit residential loan servicing operations for the period from June 1, 1997
through December 31, 1997.

     On September 30, 1997, the Company sold MSRs for approximately 52,000
loans with an unpaid principal balance of approximately $2.3 billion in the
Servicing Sale. A pre-tax gain of $14.0 million was recorded in connection with
this transaction.


                                    Page 52

<PAGE>



     On December 12, 1997, the Company closed the Texas Branch Sale, which
included the sale of retail deposits totalling $57.6 million at a gross price
representing a deposit premium of 4.1%. The Texas Branch Sale resulted in a net
pre-tax gain on sale of $2.5 million.

     On February 4, 1998, the Company consummated the GSAC Acquisition. The
aggregate consideration paid in connection with the GSAC Acquisition was
approximately $22.5 million and a 20% interest in the common stock of Auto One.

     On February 4, 1998, Parent Holdings and Hunter's Glen entered into the
Golden State Merger Agreement with Golden State, pursuant to which Parent
Holdings, Hunter's Glen and Golden State agreed to the Golden State Merger.
Following the Golden State Merger, the combined parent company, Golden State,
will have 135 to 145 million common shares outstanding and will continue to be
a publicly traded company. As part of the Golden State Merger Agreement,
Glendale Federal will be merged with and into the Bank. At December 31, 1997,
Glendale Federal had total assets of approximately $16.0 billion and deposits
of $9.5 billion and operated 181 branches and 26 loan offices in California.
The Golden State Merger is subject to regulatory and stockholder approval and
is expected to close during the third quarter of 1998.

     Accounting Changes

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

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

     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains
and losses) in a full set of general purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It does not require a specific format for that financial statement
but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement. This statement
is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. This statement has no impact on the financial
condition or results of operations of the Company, but does impact the
Company's disclosure requirements. The Company has adopted this statement
effective October 1, 1997.

     In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information" ("SFAS No. 131"). SFAS No. 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS No. 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It amends SFAS No. 94,
"Consolidation of All Majority-Owned

                                    Page 53

<PAGE>



Subsidiaries," to remove the special disclosure requirements for previously
unconsolidated subsidiaries. This statement is effective for fiscal years
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. This statement
need not be applied to interim financial statements in the initial year of
application, but comparative information for interim periods in the initial
year of application is to be reported in financial statements for interim
periods in the second year of application. This statement has no impact on the
financial condition or results of operations of the Company, but will require
changes in the Company's disclosure requirements.



                                    Page 54

<PAGE>



RESULTS OF OPERATIONS

     The year-to-year comparisons set forth below, including the changes in
magnitude of the various items between periods, have been affected by the
acquisitions and dispositions described above and consummated during the
periods involved.

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


<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                                           ----------------------------------------------------------------------------
                                                     1997                      1996                      1995
                                           ------------------------- -------------------------  -----------------------
                                           Average           Average Average           Average  Average         Average
                                           Balance  Interest  Rate   Balance  Interest  Rate    Balance Interest Rate
                                           -------  -------- ------- -------  -------- -------  ------- -------- ------
                                                                     (dollars in millions)
<S>                                       <C>       <C>       <C>   <C>      <C>        <C>     <C>       <C>    <C>  
  ASSETS
     Interest-earning assets (1):
         Securities and interest-bearing
           deposits in banks (2)           $ 1,015   $   62    6.11  $   566  $   35     6.15    $   435   $ 28   6.42%
         Mortgage-backed securities                 
           available for sale (3)            4,485      298    6.64    1,697     116     6.83         --     --     --
         Mortgage-backed securities                 
           held to maturity (3)              1,482      113    7.65    1,766     135     7.65      2,985    213   7.14
         Loans held for sale                 1,068       77    7.15      855      62     7.20        290     24   8.35
         Loans receivable, net              19,859    1,553    7.82   10,994     885     8.05     10,072    800   7.94
         Covered Assets, net                    --       --      --       26       1     5.41        165     11   6.67
                                           -------   ------    ----  -------  ------     ----    -------   -----  ----   
         Total interest-earning assets      27,909    2,103    7.53%  15,904   1,234     7.76%    13,947  1,076   7.71%
                                                     ------    ----           ------     ----             -----   ----
     Noninterest-earning assets              2,847                     1,210                         751
                                           -------                   -------                     -------
                                                    
           Total assets                    $30,756                   $17,114                     $14,698
                                           =======                   =======                     =======
                                                    
  LIABILITIES, MINORITY INTEREST AND                
     STOCKHOLDERS' EQUITY                           
     Interest-bearing liabilities:                  
         Deposits                          $16,728   $  747    4.47% $ 9,360  $  419     4.48    $ 9,959  $ 447   4.49%
         Securities sold under                      
           agreements to                            
           repurchase                        2,512      141    5.52    2,109     120     5.70      1,577    105   6.66
         Borrowings (4)                      8,702      553    6.36    4,220     269     6.38      2,210    183   8.26
                                           -------   ------    ----  -------  ------     ----    --------  ----   ----
         Total interest-bearing                     
           liabilities                      27,942    1,441    5.16%  15,689     808     5.15%    13,746    735   5.35%
                                                     ------    ----           ------     ----              ----   ----
     Noninterest-bearing liabilities         1,011                       286                         277
     Minority interest                         932                       309                         301
     Stockholders' equity                      871                       830                         374
                                           -------                   -------                     -------               
         Total liabilities, minority                 
              interest and                          
              stockholders' equity         $30,756                   $17,114                     $14,698
                                           =======                   =======                     =======
     Net interest income                             $  662                   $  426                       $341
                                                     ======                   ======                       ====
     Interest rate spread                                      2.37%                     2.61%                    2.36%
                                                               ====                      ====                     ====
     Net interest margin                                       2.37%                     2.68%                    2.44%
                                                               ====                      ====                     ====
     Average equity to average assets                          2.83%                     4.85%                    2.54%
                                                               ====                      ====                     ====
</TABLE>                                            
------------------                                 

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

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

(3)  Substantially all securities held to maturity (except for mortgage-backed
     securities resulting from the securitization with recourse of certain of
     the Bank's loans) were reclassified to securities available for sale on
     December 29, 1995. The average balance of such securities for

                                    Page 55

<PAGE>




     three days in 1995 is not material and is therefore not presented. Average
     balances presented for 1996 and 1997 represent the original amortized cost
     of the securities without the effect of unrealized gains and losses
     recorded as a result of the available for sale classification.

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

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

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                 -----------------------------------------------------
                                                         1997 vs. 1996            1996 vs. 1995
                                                 -------------------------- --------------------------
                                                 Increase (Decrease) Due to Increase (Decrease) Due to
                                                 -------------------------- --------------------------
                                                   Volume    Rate      Net    Volume    Rate      Net
                                                   ------    ----      ---    ------    ----      ---
                                                                               (in millions)
<S>                                                 <C>      <C>      <C>      <C>      <C>      <C>  

INTEREST INCOME:
Securities and interest-bearing deposits in banks   $  28    $  (1)   $  27    $   8    $  (1)   $   7

Mortgage-backed securities available for sale         185       (3)     182      116     --        116

Mortgage-backed securities held to maturity           (22)    --        (22)     (94)      16      (78)

Loans held for sale                                    15     --         15       41       (3)      38

Loans receivable, net                                 692      (24)     668       74       11       85

Covered assets, net                                    (1)    --         (1)      (8)      (2)     (10)
                                                    -----    -----    -----    -----    -----    -----

       Total                                          897      (28)     869      137       21      158
                                                    -----    -----    -----    -----    -----    -----


INTEREST EXPENSE:
Deposits                                              329       (1)     328      (27)      (1)     (28)
Securities sold under agreements to repurchase         24       (3)      21       26      (11)      15
Borrowings                                            285       (1)     284      115      (29)      86
                                                    -----    -----    -----    -----    -----    -----
       Total                                          638       (5)     633      114      (41)      73
                                                    -----    -----    -----    -----    -----    -----

Change in net interest income                       $ 259    $ (23)   $ 236    $  23    $  62    $  85
                                                    =====    =====    =====    =====    =====    =====
</TABLE>

     The volume variances in total interest income and total interest expense
for the year ended December 31, 1997 compared to the corresponding period in
1996 were largely due to the additional $17.0 billion in interest-earning
assets acquired and $16.9 billion in interest-bearing liabilities assumed in
the Cal Fed Acquisition and the 1996 Acquisitions, as well as the assumption of
the 10-5/8% Notes. The negative total rate variance of $23 million was
primarily attributable to assets from the Cal Fed Acquisition generally having
a lower yield than the rest of the portfolio, the assumption of the 10-5/8%
Notes, the issuance of the 9-1/8% Senior Subordinated Notes and the impact of
the additional wholesale borrowings used to finance the Branch Sales.

     The volume variances in total interest income and total interest expense
between the year ended December 31, 1995 to the corresponding period in 1996
were largely due to the additional $4.2 billion in interest-earning assets
acquired and $4.4 billion in interest-bearing liabilities assumed in the 1996
Acquisitions. The overall volume change in net interest income was positive
primarily due to the 1996 Acquisitions and Branch Sales. The positive total
rate variance of $62 million was primarily attributable to increasing rates on
adjustable-rate assets and the decrease in overall market rates on
interest-bearing liabilities between the two periods, offset slightly by the
impact of the additional wholesale borrowings used to finance the Branch Sales.
During the year ended December 31, 1996, deposits totalling $4.6 billion with a
weighted average rate of 4.59% were sold and replaced with $4.1 billion of FHLB
advance borrowings and securities sold under agreements to repurchase with a
weighted average rate of 5.45%.


                                    Page 56

<PAGE>



     Year Ended December 31, 1997 versus Year Ended December 31, 1996

     Net Income. FN Holdings reported net income for the year ended December
31, 1997 of $161.4 million compared with net income of $577.5 million in 1996.
Net income for the year ended December 31, 1997 included pre-tax gains of $25.0
million from the sale of the remaining ACS stock, $14.0 million on the sale of
mortgage servicing rights and $3.6 million on the sales of branches, partially
offset by a $29.0 million provision for professional fees and additional
unreimbursable costs related to the foreclosure of 1-4 unit residential
mortgage loans serviced for others. Net income for the year ended December 31,
1996 included $363.3 million in pre-tax gains on sales of branches, $40.4
million in pre-tax gains from the sale of ACS stock, $25.6 million in pre-tax
income recognized in connection with the termination of the Assistance
Agreement and the recognition of a $125.0 million deferred tax benefit,
partially offset by a $60.1 million charge for the Special SAIF Assessment.
Excluding non-recurring and expected non-recurring items, net income for the
years ended December 31, 1997 and 1996 totalled $160.5 million and $146.7
million, respectively.

     Interest Income. Total interest income was $2.1 billion for the year ended
December 31, 1997, an increase of $869 million from the year ended December 31,
1996. The interest-earning assets acquired in the Cal Fed Acquisition and the
1996 Acquisitions resulted in total interest-earning assets for the year of
1997 averaging $27.9 billion, compared to $15.9 billion for the corresponding
period in 1996. The weighted average yield on total interest-earning assets
during the year ended December 31, 1997 decreased to 7.53% compared to 7.76%
for the year ended December 31, 1996, primarily due to assets from the Cal Fed
Acquisition generally having a lower yield than the rest of the portfolio.

     FN Holdings earned $1.6 billion of interest income on loans receivable for
the year ended December 31, 1997, an increase of $668 million from the year
ended December 31, 1996. The loans acquired in the Cal Fed Acquisition and the
1996 Acquisitions contributed most of the additional interest income in 1997
and resulted in an increase in the average balance of loans receivable to $19.9
billion for the year ended December 31, 1997 from $11.0 billion for the year
ended December 31, 1996. The weighted average yield on loans receivable
decreased to 7.82% for the year ended December 31, 1997 from 8.05% for the
comparable period in 1996, due primarily to the addition of $10.1 billion in
loans from the Cal Fed Acquisition generally having a lower yield than the rest
of the portfolio.

     In addition, FN Holdings earned $77 million of interest income on loans
held for sale for the year ended December 31, 1997, an increase of $15 million
from the year ended December 31, 1996. The average balance of loans held for
sale was $1.1 billion for the year ended December 31, 1997, an increase of $213
million from the comparable period in 1996, due primarily to increased
originations. The weighted average yield on loans held for sale decreased
slightly to 7.15% for the year ended December 31, 1997 from 7.20% for the year
ended December 31, 1996, primarily due to the portfolio consisting of a higher
percentage of lower-rate adjustable rate loans in 1997 compared to a
predominantly fixed-rate portfolio in 1996.

     Interest income on mortgage-backed securities available for sale was $298
million for the year ended December 31, 1997, an increase of $182 million from
the year ended December 31, 1996. The average portfolio balances increased $2.8
billion, to $4.5 billion, during the year ended December 31, 1997 compared to
the same period in 1996. The weighted average yield on these assets decreased
from 6.83% for the year ended December 31, 1996 to 6.64% for the year ended
December 31, 1997. The increase in the volume and decrease in the weighted
average yield was primarily due to the acquisition of $2.0 billion in
mortgage-backed securities from the Cal Fed Acquisition and the purchase of
$2.6 billion in other mortgage-backed securities during 1997.

     Interest income on mortgage-backed securities held to maturity was $113
million for the year ended December 31, 1997, a decrease of $22 million from
the year ended December 31, 1996. The average portfolio balance decreased $284
million, to $1.5 billion, during the year ended December 31, 1997 compared to
the same period in 1996.

     There was no interest income from Covered Assets for the year ended
December 31, 1997, as a result of the disposal of all remaining Covered Assets
in August 1996.

     Interest income from securities and interest-bearing deposits in banks was
$62 million for the year ended December 31, 1997, an increase of $27 million
from the year ended December 31, 1996. The average portfolio balance increased
to $1.0 billion, an increase of $449 million from the year ended December 31,
1996, primarily due to the assets acquired in the Cal Fed Acquisition and
purchases of short-term investment securities made by the Company during 1997
to meet liquidity needs. The weighted average yield on these assets decreased
to 6.11% for the year ended December 31, 1997

                                    Page 57

<PAGE>



from 6.15% for the year ended December 31, 1996, primarily due to a shift in
the mix to lower-rate interest-bearing deposits acquired in the Cal Fed
Acquisition, along with a decline in yields earned on interest-bearing deposits
in other banks.

     Interest Expense. Total interest expense was $1.4 billion for the year
ended December 31, 1997, an increase of $633 million from the year ended
December 31, 1996. The increase was the result of additional interest-bearing
liabilities assumed in the Cal Fed Acquisition and the 1996 Acquisitions, the
assumption of the 10-5/8% Notes, the issuance of the 9-1/8% Senior Subordinated
Notes and incrementally higher rates paid on the additional borrowings used to
replace the retail deposits sold in the Branch Sales.

     Interest expense on customer deposits, including Brokered Deposits, was
$747 million for the year ended December 31, 1997, an increase of $328 million
from the year ended December 31, 1996. The average balance of customer deposits
outstanding increased from $9.4 billion to $16.7 billion for the years ended
December 31, 1996 and 1997, respectively, primarily due to $9.0 billion in
deposits assumed in the Cal Fed Acquisition. The overall weighted average cost
of deposits was 4.47% for the year ended December 31, 1997 and 4.48% for the
year ended December 31, 1996.

     Interest expense on securities sold under agreements to repurchase
totalled $141 million for the year ended December 31, 1997, an increase of $21
million from the year ended December 31, 1996. The average balance of such
borrowings for the years ended December 31, 1997 and 1996 was $2.5 billion and
$2.1 billion, respectively. The increase in the average balance was primarily
attributable to $1.1 billion of such liabilities assumed in the Cal Fed
Acquisition and the 1996 Acquisitions, partially offset by maturities and
payoffs that were refinanced with FHLB advances and deposits acquired in the
Cal Fed and Home Federal Acquisitions. The weighted average interest rate on
these instruments decreased to 5.52% during the year ended December 31, 1997
from 5.70% for the year ended December 31, 1996, primarily due to a decrease in
rates on new borrowings compared to such borrowings during 1996.

     Interest expense on borrowings totalled $553 million for the year ended
December 31, 1997, an increase of $284 million from the year ended December 31,
1996. The increase was attributable to the net effect of borrowings assumed in
the Cal Fed Acquisition and the 1996 Acquisitions, the assumption of the
10-5/8% Notes, the issuance of the 9-1/8% Senior Subordinated Notes and
additional borrowings to replace deposits sold in the Branch Sales, partially
offset by the impact of a slight decrease in the rates paid on such borrowings.
The average balance of borrowings outstanding for the years ended December 31,
1997 and 1996 was $8.7 billion and $4.2 billion, respectively. The weighted
average interest rate on these borrowings decreased to 6.36% during the year
ended December 31, 1997 from 6.38% for the year ended December 31, 1996,
primarily due to the shorter average maturity of the portfolio during the year
ended December 31, 1997 compared to the corresponding period in 1996, partially
offset by the higher rates paid on the 10-5/8% Notes and the 9-1/8% Senior
Subordinated Notes.

     Net Interest Income. Net interest income was $662 million for the year
ended December 31, 1997, an increase of $236 million from the year ended
December 31, 1996. The interest rate spread decreased to 2.37% for the year
ended December 31, 1997 from 2.61% for the year ended December 31, 1996.

     Noninterest Income. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, management fees and gains on the sales
of branches and on sales of residential mortgage loans and MSRs, was $364
million for the year ended December 31, 1997, a decrease of $289 million from
the year ended December 31, 1996. Income for the year ended December 31, 1997
included a $14.0 million gain from the Servicing Sale, a $25.0 million gain
from the sale of the remaining ACS stock and a $3.6 million gain on the sales
of branches. The activities in 1996 included (i) gains on the Branch Sales of
$363.3 million, (ii) gain from the sale of ACS stock of $40.4 million, (iii)
income recognized in connection with the termination of the Assistance
Agreement of $25.6 million, and (iv) gain from the sale of consumer loans of
$7.5 million.

     Loan servicing fees, net of amortization of mortgage servicing rights,
were $144 million for the year ended December 31, 1997, compared to $124
million for the year ended December 31, 1996. This increase was primarily due
to the addition of the mortgage servicing portfolios acquired in the Cal Fed
Acquisition, the 1996 Acquisitions, the LMUSA 1996 Purchase and the
Weyerhaeuser Purchase, as well as MSRs originated through the increased
origination capacity provided by the Cal Fed Acquisition, partially offset by
portfolio paydowns. The single-


                                    Page 58
<PAGE>

family residential loan servicing portfolio, excluding loans serviced for the
Bank, increased from $43.1 billion at December 31, 1996 to $46.6 billion at
December 31, 1997. During the year ended December 31, 1997, the Company sold
$5.5 billion in single-family mortgage loans originated for sale as part of its
ongoing mortgage banking operations compared to $4.9 billion of such sales for
the corresponding period in 1996.

     Customer banking fees and service charges related to retail banking
operations, consisting of depositor fees for transaction accounts, overdrafts,
and miscellaneous other fees, were $100 million for the year ended December 31,
1997, compared to $45 million for the year ended December 31, 1996. The
increase was primarily attributable to the impact of increased revenues from
the retail banking operations acquired in the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by the impact of the Branch Sales.

     Management fees totalled $6 million for the year ended December 31, 1997,
compared to $10 million for the year ended December 31, 1996. The decrease was
attributable principally to the reduced number of commercial real estate assets
under management for others as a result of an increase in dispositions of
assets and contracts which have expired.

     Gain on sales of loans was $25 million for the year ended December 31,
1997, compared to a gain of $18 million for the year ended December 31, 1996.
The increase was primarily attributed to early pay-offs of commercial loans
with unamortized discounts, partially offset by a $7.5 million gain from the
sale of $298.0 million of consumer loans during 1996.

     Gain on sales of assets was $38 million for the years ended December 31,
1997 and 1996. The gain in 1997 was primarily attributable to a $14.0 million
gain related to the Servicing Sale and a $25.0 million gain on the sale of the
Bank's remaining shares of ACS stock. The gain in 1996 was primarily the result
of a $40.4 million gain from the sale of ACS stock, partially offset by a
permanent impairment in the mortgage-backed securities available-for-sale
portfolio.

     Gain on sale of branches was $4 million for the year ended December 31,
1997, attributable primarily to the Texas Branch Sales. For information on the
1996 gain on Branch Sales, see "Business--General."

     Gain from the termination of the Assistance Agreement was $25.6 million
for the year ended December 31, 1996.

     Dividends on FHLB stock were $25 million for the year ended December 31,
1997, an increase of $13 million from the year ended December 31, 1996,
representing an increase in the amount of such stock owned by California
Federal, primarily as a consequence of the Cal Fed Acquisition.

     Other noninterest income was $23 million for the year ended December 31,
1997, an increase of $5 million from the year ended December 31, 1996. The
increase was primarily attributable to a settlement received related to the
condemnation of a building, an increase in disbursement float interest income
and the recognition of a previously deferred gain on sale of certain retail
operations, partially offset by the favorable outcome of an arbitration hearing
during the year ended December 31, 1996, related to the FN Acquisition.

     Noninterest Expense. Total noninterest expense was $649 million for the
year ended December 31, 1997, an increase of $158 million from the year ended
December 31, 1996. The increase was principally due to the growth of the
Company through the Cal Fed Acquisition and the 1996 Acquisitions and a $29.0
million provision recorded in 1997 for professional fees and unreimbursable
costs related to the foreclosure of single-family loans serviced for others,
partially offset by a $60.1 million charge recorded in 1996 for the Special
SAIF Assessment.

     Total compensation and employee benefits expense was $256 million for the
year ended December 31, 1997, an increase of $52 million from the year ended
December 31, 1996. The increase in expense was primarily attributable to the
presence of 1,688 additional employees at December 31, 1997 compared to
December 31, 1996 as a result of the Cal Fed Acquisition, partially offset by a
reduction in expense from December 31, 1996 to December 31, 1997 of $23.3
million related to a management incentive plan ("Incentive Plan") between FN
Holdings and certain executive officers of the Bank. FN Holdings has no
employees of its own.

     Occupancy and equipment expense was $82 million for the year ended
December 31, 1997, an increase of $30 million from the year ended December 31,
1996, attributable primarily to the Cal Fed Acquisition and the 1996
Acquisitions, partially offset by operations sold in the Branch Sales.


                                    Page 59

<PAGE>



     SAIF deposit insurance premiums decreased $70 million, to $11 million, for
the year ended December 31, 1997 compared to the corresponding period in 1996,
due to a decrease in the quarterly assessment rate from 23 cents to 6.42 cents
per $100 of deposits, partially offset by an increase in the deposit assessment
base as a result of the net impact of the Cal Fed Acquisition, the 1996
Acquisitions and the Branch Sales. In addition, the year ended December 31,
1996 included a $60.1 million charge for the Special SAIF Assessment.

     On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act of 1996 (the "Reduction Act") was enacted. The Reduction Act
provided for a special assessment (the "Special SAIF Assessment"), which was
levied based on a rate of 65.7 cents per $100 of SAIF-insured domestic deposits
held as of March 31, 1995. As a result of the Reduction Act, SAIF deposit
insurance premiums included a $60.1 million pre-tax charge for the Special SAIF
Assessment for the year ended December 31, 1996. The portion of the assessment
related to deposits sold in Ohio, New York, New Jersey and Michigan was borne,
pursuant to each sales contract, by the respective purchasers and, accordingly,
such amounts were not included in the expense recorded by the Company.

     Loan expense, including foreclosure costs and loan servicing expenses, was
$60 million for the year ended December 31, 1997, an increase of $29 million
from the year ended December 31, 1996. The increase includes a $25.0 million
provision for unreimbursable costs related to the foreclosure of single family
loans serviced for others. The increase was also attributed to additional
expenses associated with the higher volume of loans serviced, and higher
outside appraisal fees, inspection fees and provision for loss on FHA and VA
loans serviced.

     Marketing expense was $20 million for the year ended December 31, 1997, an
increase of $9 million from the year ended December 31, 1996, attributed
primarily to the Cal Fed Acquisition and the 1996 Acquisitions, partially
offset by reduced nationwide marketing efforts as a result of the Branch Sales.

     Professional fees increased $30 million, to $49 million, for the year
ended December 31, 1997 compared to the corresponding period in 1996. This
increase included additional legal, consulting and audit expenses related to
the Cal Fed Acquisition and the 1996 Acquisitions, as well as $4.0 million in
higher fees paid to professional firms in connection with the foreclosure of
loans serviced for others.

     Data processing expense was $12 million for the year ended December 31,
1997, an increase of $2 million from the year ended December 31, 1996,
attributed primarily to the Cal Fed Acquisition.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $3 million for the year ended December 31, 1997 compared to a net
gain of $7 million for the same period in 1996. The change was primarily
attributable to an increase in post-foreclosure write-downs of residential and
commercial foreclosed real estate.

     Amortization of intangible assets increased to $49 million for the year
ended December 31, 1997 from $9 million for the corresponding period in 1996,
primarily due to the amortization of additional intangible assets recorded in
connection with the Cal Fed Acquisition and the 1996 Acquisitions.

     Other noninterest expense was $112 million for the year ended December 31,
1997, an increase of $33 million from the year ended December 31, 1996,
primarily due to amortization of deferred issuance costs related to the 10-5/8%
Notes and an increase in provisions for telecommunications, postage, office
supplies, insurance, retail branch and subservicing losses, OTS assessments and
travel expenses, all of which are attributable primarily to the Cal Fed
Acquisition and the 1996 Acquisitions.

     Provision for Income Tax. During the year ended December 31, 1997 and
1996, the Company recorded income tax expense of $47.1 million and income tax
benefit of $73.1 million, respectively. The Company's effective federal income
tax rate was 2% and (20)% during the year ended December 31, 1997 and 1996,
respectively, while its statutory federal income tax rate was 35% during both
periods. The difference between the effective and statutory rates was primarily
the result of the utilization of net operating loss carryforwards for both
periods and the recognition of a $125 million deferred tax benefit in the
second quarter of 1996. The Company's effective state income tax rate, before
extraordinary item and minority interest, increased to 14% from 7% during the
year ended December 31, 1997 compared to the corresponding period in 1996,
primarily as a result of the Company's increased presence in California where
the state tax rate is generally higher than in other states and nondeductible
goodwill amortization from the Cal Fed Acquisition and the 1996 Acquisitions.

                                    Page 60

<PAGE>



     Extraordinary Item. During the year ended December 31, 1996, the Company
repurchased $44 million aggregate principal amount of the 11.20% Senior Notes,
resulting in a loss of $1.6 million, net of income taxes.

     Minority Interest. Dividends on the REIT Preferred Stock totalling $41.9
million were declared and paid during the year ended December 31, 1997.
Minority interest relative to the REIT Preferred Stock is reflected on the
consolidated statement of income net of the income tax benefit of $5.3 million
which will inure to the Company as a result of the deductibility of such
dividends for income tax purposes. Dividends on the Bank Preferred Stock of
$52.7 million and $43.2 million were also recorded during the years ended
December 31, 1997 and 1996, respectively.

     Year Ended December 31, 1996 versus Year Ended December 31, 1995

     Net Income. FN Holdings reported net income of $578 million for the year
ended December 31, 1996, compared with net income of $147 million in 1995. Net
income for the year ended December 31, 1996 included $363.3 million in pre-tax
gains on sales of branches, $40.4 million in pre-tax gains from the sale of ACS
stock, $25.6 million in pre-tax gain recognized in connection with the
termination of the Assistance Agreement and the recognition of a $125.0 million
deferred tax benefit, partially offset by a $60.1 million charge for the
Special SAIF Assessment. Net income, excluding the aforementioned items,
Incentive Plan (as defined herein) charges and extraordinary loss on early
extinguishment of debt, totalled $146.7 million for the year ended December 31,
1996.

     Interest Income. Total interest income was $1.2 billion for the year ended
December 31, 1996, an increase of $158 million from the year ended December 31,
1995. The interest-earning assets acquired in the 1996 Acquisitions resulted in
total interest-earning assets for 1996 averaging $15.9 billion, compared to
$13.9 billion for 1995. In addition, the weighted average yields on total
interest-earning assets during 1996 increased to 7.76% from the 7.71% weighted
average yield on total interest-earning assets during 1995.

     FN Holdings earned $885 million of interest income on loans receivable for
the year ended December 31, 1996, an increase of $85 million from the year
ended December 31, 1995. The loans acquired in the 1996 Acquisitions
contributed most of the increased interest income in 1996, and resulted in an
increase in the average balance of loans receivable to $11.0 billion from $10.1
billion for the year ended December 31, 1995. The weighted average yield on
loans receivable increased to 8.05% for the year ended December 31, 1996 from
7.94% for 1995 due to upward rate adjustments on adjustable rate 1-4 unit
residential loans.

     FN Holdings earned $62 million of interest income on loans held for sale
for the year ended December 31, 1996, an increase of $38 million from the year
ended December 31, 1995. The increased income was the net effect of a higher
average volume of loans held for sale due to increased originations from the
operations acquired in the Maryland Acquisition and the LMUSA Purchases,
partially offset by a decrease in the weighted average rate of such loans. The
average balance of loans held for sale was $855 million for the year ended
December 31, 1996, an increase of $565 million from 1995. The weighted average
yield on loans held for sale decreased to 7.20% for the year ended December 31,
1996 from 8.35% during 1995 due to generally decreasing market rates during the
period and the portfolio consisting of a higher percentage of comparatively
lower-rate adjustable rate loans in 1996 compared to a higher fixed rate
portfolio in 1995.

     Interest income on mortgage-backed securities available for sale was $116
million for the year ended December 31, 1996. The average balance of
mortgage-backed securities available for sale was $1.7 billion with a weighted
average yield of 6.83% for the year ended December 31, 1996.

     Interest income on mortgage-backed securities held to maturity was $135
million for the year ended December 31, 1996, a decrease of $78 million from
the year ended December 31, 1995. The average balance of mortgage-backed
securities held to maturity decreased to $1.8 billion during the year ended
December 31, 1996, compared to $3.0 billion during 1995. The weighted average
yield on mortgage-backed securities held to maturity increased to 7.65% during
1996 from 7.14% during 1995, primarily due to the upward rate adjustments of
adjustable rate mortgage-backed securities.

     Interest income from Covered Assets declined $10 million, to $1 million,
for the year ended December 31, 1996. The decline is due to a reduction in the
average volume of Covered Assets (which were acquired by the FDIC as part of
the FDIC Purchase in June 1995) and the termination of the related Assistance
Agreement in August 1996.

                                    Page 61

<PAGE>



     Interest income from securities (other than those discussed above),
including the available-for-sale portfolio and securities held to maturity, and
interest-bearing deposits in other banks was $35 million for the year ended
December 31, 1996, an increase of $7 million from the year ended December 31,
1995. The average portfolio balances during the years ended December 31, 1996
and 1995 increased to $566 million from $435 million, respectively, primarily
due to assets acquired in the 1996 Acquisitions. The weighted average yield on
these assets decreased to 6.15% during 1996 from 6.42% during 1995, primarily
due to an overall decline in market interest rates.

     Interest Expense. Total interest expense was $808 million for the year
ended December 31, 1996, an increase of $73 million from the year ended
December 31, 1995. The increase was the result of additional interest-bearing
liabilities assumed in the 1996 Acquisitions, the issuance of the 9-1/8% Senior
Subordinated Notes and incrementally higher rates paid on the additional
borrowings incurred to replace the retail deposits sold in the Branch Sales.

     Interest expense on customer deposits, including Brokered Deposits, was
$419 million for the year ended December 31, 1996, a decrease of $28 million
from the year ended December 31, 1995. The average balance of customer deposits
outstanding decreased from $10.0 billion to $9.4 billion for the years ended
December 31, 1995 and 1996, respectively. The overall weighted average cost of
deposits decreased from 4.49% for the year ended December 31, 1995 to 4.48% for
the year ended December 31, 1996, due principally to the impact of higher
average balances of lower rate custodial transaction accounts related to the
additional MSRs acquired in the Maryland Acquisition and the LMUSA Purchases,
partially offset by slight increases in the market rates of interest paid for
Brokered Deposits.

     Interest expense on securities sold under agreements to repurchase
totalled $120 million for the year ended December 31, 1996, an increase of $15
million from the year ended December 31, 1995. The average balance of such
borrowings for the year ended December 31, 1996 and 1995 was $2.1 billion and
$1.6 billion, respectively. The increase was attributable to $.8 billion of
such liabilities acquired in the 1996 Acquisitions together with $1.5 billion
in additional short-term borrowings to fund the Branch Sales during 1996,
partially offset by maturities and payoffs that were refinanced with deposits
acquired from the Home Federal Acquisition and FHLB advances. The weighted
average interest rate on these borrowings decreased to 5.70% in 1996 from 6.66%
for 1995, primarily due to the impact of decreases in overall market interest
rates.

     Interest expense on borrowings totalled $269 million for the year ended
December 31, 1996, an increase of $86 million from the year ended December 31,
1995. The increase was attributable to the net effect of a volume increase for
borrowings assumed in the 1996 Acquisitions, the issuance of the 9-1/8% Senior
Subordinated Notes and additional borrowings to replace the deposits sold in
the Branch Sales, partially offset by the impact of decreases in the rates paid
on such borrowings largely due to the shorter weighted average maturity of the
borrowings at December 31, 1996 compared to December 31, 1995. The average
balance outstanding for the year ended December 31, 1996 and 1995 was $4.2
billion and $2.2 billion, respectively. The weighted average interest rate on
these borrowings decreased to 6.38% during the year ended December 31, 1996
from 8.26% for the year ended December 31, 1995, primarily due to the impact of
decreases in overall market interest rates and the shorter average maturity of
the portfolio.

     Net Interest Income. Net interest income was $426 million for the year
ended December 31, 1996, an increase of $85 million from the year ended
December 31, 1995. The interest rate spread increased to 2.61% for the year
ended December 31, 1996 from 2.36% for the year ended December 31, 1995.

     Noninterest Income. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, management fees and gains on the Branch
Sales and on sales of loans and loan servicing rights, was $653 million for the
year ended December 31, 1996, an increase of $502 million from the year ended
December 31, 1995. This increase included (i) gains on sales of branches of
$363.3 million, (ii) gain from the sale of ACS stock of $40.4 million and (iii)
gains recognized in connection with the termination of the Assistance Agreement
of $25.6 million.

     Loan servicing fees, net of amortization of MSRs, were $124 million for
the year ended December 31, 1996, compared to $70 million for the year ended
December 31, 1995. This increase was due to the addition of the mortgage
servicing portfolios acquired in the Maryland Acquisition, the LMUSA Purchases
and the 1996 Acquisitions, as well as MSRs originated through the increased
origination capacity provided by these acquisitions. The 1-4 unit residential
loan servicing portfolio, excluding loans serviced for the Bank, increased from
$7.4 billion at January 1, 1995 to $27.0 billion at January 1, 1996 and to
$43.1 billion at December 31, 1996. During the year ended December 31, 1996,
the

                                    Page 62

<PAGE>



Company sold $4.9 billion in 1-4 unit residential loans originated for sale as
part of its ongoing mortgage banking operations compared to $1.2 billion of
such sales for 1995.

     Customer banking fees and service charges related to retail banking
operations, consisting of depositor fees for transaction accounts, overdrafts,
and miscellaneous other fees, were $45 million for the year ended December 31,
1996, compared to $47 million for the year ended December 31, 1995. The
decrease was attributable to the impact of decreased revenues associated with
the Branch Sales, partially offset by the increased revenues from the retail
banking operations acquired in the Branch Purchases and the 1996 Acquisitions.

     Management fees totaled $10 million for the year ended December 31, 1996
compared to $15 million for the year ended December 31, 1995. The decrease was
attributable principally to a reduction in the amount of assets under
management as a result of the expiration of contracts with the Resolution Trust
Corporation and other third parties.

     Gain on sales of branches was $363.3 million for the year ended December
31, 1996. See Note 3 to the accompanying financial statements of the Company
for additional information regarding the Branch Sales.

     Gain on sales of loans was $18 million for the year ended December 31,
1996. The increase was attributable in part to a gain of $7.5 million on the
sale of $298.0 million of consumer loans during the first quarter of 1996. In
addition, the Company experienced increased gains on sales of 1-4 unit
residential loans due to the adoption of Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights, an amendment to
Statement No. 65" ("SFAS No. 122") on April 1, 1995. See "--Mortgage Banking
Operations."

     Gain on sales of assets was $38 million for the year ended December 31,
1996. The gain was primarily the result of a $40.4 million gain from the sale
of ACS stock, partially offset by a writedown recorded on certain CMOs in the
mortgage-backed securities available-for-sale portfolio determined to have a
permanent impairment in value.

     Dividends on FHLB stock were $12 million for the year ended December 31,
1996, an increase of $5 million from the year ended December 31, 1995. The
increase was primarily attributable to the 1996 Acquisitions and an increase in
FHLB advances as a result of the Branch Sales.

     Gain from the termination of the Assistance Agreement was $26 million for
the year ended December 31, 1996.

     Other noninterest income was $18 million for the year ended December 31,
1996, an increase of $7 million from the year ended December 31, 1995. The
increase was primarily attributable to a $3 million increase in disbursement
float interest income and $2 million of interest received related to the
favorable outcome of an arbitration hearing.

     Noninterest Expense. Total noninterest expense was $491 million for the
year ended December 31, 1996, an increase of $158 million from the year ended
December 31, 1995. The increase was principally due to additional compensation,
loan expense, deposit insurance premiums and other noninterest expenses which
were primarily related to the growth of the Company through the various
acquisitions in 1995 and the first half of 1996 and the Special SAIF
Assessment.

     Total compensation and employee benefits expense was $205 million for the
year ended December 31, 1996, an increase of $51 million from the year ended
December 31, 1995, primarily attributable to $35.6 million of Incentive Plan
accruals. The number of full time employees decreased to 3,547 for the year
ended December 31, 1996, compared to 3,619 for the year ended December 31,
1995. This decrease was primarily due to the net impact of a reduction in
employees as a result of the Branch Sales and the Company's cost reduction
program, partially offset by employee additions in the mortgage banking
operations related to the servicing portfolios acquired in the LMUSA Purchases
and an increase in retail banking employees attributed to the 1996
Acquisitions.

     Occupancy and equipment expense was $52 million for the year ended
December 31, 1996, an increase of $2 million from the year ended December 31,
1995, attributed primarily to increased expenses resulting from the Maryland
and 1996 Acquisitions and the LMUSA Purchases, partially offset by the net
effect of operations sold in the Branch Sales.


                                    Page 63

<PAGE>



     SAIF deposit insurance premiums increased $59 million, to $81 million, for
the year ended December 31, 1996. The increase was primarily due to the $60
million Special SAIF Assessment.

     Loan expense was $31 million for the year ended December 31, 1996, an
increase of $19 million from the year ended December 31, 1995. The increase
related to additional expenses associated with the higher volume of loans
serviced due to the LMUSA Purchases, the Maryland Acquisition and increased
loan production. Such expenses included subservicing fees paid on acquired
servicing portfolios prior to conversion to FNMC's systems and increased
pass-through interest expense for loan payoffs in serviced loan pools. In
addition, such expenses also included outside appraisal fees, inspection fees,
and provision for losses on loans insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.

     Professional fees increased $8 million, to $19 million, for the year ended
December 31, 1996. This increase included additional expenses related to the
loan servicing portfolios acquired in the LMUSA Purchases, as well as
additional accruals for various legal and litigation expenses.

     Foreclosed real estate operations, including gains on sales, resulted in a
net gain of $7 million for the year ended December 31, 1996 compared to a net
gain of $1 million for the same period in 1995. The change was attributable to
a higher volume of sales in 1996 at comparatively higher prices to carrying
values.

     Amortization of intangible assets increased to $9 million for the year
ended December 31, 1996 from $1 million for 1995, primarily due to the
amortization of $132.1 million in goodwill recorded in connection with the 1996
Acquisitions.

     Other noninterest expense was $79 million for the year ended December 31,
1996, an increase of $18 million from the year ended December 31, 1995,
principally due to increased telecommunications, postage, office supplies,
insurance, OTS assessments and travel expenses, all of which are attributed
primarily to the increased loan servicing activity that resulted from the
Maryland Acquisition and the LMUSA Purchases.

     Provision for Income Taxes. During the years ended December 31, 1996 and
1995, the Company recorded income tax benefit of $73.1 million and $57.2
million, respectively. Based on a favorable earnings trend since the
consummation of the FN Acquisition and future earnings expectations, management
changed its judgment of FN Holdings' ability to realize its deferred tax assets
and recognized a deferred tax benefit (i.e., a reduction in the valuation
allowance) of $69 million in the fourth quarter of 1995 and an additional $125
million in the second quarter of 1996. Management believes that the realization
of such asset is more likely than not, based on the expectation that the
Company will generate the necessary amount of taxable income in future periods.
Included in tax expense for the year ended December 31, 1995 is the reversal of
1993 and 1994 over-accruals of federal taxes totalling $1.7 million. FN
Holdings' effective federal income tax rates before extraordinary items and
minority interest were (20%) and (56%) during the years ended December 31, 1996
and 1995, respectively, while its statutory federal income tax rate was 35%
during both periods. The difference between the effective and statutory rates
was primarily the result of the utilization of net operating loss carryforwards
for both periods, the reversal of 1993 and 1994 over accruals for the year
ended December 31, 1995 and the recognition of a $125 million and $69 million
deferred tax benefit in 1996 and 1995, respectively. FN Holdings' effective
state income tax rates before extraordinary items and minority interest were
approximately 7% and 9% during the years ended December 31, 1996 and 1995,
respectively.

     Extraordinary Item. During the year ended December 31, 1996, the Company
repurchased $44 million aggregate principal amount of the $50 million in 11.20%
Senior Notes assumed in the SFFed Acquisition, resulting in a loss of $1.6
million, net of income taxes. During the year ended December 31, 1995, the
Company recorded a gain of $2.0 million on the early extinguishment of $250
million in FHLB advances, net of income taxes.

     Minority Interest. Dividends on the 11-1/2% Preferred Stock of $34.6
million were paid during the year ended December 31, 1996.


                                    Page 64
<PAGE>



PROVISION FOR FEDERAL AND STATE INCOME TAXES

     During the years ended December 31, 1997, 1996 and 1995, FN Holdings
recorded income tax expense (benefit), excluding the tax effects associated
with extraordinary items and minority interest in 1997, 1996 and 1995, of $47.1
million, $(73.1) million, and $(57.2) million, respectively. FN Holdings'
effective income tax rates were 16%, (13)%, and (47)%, in 1997, 1996 and 1995,
respectively. FN Holdings' federal statutory income tax rate was 35% in each of
1997, 1996, and 1995. The difference between effective and statutory rates was
primarily the result of offsetting certain deductions and losses with the
receipt of non-taxable FSLIC/RF assistance payments and, in 1996 and 1995, the
recognition of a deferred tax benefit totalling $125 million and $69 million,
respectively.

     For federal income tax purposes, FN Holdings is included in the Mafco
Group and accordingly, its federal taxable income and loss will be included in
the consolidated federal income tax return filed by Mafco Holdings.

     The Bank, FN Holdings and Mafco Holdings are parties to a tax sharing
agreement effective as of January 1, 1994 (the "Tax Sharing Agreement"),
pursuant to which (i) the Bank will pay to FN Holdings amounts equal to the
income taxes that the Bank would be required to pay if it were to file a return
separately from the affiliated group of which Mafco Holdings is the common
parent (the "Mafco Group") and (ii) FN Holdings will pay to Mafco Holdings
amounts equal to the income taxes that FN Holdings would be required to pay if
it were to file a consolidated return on behalf of itself and the Bank
separately from the Mafco Group. The Tax Sharing Agreement allows the Bank to
take into account, in determining its liability to FN Holdings, any net
operating loss carryovers that it would have been entitled to utilize if it had
filed separate returns for each year since the formation of the Bank. The Tax
Sharing Agreement also allows FN Holdings to take into account, in determining
its liability to Mafco Holdings, any net operating losses that it would have
been entitled to utilize if it had filed a consolidated return on behalf of
itself and the Bank for each year since the formation of the Bank. Accordingly,
pursuant to the Tax Sharing Agreement, the benefits of any net operating losses
generated by the Bank since its formation are retained by the Bank and FN
Holdings.

     The Bank had generated significant federal income tax net operating losses
since it was organized in December 1988. This is due, in part, to the fact
that, under applicable federal income tax law, certain financial assistance
received by the Bank pursuant to the Assistance Agreement was excluded from the
taxable income of the Bank. In addition to such tax-free financial assistance,
the Bank had been entitled to its normal operating deductions, including
interest expense and certain losses relating to its loan portfolio. As a
result, the Bank generated significant net operating losses for federal income
tax purposes even though its operations were profitable. Furthermore, under the
reorganization provisions of the Code, the Bank succeeded to certain net
operating loss carryovers of the Texas Closed Banks.

     At December 31, 1997, if FN Holdings had filed a consolidated tax return
on behalf of itself and its subsidiaries for each year since the formation of
California Federal, it would have had approximately $2.0 billion of regular net
operating losses and approximately $789 million of alternative minimum tax
("AMT") net operating losses, both of which FN Holdings would have been
entitled to utilize. A portion of such losses, to the extent not previously
used to offset income, would expire in the year 2004 and in each year
thereafter, and would fully expire in 2010. Under applicable tax law, only 90%
of a corporation's alternative minimum taxable income may be offset by
carryovers from other years. Thus, 10% of the alternative minimum taxable
income earned by the Bank in the current period will be subject to federal
income tax at an effective rate of 20%. Under the Tax Sharing Agreement, the
Company has eliminated a significant portion of the amounts that it otherwise
would be required to pay to Mafco in respect of federal income tax. Payments
made by FN Holdings under the Tax Sharing Agreement with the Mafco Group during
the years ended December 31, 1997, 1996 and 1995 totalled $18.6 million, $14.1
million and $3.1 million, respectively. Such payments may increase
significantly at the time that the net operating losses described above are
either used in full to offset income or expire. During 1998 or 1999, the
Company anticipates that the AMT net operating losses will be fully utilized
and the Company will begin providing federal income tax expense at a rate of
20%. Prior to the Company utilizing all of its AMT net operating losses, it
will provide federal income tax expense at a 2% rate because 90% of AMT net
operating losses are available to offset AMT income.

     Under federal tax law, FN Holdings and the Bank will be subject to several
liability with respect to the consolidated federal income tax liabilities of
the Mafco Group for any taxable period during which FN Holdings or the Bank is,
as the case may be, a member of such group. Therefore, FN Holdings or the Bank
may be required to pay the Mafco Group's consolidated federal tax liability
notwithstanding prior payments made under the Tax Sharing Agreement by FN
Holdings or the Bank to Mafco Holdings. Mafco Holdings has agreed, however,
under the Tax Sharing Agreement,

                                    Page 65
<PAGE>



to indemnify FN Holdings and the Bank for any such federal income tax liability
(and certain state and local tax liabilities) of Mafco Holdings or any of its
subsidiaries (other than FN Holdings and the Bank) that FN Holdings or the Bank
is actually required to pay.

     If for any reason FN Holdings was to deconsolidate from the Mafco Group,
only the amount of the net operating loss carryovers of FN Holdings not already
utilized by the Mafco Group would be available to offset the taxable income of
FN Holdings subsequent to the date of deconsolidation. If FN Holdings had
deconsolidated as of December 31, 1997, FN Holdings would have had
approximately $970 million of regular net operating loss carryforwards. It
cannot be predicted to what extent the Mafco Group will utilize the net
operating losses of FN Holdings in the future or the amount, if any, of net
operating loss carryforwards that FN Holdings may have upon deconsolidation.
Additionally, the net operating loss carryovers are subject to review and
potential disallowance, in whole or in part, by the Internal Revenue Service.
Upon consummation of the Golden State Merger, Parent Holdings and its
subsidiaries, including FN Holdings and the Bank, will deconsolidate from the
Mafco Group. The amount of net operating loss carryovers available to offset
the taxable income of Parent Holdings and its subsidiaries will be reduced.

     On August 20, 1996, the Small Business Job Protection Act of 1996 ("the
Act"), was enacted into law generally effective for years beginning after 1995.
One provision of the Act repealed the Section 593 reserve method of accounting
for bad debts by thrift institutions which are treated as large banks. Another
provision of the Act requires FN Holdings to take into income the balance of
its post-1987 bad debt reserves over a six year period beginning in 1996
subject to a two-year deferral if certain residential loan tests are satisfied.
As of December 31, 1995, the Company had approximately $279 million of
post-1987 bad debts reserves that are subject to recapture. The Company had
fully provided for the tax related to this recapture.

     In accordance with SFAS No. 109 "Accounting for Income Taxes," a deferred
tax liability has not been recognized for the base year reserves of the
Company. The base year reserves are generally the balance of the tax bad debt
reserve as of December 31, 1987 reduced proportionately for reductions in the
Company's loan portfolio since that date. At December 31, 1997, the amount of
those reserves was approximately $152 million. The amount of the unrecognized
deferred tax liability at December 31, 1997 was approximately $53 million.
Pursuant to the Act, circumstances that may require an accrual of this
unrecorded tax liability are a failure to meet the definition of a "bank" for
federal income tax purposes, dividend payments in excess of tax earnings and
profits, and other distributions, dissolution, liquidation or redemption of
stock, excluding preferred stock meeting certain conditions.

     The Company is subject to taxation in certain states in which it operates,
including California. For California franchise tax purposes, savings
institutions are taxed as "financial corporations." Financial corporations are
taxed at the general corporate franchise tax rate plus an "in lieu" rate based
on their statutory exemption from local business and personal property taxes.
California has not adopted conforming federal tax law changes to the
computation of the bad debt deduction.

TAX EFFECTS OF DIVIDEND PAYMENTS BY THE BANK

     Dividend distributions made to FN Holdings, as the sole owner of the
Bank's common stock, and to holders of the Bank Preferred Stock, in each case
in excess of the Bank's accumulated earnings and profits, as well as any
distributions in dissolution or in redemption or liquidation of stock, may
cause the Bank to recognize a portion of its tax bad debt reserves as income,
and accordingly, could cause the Bank to make payments to FN Holdings under the
Tax Sharing Agreement. As a result, FN Holdings may be required to make
payments to Mafco Holdings under the Tax Sharing Agreement if FN Holdings has
insufficient expenses and losses to offset such income. The Bank does not
expect to generate substantial amounts of federal taxable income (after taking
into account its net operating loss carryovers) from any recapture of its bad
debt reserve. Accordingly, the recapture of its bad debt reserve as a result of
distributions to stockholders, or of the redemption of stock, would not be
expected to have a material adverse effect on the Bank.


                                    Page 66
<PAGE>



PROVISION FOR LOAN LOSSES

     The adequacy of the allowance for loan losses is periodically evaluated by
management in order to maintain the allowance at a level that is sufficient to
absorb expected loan losses. The Company charges current earnings with a
provision for estimated credit losses on loans receivable. The provision
considers both specifically identified problem loans as well as credit risks
not specifically identified in the loan portfolio. The Company established
provisions for loan losses of $80 million, $40 million and $37 million for the
years ended December 31, 1997, 1996 and 1995, respectively. The allowance for
loan losses is increased by provisions for loan losses and decreased by
charge-offs (net of recoveries). The increase in the provision for losses from
1995 through 1997 is due to the increased loan production activity (primarily
1-4 unit residential) and loans acquired through acquisitions in 1996 and 1997.

     The ultimate collectibility of the loans is susceptible to changes in the
economic conditions in such regions. A significant portion of the Company's
loans are secured by real estate located in Southern California, where real
estate prices, although improved during the past year, have not increased as
rapidly as real estate prices in the Company's other primary lending areas.
Management's periodic evaluation of the adequacy of the allowance for loan
losses is based on past loan loss experience, known and inherent risks in the
portfolio, potential adverse situations that may affect the borrower's ability
to repay, estimated value of any underlying collateral, and current and
prospective economic conditions.

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

ASSET AND LIABILITY MANAGEMENT

     Banks and savings associations are subject to interest rate risk to the
degree that their interest-bearing liabilities, consisting principally of
deposits, securities sold under agreements to repurchase and FHLB advances,
mature or reprice more or less frequently, or on a different basis, than their
interest-earning assets. A key element of the banking business is the
monitoring and management of liquidity risk and interest rate risk. The process
of planning and controlling asset and liability mixes, volumes and maturities
to influence the net interest spread is referred to as asset and liability
management. The objective of the Company's asset and liability management is to
maximize the net interest income over changing interest rate cycles within the
constraints imposed by prudent lending and investing practices, liquidity needs
and capital planning.

     FN Holdings, through the Bank, actively pursues investment and funding
strategies to minimize the sensitivity of its earnings to interest rate
fluctuations. The Company measures the interest rate sensitivity of its balance
sheet through gap and duration analysis, as well as net interest income and
market value simulation, and, after taking into consideration both the
variability of rates and the maturities of various instruments, evaluates
strategies which may reduce the sensitivity of its earnings to interest rate
and market value fluctuations. An important decision is the selection of
interest-bearing liabilities and the generation of interest-earning assets
which best match relative to interest rate changes. In order to reduce interest
rate risk by increasing the percentage of interest sensitive assets, the
Company has continued its emphasis on the origination of ARM products for its
portfolio. Where possible, the Company seeks to originate real estate loans
that reprice frequently and that on the whole adjust in accordance with the
repricing of its liabilities. At December 31, 1997, approximately 92% of the
Company's real estate loan portfolio consisted of ARMs.

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


                                    Page 67
<PAGE>



     As a result of the FN and Cal Fed Acquisitions, the Company acquired the
rights and assumed obligations related to certain interest rate swap agreements
that were entered into to hedge certain FHLB advances. Under the terms of these
agreements, the Company pays a variable rate based on LIBOR and receives fixed
rates. The Company had interest rate swap agreements with a notional principal
amount outstanding of $400 million at December 31, 1997. During 1997, 1996 and
1995, the Company's net interest margin increased (decreased) by $.6 million,
$.6 million and $(12.9) million, respectively, as a result of these interest
rate swap agreements, largely due to the amortization of the premium assigned
to these agreements in the FN and Cal Fed Acquisitions.

     Gains and losses on early termination of these interest rate swap
agreements would be included in the carrying amount of the FHLB advances and
amortized over the remaining terms of such advances. The requirements that must
be satisfied in order to account for the swap agreements in this manner are as
follows: (1) the FHLB advances must expose the Company to interest rate risk,
and (2) at the inception of the hedge and throughout the hedge period, high
correlation of changes in the market value of the swaps and the fair value of
the FHLB advances must be probable so that the results of the swaps will
substantially offset the effects of interest rate changes on the FHLB advances.
If these requirements are not met, the swaps would be considered speculative
and marked to market with changes in market value reflected in noninterest
income.

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

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


                                    Page 68
<PAGE>



     The following table sets forth the projected maturities based upon
contractual maturities as adjusted for projected prepayments and "repricing
mechanisms" (provisions for changes in the interest rates of assets and
liabilities), and the impact of interest rate swap agreements as of December
31, 1997. Prepayment rates are assumed in each period on substantially all of
the Company's loan portfolio based upon expected loan prepayments. Repricing
mechanisms on the Company's assets are subject to limitations such as caps on
the amount that interest rates and payments on its loans may adjust and,
accordingly, such assets may not respond in the same manner or to the same
extent to changes in interest rates as the Company's liabilities. In addition,
the interest rate sensitivity of the assets and liabilities illustrated in the
table would vary substantially if different assumptions were used or if actual
experience differed from the assumptions set forth. The Company's estimated
interest rate sensitivity gap at December 31, 1997 is as follows:

<TABLE>
<CAPTION>
                                                                         Maturity/Rate Sensitivity
                                                            ---------------------------------------------------------
                                                            Within        1-5        Over 5    Noninterest
                                                            1 Year       Years        Years      Bearing        Total
                                                            ------       -----       ------    -----------      -----
                                                                            (dollars in millions)
<S>                                                         <C>          <C>         <C>         <C>           <C>    
  INTEREST-EARNING ASSETS:                                                                              
  Securities held to maturity, interest-bearing deposits                                                
     in other banks and short-term investment                                                           
     securities (1) (2)                                     $    62      $  --       $    58     $  --         $   120
  Securities available for sale (3)                             813         --          --          --             813
  Mortgage-backed securities available for sale (3)           5,076         --          --          --           5,076
  Mortgage-backed securities held to maturity (1) (4)         1,327            1           3        --           1,331
  Loans held for sale, net (3)(5)                             1,469         --          --          --           1,469
  Loans receivable, net (1)(6)                               17,165        1,529         998        --          19,692
  Investment in FHLB                                            468         --          --          --             468
                                                            -------      -------     -------     -------       -------
  Total interest-earning assets                              26,380        1,530       1,059        --          28,969
                                                                                                        
  Noninterest-earning assets                                   --           --          --         2,378         2,378
                                                            -------      -------     -------     -------       -------
                                                            $26,380      $ 1,530     $ 1,059     $ 2,378       $31,347
                                                            =======      =======     =======     =======       =======
                                                                                                        
  INTEREST-BEARING LIABILITIES:                                                                         
  Deposits (7)                                              $13,578      $ 2,613     $    12     $  --         $16,203
  Securities sold under agreements to repurchase (1)          1,829         --            13        --           1,842
  FHLB advances (1)                                           5,263        4,258          22        --           9,543
  Other borrowings (1)                                          180          205         842        --           1,227
                                                            -------      -------     -------     -------       -------
  Total interest-bearing liabilities                         20,850        7,076         889        --          28,815
                                                                                                        
  Noninterest-bearing liabilities                              --           --          --           703           703
  Minority interest                                            --           --          --           986           986
  Stockholders' equity                                         --           --          --           843           843
                                                            -------      -------     -------     -------       -------
                                                            $20,850      $ 7,076     $   889     $ 2,532       $31,347
                                                            =======      =======     =======     =======       =======
                                                                                                        
  Gap before interest rate swap agreements                  $ 5,530      $(5,546)    $   170                   $   154
  Interest rate swap agreements (8)                            --           --          --                        --
                                                            -------      -------     -------                   -------
  Gap adjusted for interest rate swap agreements            $ 5,530      $(5,546)    $   170                   $   154
                                                            =======      =======     =======                   =======
                                                                                                            
  Cumulative gap                                            $ 5,530      $   (16)    $   154                   $   154
                                                            =======      =======     =======                   =======
                                                                                                            
  Gap as a percentage of total assets                          17.6%       (17.7)%       0.6%                      0.5%
                                                            =======      =======     =======                   =======
                                                                                                            
   Cumulative gap as a percentage of total assets              17.6%        (0.1)%       0.5%                      0.5%
                                                            =======      =======     =======                   =======
</TABLE>

---------------
(1)  Based upon (a) contractual maturity, (b) instrument repricing date, if
     applicable, and (c) projected repayments and prepayments of principal, if
     applicable. Prepayments were estimated generally by using the prepayment
     rates forecast by various large brokerage firms as of December 31, 1997.
     The actual maturity and rate sensitivity of these assets could vary
     substantially if future prepayments differ from prepayment estimates.

                                    Page 69

<PAGE>



(2)  Consists of $36 million of interest-bearing deposits in other banks, $26
     million of short-term investment securities and $58 million of securities
     held to maturity.

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

(4)  Excludes underlying non-performing loans of $6 million.

(5)  Excludes non-performing loans of $15 million.

(6)  Excludes allowance for loan losses of $439 million and non-performing
     loans of $171 million.

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

(8)  Agreements with notional amounts of $400 million maturing by April 1998
     have no impact within the time periods presented.

     At December 31, 1997, interest-earning assets of FN Holdings exceeded
interest-bearing liabilities by $154 million. At December 31, 1996,
interest-earning assets of FN Holdings exceeded interest-bearing liabilities by
$256 million. The change in the cumulative gap between the two periods was due
principally to the Cal Fed Acquisition and the assumption of the 10-5/8% Notes.

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

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

LIQUIDITY

     The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. government and other specified securities to deposits
and borrowings due within one year. Effective November 24, 1997, the OTS
established a minimum liquidity requirement of 4.00%, a reduction from 5% which
had been in effect prior to that date in 1997 and in 1996. The Bank has been in
compliance with the liquidity regulations during 1997 and 1996.

     FN Holdings' funds are obtained from the repayment and maturities of loans
and mortgage-backed securities, customer and Brokered Deposits, loan sales,
securities sold under agreements to repurchase, FHLB advances and other secured
and unsecured borrowings.

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


                                    Page 70

<PAGE>



     The Company's primary uses of funds are the origination or purchase of
loans, the funding of maturing certificates of deposit and demand deposit
withdrawals, and the repayment of borrowings. Certificates of deposit scheduled
to mature during the twelve months ending December 31, 1998 total $7.8 billion.
The Company may renew these certificates, attract new replacement deposits,
replace such funds with other borrowings, or it may elect to reduce the size of
the balance sheet. In addition, at December 31, 1997, the Company had FHLB
advances and other borrowings aggregating $7.3 billion maturing within twelve
months. The Company may elect to pay off such debt or to replace such
borrowings with additional FHLB advances or other borrowings at prevailing
rates.

     During 1994, California Federal issued 3,007,300 shares of the 11-1/2%
Preferred Stock. Cash dividends on the 11-1/2% Preferred Stock are
noncumulative and are payable at an annual rate of 11-1/2% if, when, and as
declared by the Board of Directors of the Bank. The payment of dividends by the
Bank is subject to certain federal laws applicable to savings associations.
Dividends on the 11-1/2% Preferred Stock totalling $34.6 million were declared
and paid during 1997.

     In the FN Acquisition, the Company assumed $92.1 million of Old FNB's 10%
Subordinated Debentures Due 2006 which have an annual interest cost of $9.2
million. In the SFFed Acquisition, the Company assumed $50 million of the
11.20% Senior Notes. On September 12, 1996, the Company repurchased $44 million
aggregate principal amount of the 11.20% Senior Notes at a price of
approximately 116.45% of the principal amount, plus the accrued interest
thereon. The $6.0 million of 11.20% Senior Notes that remain outstanding have
an annual interest cost of $0.7 million.

     In the Cal Fed Acquisition, the Company assumed certain indebtedness and
the 10-5/8% Preferred Stock, which have an annual interest/dividend cost of
$5.9 million and $18.3 million, respectively. Cash dividends on the 10-5/8%
Preferred Stock are noncumulative and are payable at an annual rate of 10-5/8%,
if, when, and as declared by the Board of Directors of the Bank. Similar to the
11-1/2% Preferred Stock, the payment of dividends by the Bank is subject to
certain federal laws applicable to savings associations. Dividends on the
10-5/8% Preferred Stock totalling $18.3 million were paid during the year ended
December 31, 1997.

     At December 31, 1997, the Company had $25 million of FN Holdings Preferred
Stock which has an annual dividend cost of approximately $2.5 million, not
including dividends paid in kind.

     The annual dividends, net of taxes, on the REIT Preferred Stock were $36.6
million for the year ended December 31, 1997.

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

     The Company anticipates that cash and cash equivalents on hand, the cash
flow from assets as well as other sources of funds will provide adequate
liquidity for its operating, investing and financing needs and the Bank's
regulatory liquidity requirements for the foreseeable future. See
"Business--Regulation of the Bank." In addition to cash and cash equivalents of
$412.3 million at December 31, 1997, the Company has substantial additional
secured borrowing capacity with the FHLB and other sources.

     Net cash used in operating activities for the year ended December 31, 1997
totalled $383.4 million, a decrease of $899.3 million from the year ended
December 31, 1996. The decrease was principally due to the increase in
purchases and originations of loans held for sale.

     Net cash provided by operating activities for the year ended December 31,
1996 totalled $515.9 million, an increase of $908.1 million from the year ended
December 31, 1995. The increase was principally due to the increase in proceeds
from the sale of loans held for sale. Substantially all loan production in 1996
was sold in the secondary market, whereas variable rate loans originated during
the first nine months of 1995 were retained by the Company.

     Net cash used in operating activities for the year ended December 31, 1995
totalled $392.2 million, an increase of $352.5 million from the year ended
December 31, 1994. The increase is principally due to the increase in loans
held for sale due to the additional production capacity from the Maryland
Acquisition and the LMUSA 1995 Purchase.


                                    Page 71

<PAGE>



     Net cash used in investing activities for the year ended December 31, 1997
totalled $1.0 billion, a decrease of $3.2 billion from the year ended December
31, 1996. Cash flows used in investing activities included $198.3 million for
acquisitions, purchases of securities of $1.4 billion and purchases of $2.6
billion in mortgage-backed securities. Cash flows provided by investing
activities included a net decrease in loans receivable of $514.4 million,
principal payments on mortgage-backed securities totalling $1.4 billion and
proceeds from maturities of securities of $1.0 billion.

     Net cash provided by investing activities for the year ended December 31,
1996 totalled $2.2 billion, an increase of $.4 billion from the year ended
December 31, 1995. Cash flows provided by investing activities included a net
decrease in loans receivable of $1.5 billion, principal payments on
mortgage-backed securities totalling $863.1 million and proceeds from
maturities of securities of $243.8 million. Cash flows used in investing
activities included a net $52.4 million from acquisitions, purchases of
securities of $507.3 million and purchases of $149.7 million in mortgage-backed
securities.

     Net cash provided by investing activities for the year ended December 31,
1995 totalled $1.7 billion, an increase of $1.7 billion from the year ended
December 31, 1994. Cash flows provided by investing activities included $272.3
million from the FDIC Purchase and other dispositions of the Covered Assets,
principal payments on mortgage-backed securities totalling $570.9 million and
proceeds from maturities of securities of $344.5 million. Proceeds from sales
of loans receivable, including loans sold to Granite pursuant to the Put
Agreement of $199.5 million, totalled $431.2 million. Proceeds from the Branch
Purchases provided $501.4 million. Cash flows used in investing activities
included $214.7 million for the Maryland Acquisition and LMUSA 1995 Purchase
and purchases of securities of $162.8 million.

     Net cash provided by financing activities for the year ended December 31,
1997 totalled $1.6 billion. Cash flows provided by financing activities
included additional borrowings of $19.6 billion, proceeds of $482.4 million
from the issuance of the REIT Preferred Stock and proceeds from the FN Escrow
Merger of $603.3 million. Cash flows used in financing activities included
principal payments on borrowings totalling $17.5 billion and a decrease in
deposits of $1.2 billion. Additionally, redemption of preferred stock totalled
$142.3 million and dividends on preferred and common stock, including dividends
paid to minority stockholders, totalled $171.2 million.

     Net cash used in financing activities for the year ended December 31, 1996
totalled $2.7 billion. Principal payments on borrowings totalled $8.5 billion,
funding of the Branch Sales totalled $4.6 billion and the net decrease in
securities sold under agreements to repurchase totalled $202.2 million.
Additionally, redemption of class C common stock totalled $124.7 million and
dividends on common and preferred stock of FN Holdings as well as the 11-1/2%
Preferred Stock totalled $110.8 million. Cash flows provided by financing
activities included additional borrowings of $10.7 billion and proceeds from
the issuance of FN Holdings Preferred Stock of $144.2 million.

     Net cash used in financing activities for the year ended December 31, 1995
totalled $1.2 billion. Principal payments on borrowings totalled $6.9 billion
and the net decrease in securities sold under agreements to repurchase totalled
$913.1 million. Additionally, dividends on and redemption of FN Holdings' class
C common stock totalled $29.2 million and $60.8 million, respectively, and
dividends on the 11-1/2% Preferred Stock totalled $34.6 million. Cash flows
provided by financing activities included increases in deposits (other than the
Branch Purchases) of $542.6 million and additional borrowings of $6.2 billion.

     FN Holdings' primary source of cash to pay the interest on and principal
of the 12-1/4% Senior Notes, the 9-1/8% Senior Subordinated Notes and the
10-5/8% Notes is expected to be distributions from the Bank. The annual
interest on the 12-1/4% Senior Notes is $24.5 million, the annual interest on
the 9-1/8% Senior Subordinated Notes is $12.8 million, and the annual interest
on the 10-5/8% Notes is $61.1 million.

     The terms of the Bank Preferred Stock provide that the Bank may not
declare or pay any dividends or other distributions (other than in shares of
common stock of the Bank or other Bank Junior Stock), with respect to any Bank
Junior Stock or repurchase, redeem or otherwise acquire, or set apart funds for
the repurchase, redemption or other acquisition of any Bank Junior Stock
(including the common stock held by FN Holdings) through a sinking fund or
otherwise, unless and until: (i) the Bank has paid in full dividends on the
Bank Preferred Stock for the four most recent dividend periods or funds have
been paid over to the dividend disbursing agent of the Bank for payment of such
dividends, and (ii) the Bank has declared a cash dividend on the Bank Preferred
Stock at the annual dividend rate for the current dividend period, and
sufficient funds have been paid over to the dividend disbursing agent of the
Bank for

                                    Page 72

<PAGE>



the payment of a cash dividend for such current dividend period. The Bank is
currently in compliance with such requirement.

     Similarly, the terms of the REIT Preferred Stock provide that Preferred
Capital Corp. may not declare or pay any dividends or other distributions
(other than in shares of common stock of Preferred Capital Corp. or other
Preferred Capital Corp. Junior Stock), with respect to any Preferred Capital
Corp. Junior Stock or repurchase, redeem or otherwise acquire, or set apart
funds for the repurchase, redemption or other acquisition of any Preferred
Capital Corp. Junior Stock (including the common stock held by the Bank)
through a sinking fund or otherwise, unless and until: (i) Preferred Capital
Corp. has paid full dividends on the REIT Preferred Stock for the four most
recent dividend periods or funds have been paid over to the dividend disbursing
agent of Preferred Capital Corp. for payment of such dividends, and (ii)
Preferred Capital Corp. has declared a cash dividend on the REIT Preferred
Stock at the annual dividend rate for the current dividend period, and
sufficient funds have been paid over to the dividend disbursing agent of
Preferred Capital Corp. for the payment of a cash dividend for such current
dividend period. Preferred Capital Corp. is currently in compliance with such
requirement.

     FN Holdings currently anticipates that, in order to pay the principal
amount of the 12-1/4% Senior Notes, the 9-1/8% Senior Subordinated Notes or the
10-5/8% Notes upon the occurrence of an Event of Default, (as defined in the
12-1/4% Senior Notes Indenture, the 9-1/8% Senior Subordinated Notes Indenture,
and the 10-5/8% Notes Indenture, as the case may be) or to redeem or repurchase
the 12-1/4% Senior Notes, the 9-1/8% Senior Subordinated Notes or the 10-5/8%
Notes upon a Change of Control Call Event (as defined in the 12 1/4% Senior
Notes Indenture, the 9-1/8% Senior Subordinated Notes Indenture or the 10-5/8%
Notes Indenture, as the case may be) or a Change of Control Put Event (as
defined in the 12-1/4% Senior Notes Indenture, the 9-1/8% Senior Subordinated
Notes Indenture or the 10-5/8% Notes Indenture, as the case may be) or, in the
event that earnings from the Bank are not sufficient to make distributions to
FN Holdings to enable it to pay the principal amount of the 12-1/4% Senior
Notes, the 9-1/8% Senior Subordinated Notes or the 10-5/8% Notes at maturity,
FN Holdings may be required to adopt one or more alternatives, such as
borrowing funds, selling its equity securities or equity securities or assets
of the Bank, or seeking capital contributions or loans from its affiliates.
None of the affiliates of FN Holdings will be required to make any capital
contributions or other payments to FN Holdings with respect to FN Holdings'
obligations on the 12-1/4% Senior Notes, the 9-1/8% Senior Subordinated Notes
or the 10-5/8% Notes. There can be no assurance that any of the foregoing
actions could be affected on satisfactory terms, that any of the foregoing
actions would enable FN Holdings to pay the principal amount of the 12-1/4%
Senior Notes, the 9-1/8% Senior Subordinated Notes or the 10-5/8% Notes or that
any of such actions would be permitted by the terms of the 12 1/4% Senior Notes
Indenture, the 9-1/8% Senior Subordinated Notes Indenture or the 10-5/8% Notes
Indenture or any other debt instruments of FN Holdings or FN Holdings'
subsidiaries then in effect, by the terms of the Bank Preferred Stock or under
applicable federal thrift laws or regulations.

     The 12-1/4% Senior Notes Indenture, the 9-1/8% Senior Subordinated Notes
Indenture and the 10-5/8% Notes Indenture generally limit distributions (and
other Restricted Payments (as defined in the 12-1/4% Senior Notes Indenture,
the 9-1/8% Senior Subordinated Notes Indenture and the 10-5/8% Notes Indenture,
as the case may be)) to 75% of the consolidated net income of FN Holdings if,
after giving effect to such distribution or payment (i) the Bank is "well
capitalized" under applicable OTS regulations and (ii) the Consolidated Common
Shareholders' Equity (as defined in the 12-1/4% Senior Notes Indenture, the
9-1/8% Senior Subordinated Notes Indenture and the 10-5/8% Notes Indenture, as
the case may be) of the Bank is at least equal to the Minimum Common Equity
Amount (as defined in the 12-1/4% Senior Notes Indenture, the 9-1/8% Senior
Subordinated Notes Indenture and the 10-5/8% Notes Indenture, as the case may
be). FN Holdings is able to loan funds to its affiliates provided that the
Consolidated Common Shareholders' Equity (as defined in the 12-1/4% Senior
Notes Indenture, the 9-1/8% Senior Subordinated Notes Indenture and the 10-5/8%
Notes Indenture, as the case may be) of the Bank is at least equal to the
Minimum Common Equity Amount (as defined therein), and the terms of any such
loan are in writing and on terms that would be obtainable in arm's length
dealings, and in certain cases, to the additional requirement that the loan be
approved by a majority of disinterested directors. Subject to such
restrictions, such loans may consist of any and all funds available to FN
Holdings, whether or not such funds may be distributed (or otherwise paid as a
Restricted Payment) pursuant to the terms of the 12-1/4% Senior Notes
Indenture, the 9-1/8% Senior Subordinated Notes Indenture or the 10-5/8% Notes
Indenture. It is currently expected that, after payment of its debt service and
other obligations, FN Holdings will make Restricted Payments, including
dividends and distributions, and loans to its affiliates to the extent
permitted by the terms of its debt instruments.


                                    Page 73

<PAGE>



     The terms and conditions of the 12-1/4% Senior Notes Indenture, the 9-1/8%
Senior Subordinated Notes Indenture and the 10-5/8% Notes Indenture impose
restrictions that affect, among other things, the ability of FN Holdings to
incur debt, pay dividends, engage in a business other than holding the common
stock of the Bank, make acquisitions, create liens, sell assets and make
certain investments. FN Holdings' ability to comply with the foregoing
provisions can be affected by events beyond FN Holdings' control. The breach of
any of these covenants could result in a default under one or more of the debt
instruments of FN Holdings. In the event of a default under any indebtedness of
FN Holdings or FN Holdings' subsidiaries, the holders of such indebtedness
could elect to declare all amounts outstanding under their respective debt
instruments to be due and payable. Any such declaration under a debt instrument
of FN Holdings or FN Holdings' subsidiaries is likely to result in an event of
default under one or more of the other debt instruments of FN Holdings or FN
Holdings' subsidiaries. If indebtedness of FN Holdings or FN Holdings'
subsidiaries were to be accelerated, there could be no assurance that the
assets of FN Holdings or FN Holdings' subsidiaries, as the case may be, would
be sufficient to repay in full borrowings under all of such debt instruments,
including the 12-1/4% Senior Notes, the 9-1/8% Senior Subordinated Notes and
the 10-5/8% Notes. See "Business--Sources of Funds."

IMPACT OF INFLATION AND CHANGING PRICES

     Prevailing interest rates have a more significant impact on the Company's
performance than does the general level of inflation. While interest rates may
bear some relationship to the general level of inflation (particularly in the
long run), over short periods of time interest rates may not necessarily move
in the same direction or change in the same magnitude as the general level of
inflation. As a result, the business of the Company is generally not affected
by inflation in the short run, but may be affected by inflation in the long
run.

PROBLEM AND POTENTIAL PROBLEM ASSETS

     Loans collectively reviewed for impairment by the Company include all 1-4
unit residential loans and performing multi-family and commercial real estate
loans under $500,000, excluding loans which have entered the workout process.

     The Company considers a loan to be impaired when, based upon current
information and events, it believes it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. Any insignificant delay (i.e., 60 days or less) or
insignificant shortfall in amount of payments will not cause a loan to be
considered impaired. In determining impairment, the Company considers large
non-homogeneous loans including nonaccrual loans, troubled debt restructurings,
and performing loans which exhibit, among other characteristics, high LTV
ratios, low debt-coverage ratios or other indications that the borrowers are
experiencing increased levels of financial difficulty. The Company bases the
measurement of collateral-dependent impaired loans on the fair value of the
loan's collateral. The amount, if any, by which the recorded investment of the
loan exceeds the measure of the impaired loan's value is recognized by
recording a valuation allowance.

     At December 31, 1997, the carrying value of loans that are considered to
be impaired totalled $110.1 million (of which $18.6 million were on nonaccrual
status). The average recorded investment in impaired loans during the year
ended December 31, 1997 was approximately $112.9 million. For the year ended
December 31, 1997, the Company recognized interest income on those impaired
loans of $10.5 million, which included $.6 million of interest income
recognized using the cash basis method of income recognition.



                                    Page 74

<PAGE>



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

<TABLE>
<CAPTION>
                                             December 31, 1997                          December 31, 1996
                                    --------------------------------------    --------------------------------------
                                    Non-performing  Impaired  Restructured    Non-performing  Impaired  Restructured
                                    --------------  --------  ------------    --------------  --------  ------------
                                                                    (in millions)
<S>                                      <C>          <C>        <C>                <C>          <C>        <C> 
Real Estate:
   1-4 unit residential                  $165         $ --       $  2               $146         $ --       $  3
   5+ unit residential                     12           43          7                 13           47         55
   Commercial and other                     6           67         26                  9           54         28
   Land                                    --           --         --                 --           --          1
   Construction                             2           --         --                  1            1         --
                                         ----         ----       ----               ----         ----       ----
       Total real estate                  185          110         35                169          102         87
Non-real estate                             7           --         --                  3           --         --
                                         ----         ----       ----               ----         ----       ----
       Total loans                        192         $110(a)    $ 35(b)             172         $102(a)    $ 87(b)
                                                      ====       ====                            ====       ====
Foreclosed real estate, net                77                                         52                    
Repossessed assets                          3                                         --                    
                                         ----                                       ----                    
       Total non-performing assets       $272                                       $224                    
                                         ====                                       ====                    
</TABLE>

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

(a)  Includes $18.6 and $22.6 million of non-performing loans and $17.5 and
     $18.3 million of loans classified as troubled debt restructurings at
     December 31, 1997 and 1996, respectively.
     
(b)  Includes non-performing loans of $2.1 million and $2.4 million at December
     31, 1997 and 1996, respectively. At December 31, 1997 and 1996, $1.7
     million and $2.4 million, respectively, of these non-performing, troubled
     debt restructurings were also considered impaired.

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

     Non-performing assets at December 31, 1997 included $91.3 million of
non-performing loans and $32.6 million of foreclosed real estate which were
acquired in the Cal Fed Acquisition and the 1996 Acquisitions. The Company's
non-performing assets, consisting of nonaccrual loans, net of purchase
accounting adjustments, repossessed assets and foreclosed real estate, net,
increased slightly to $272 million at December 31, 1997, compared with $224
million at December 31, 1996. On the other hand, non-performing assets as a
percentage of the Bank's total assets decreased to .87% at December 31, 1997,
from 1.36% of total assets at December 31, 1996. The decrease in the Bank's
non-performing assets as a percentage of total assets is due to the level of
the Bank's non-performing assets increasing less than the significant increase
in total assets over such time period.

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



                                    Page 75

<PAGE>



     The following table presents non-performing real estate assets by
geographic region of the country as of December 31, 1997:

<TABLE>
<CAPTION>
                                                              Total
                      Non-performing      Foreclosed      Non-performing
                        Real Estate      Real Estate,       Real Estate      Geographic
                      Loans, Net (2)        Net (2)           Assets        Concentration
                      --------------     ------------     --------------    -------------
                                             (dollars in millions)
<S>                       <C>                <C>              <C>                <C>  
Region:
    Northeast (1)         $  33              $14              $ 47               17.9%
    California              116               48               164               62.6
    Other regions            36               15                51               19.5
                          -----             ----              ----             ------
         Total            $ 185              $77              $262              100.0%
                          =====             ====              ====             ======
</TABLE>

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

(1)  Consists of Connecticut, Massachusetts, New Hampshire, New Jersey, New
     York, Pennsylvania, Rhode Island and Delaware.

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

     The level of non-performing assets is directly affected by economic
conditions throughout the country. The following table indicates non-performing
real estate loans, net of purchase accounting adjustments and specific
allowances for losses, by collateral type, interest rate type and state
concentration as of December 31, 1997:


<TABLE>
<CAPTION>
                                             
                   1-4 unit        5+ unit     Commercial       Total
                 Residential     Residential    and Other   Non-performing
                -------------- -------------- --------------  Real Estate      % of
   State        Variable Fixed Variable Fixed Variable Fixed    Loans          Total
   -----        -------- ----- -------- ----- -------- -----    -----          -----
                                    (dollars in millions)
<S>                <C>    <C>    <C>    <C>    <C>      <C>      <C>           <C>  
California         $ 91   $  7   $  9   $  1   $  7     $  1     $116          62.7%
New York             16      4      1    --     --       --        21          11.4
Hawaii                8      1    --     --     --       --         9           4.9
Florida               6      3    --     --     --       --         9           4.9
New Jersey            5      1    --     --     --       --         6           3.2
Ohio                  2      1    --     --     --       --         3           1.6
Illinois              2      1    --     --     --       --         3           1.6
Connecticut           3    --     --     --     --       --         3           1.6
Texas                 1      1    --     --     --       --         2           1.1
Other states (1)      8      4      1    --     --       --        13           7.0
                   ----   ----   ----   ----   ----     ----     ----         -----
 Total             $142   $ 23   $ 11   $  1   $  7     $  1     $185         100.0%
                   ====   ====   ====   ====   ====     ====     ====         =====
</TABLE>
-----------------

(1)  There are 27 states, Puerto Rico and the District of Columbia, of which no
     one state had non-performing loans in excess of 1% of the total.

     At December 31, 1997, the Company's largest non-performing asset was $5.5
million, and the Company had four non-performing assets over $2 million in size
with balances averaging approximately $3.9 million. At December 31, 1997, the
Company has 2,190 non-performing assets below $2 million in size, including
2,095 non-performing 1-4 unit residential assets.



                                    Page 76

<PAGE>



     The following table indicates outstanding balances of troubled debt
restructured loans, net of purchase accounting adjustments and specific
allowances for losses, by collateral type, interest rate type and state
concentration as of December 31, 1997:

<TABLE>
<CAPTION>
                          1-4 Unit            5+ Unit          Commercial           Total            
                         Residential        Residential         and Other         Troubled           
                     ------------------  -----------------  ----------------        Debt        % of  
                     Variable     Fixed  Variable    Fixed  Variable   Fixed   Restructured     Total
                     --------     -----  --------    -----  --------   -----   ------------     -----
                                                    (dollars in millions)
<S>                     <C>        <C>       <C>      <C>     <C>       <C>         <C>         <C>  
     California         $--        $2        $6       $--     $26       $--         $34         95.3%
     Florida             --        --         1        --      --        --           1          3.4
     Other states (1)    --        --        --        --      --        --          --          1.3
                        ---       ---       ---       ---     ---       ---         ---        -----
         Total          $--        $2        $7       $--     $26       $--         $35        100.0%
                        ===       ===       ===       ===     ===       ===         ===        =====
</TABLE>

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

(1)  There are five states of which no one state had troubled debt restructured
     loans in excess of 1% of the total.

     The following table indicates outstanding balances of impaired loans, net
of purchase accounting adjustments and specific allowances for losses, by
collateral type, interest rate type and state concentration as of December 31,
1997:

<TABLE>
<CAPTION>
                                              5+ Unit          Commercial
                                            Residential         and Other                
                                         -----------------  ----------------       Total       % of
                                         Variable    Fixed  Variable   Fixed     Impaired      Total
                                         --------    -----  --------   -----     --------      ----
                                                    (dollars in millions)
<S>                                         <C>        <C>    <C>        <C>      <C>          <C>  
     California                             $35        $2     $47        $6       $  90        81.9%
     New York                                 3         1       2        --           6         5.8
     Illinois                                --        --       5        --           5         4.4
     Hawaii                                  --        --       4        --           4         3.3
     Florida                                  1        --       2        --           3         2.3
     Arizona                                 --        --      --         1           1         1.0
     Other states (1)                         1        --      --        --           1         1.3
                                            ---        --     ---        --       -----       -----
         Total                              $40        $3     $60        $7       $ 110       100.0%
                                            ===        ==     ===        ==       =====       =====
</TABLE>

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

(1)  There are four states of which no one state had impaired loans in excess
     of 1% of the total.


                                    Page 77

<PAGE>



     A summary of the activity in the allowance for loan losses by loan type is
as follows for the years ended December 31, 1997, 1996 and 1995:

<TABLE>
<CAPTION>
                                                              5+ Unit
                                                            Residential
                                           1-4 Unit       and Commercial      Consumer
                                          Residential       Real Estate       and Other          Total
                                          -----------     --------------      ---------          -----   
                                                                 (in millions)
<S>                                          <C>              <C>               <C>              <C> 
     Balance - December 31, 1994             $111             $ 83              $  9             $203
         Provision for loan losses             31                3                 3               37
         Charge-offs                          (27)              (1)               (5)             (33)
         Recoveries                             1               --                 2                3
                                             ----             ----               ---             ----
     Balance - December 31, 1995              116               85                 9              210
         Purchases and acquisitions, net        6               32                 1               39
         Provision for loan losses             34                2                 4               40
         Charge-offs                          (35)              (4)               (6)             (45)
         Recoveries                             2               --                 1                3
                                             ----             ----               ---             ----
     Balance - December 31, 1996              123              115                 9              247
         Purchases and acquisitions, net       55               79                30              164
         Provision for loan losses             60               12                 8               80
         Charge-offs                          (38)              (8)              (10)             (56)
         Recoveries                             2               --                 2                4
                                             ----             ----               ---             ----
     Balance - December 31, 1997             $202             $198               $39             $439
                                             ====             ====               ===             ====
</TABLE>

     The ratio of allowance for loan losses to non-performing loans at December
  31, 1997, 1996 and 1995 was 228.5%, 143.2% and 122.8%, respectively. The
  increase in the ratio is primarily attributed to the Cal Fed Acquisition and
  the expiration of the Put Agreement.

  MORTGAGE BANKING OPERATIONS

     The Company, through California Federal and FNMC, has significantly
  expanded its mortgage banking operations. Effective May 31, 1997, FNMC
  consummated the Weyerhaeuser Purchase involving the acquisition of a
  residential mortgage loan servicing portfolio of approximately $3.2 billion
  and approximately 40,000 loans for a purchase price of $37.1 million. On
  September 30, 1997, FNMC sold MSRs for approximately 52,000 loans with an
  unpaid principal balance of approximately $2.3 billion for a pre-tax gain of
  $14.0 million. With the consummation of the Weyerhaeuser Purchase, the
  acquisition of additional 1-4 unit residential loan servicing portfolios in
  the Cal Fed Acquisition and the MSRs resulting from the origination and sale
  of loans, the 1-4 unit residential loans serviced for others (including loans
  subserviced for others and excluding loans serviced for the Bank) totalled
  $46.6 billion at December 31, 1997, an increase of $3.5 billion from December
  31, 1996. During 1997, the Company, through FNMC, originated $6.3 billion and
  sold (generally with servicing retained) $5.5 billion 1-4 unit residential
  loans. Gross revenues from mortgage loan servicing activities for 1997
  totalled $235.7 million, an increase of $80.3 million from the year ended
  December 31, 1996.

     A decline in long-term interest rates generally results in an acceleration
  of mortgage loan prepayments. Higher than anticipated levels of prepayments
  generally cause the accelerated amortization of MSRs and generally will
  result in a reduction of the market value of MSRs and in the Company's
  servicing fee income. To reduce the sensitivity of its earnings to interest
  rate and market value fluctuations, the Company hedged the change in value of
  its MSRs based on changes in interest rates ("MSR Hedge").

     At December 31, 1997, the Company, through FNMC, was a party to several
  interest rate floor contracts maturing from October 2001 through June 2002.
  The Company paid counterparties a premium in exchange for cash payments in
  the event that the 10-year Constant Maturity Treasury rate falls below
  negotiated strike prices. At December 31, 1997, the notional amount of the
  interest rate floors was $970 million and the strike prices were between 5.0%
  and 6.5%. In addition, the Company, through FNMC, entered into principal-only
  swap agreements with a notional amount of $99

                                    Page 78

<PAGE>



  million. The estimated market values of interest rate floor contracts and
  swaps designated as hedges against MSRs at December 31, 1997 were $18.0
  million and $13.5 million, respectively.

     The premium paid by the Company on the interest rate floor contracts is
  based on the option decay rate. Amounts receivable or payable under the
  principal-only swap agreements and amounts receivable under the interest
  rate floor contracts or terminated hedges are included in the carrying value
  of MSRs and are amortized as part of the MSRs basis. Gains and losses on
  early termination of these hedges would be included in the carrying amount of
  the related MSRs and amortized over the remaining terms of the assets. Two
  requirements must be met in order to use these hedge accounting methods: (i)
  MSRs must expose the Company to interest rate risk, and (ii) at the inception
  of the hedge and throughout the hedge period, high correlation of changes in
  the market value of the interest floor contracts and the principal-only swaps
  and the fair value of the MSRs must be probable so that the results of the
  interest floor contracts and the principal-only swaps will substantially
  offset the effects of interest rate changes on the MSRs. If these
  requirements are not met, the interest floor contracts and the principal-only
  swaps would be considered speculative and marked to market with changes in
  market value reflected in current earnings.

     In accounting for its mortgage loan sales prior to April 1, 1995, a gain
  or loss was recognized by the Company based on the sum of three components:
  (i) the difference between the cash proceeds of the loan sales and the
  Company's book value of the loans; plus (ii) the "excess servicing," if any;
  less (iii) provisions for estimated losses to be incurred from limited
  recourse obligations, if any. Excess servicing results in a capitalized asset
  that is amortized as an offset to servicing fee income using the interest
  method over the estimated remaining lives of the loans sold.

     Effective April 1, 1995, the Company adopted SFAS No. 122 (superseded by
  SFAS No. 125), which requires that, when a mortgage loan is sold and
  servicing rights are retained, a portion of the cost of originating a
  mortgage loan be allocated to the MSRs rights based on its fair market value.
  This cost of originating the loan is capitalized and amortized over the
  period of estimated future net servicing income. The net gains on sales of
  1-4 unit residential loans during the year ended December 31, 1997 totalled
  $24.7 million and included amounts related to the capitalization of
  originated and excess MSRs of $120.5 million.

     The following is a summary of activity in MSRs and the MSR Hedge for the
  year ended December 31, 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                                              Total MSR
                                                              MSRs            MSR Hedge         Balance
                                                              ----            ---------         -------
<S>                                                        <C>              <C>              <C>     
     Balance at December 31, 1996                            $420,187          $3,505           $423,692
         Additions - Cal Fed Acquisition                       44,497              --             44,497
         Additions - Weyerhaeuser Purchase                     41,949              --             41,949
         Originated servicing                                 120,465              --            120,465
         Additions - other                                     27,939              --             27,939
         Sale - Servicing Sale                                (16,792)             --            (16,792)
         Sales - other                                             (4)             --                 (4)
         Premium paid on interest rate floor contracts             --           7,088              7,088
         Payments received under interest rate floor contracts     --            (471)              (471)
         Net received under principal-only swap
              agreements                                           --          (1,378)            (1,378)
         Amortization                                        (106,972)         (3,310)          (110,282)
                                                             --------           ------           --------
     Balance at December 31, 1997                            $531,269          $5,434           $536,703
                                                             ========          ======           ========
</TABLE>

     Capitalized MSRs are amortized in proportion to, and over the period of,
  estimated net servicing income. SFAS No. 125 requires enterprises to measure
  the impairment of MSRs based on the difference between the carrying amount of
  the MSRs and their current fair value. At December 31, 1997 and 1996, no
  allowance for impairment of the MSRs was necessary.


                                    Page 79

<PAGE>



  CAPITAL RESOURCES

     OTS capital regulations require savings associations to satisfy three
  minimum capital requirements: tangible capital, core (leverage) capital and
  risk-based capital. In general, an association's tangible capital, which must
  be at least 1.5% of adjusted total assets, is the sum of common stockholders'
  equity (including retained earnings), noncumulative perpetual preferred stock
  and minority interest in equity accounts of fully consolidated subsidiaries,
  less disallowed intangibles. An association's ratio of core capital to
  adjusted total assets (the "core" capital or "leverage capital" ratio) must
  be at least 3%. Core capital generally is the sum of tangible capital plus
  certain other qualifying intangibles. Under the risk-based capital
  requirement, a savings association must have total capital (core capital plus
  supplementary capital) equal to at least 8% of risk-weighted assets (which
  equals assets plus the credit risk equivalent of certain offbalance sheet
  items, each multiplied by the appropriate risk weight). Supplementary
  capital, which may not exceed 100% of core capital for purposes of the
  risk-based requirement, includes, among other things, certain permanent
  capital instruments such as qualifying cumulative perpetual preferred stock,
  as well as some forms of term capital instruments, such as qualifying
  subordinated debt. The capital requirements are viewed as minimum standards
  by the OTS, and most associations are expected to maintain capital levels
  well above the minimum. In addition, the OTS regulations provide that minimum
  capital levels higher than those provided in the regulations may be
  established by the OTS for individual savings associations, depending upon
  their particular circumstances. The Bank currently is not subject to any such
  individual minimum regulatory capital requirement. The OTS and the other
  banking agencies recently proposed to amend the minimum capital requirements
  to establish a minimum core capital requirement of 4% for all but the
  strongest savings associations. These capital requirements are applicable to
  the Bank but not to FN Holdings. See "Business--Regulation of the
  Bank--Regulatory Capital Requirements."

     At December 31, 1997, the Bank's regulatory capital levels exceeded the
  minimum regulatory capital requirements, with tangible, core and risk-based
  capital ratios of 5.65%, 5.65% and 11.93%, respectively. The following is a
  reconciliation of the Bank's stockholders' equity to regulatory capital as of
  December 31, 1997:

<TABLE>
<CAPTION>
                                                                           Tangible         Core        Risk-based
                                                                           Capital         Capital        Capital
                                                                           -------         -------        -------
                                                                                   (dollars in millions)
<S>                                                                      <C>           <C>            <C>   
  Stockholders' equity of the Bank                                         $2,260        $2,260         $2,260
  Minority interest - REIT Preferred Stock                                    500           500            500
  Unrealized holding gain on securities available for sale, net               (35)          (35)           (35)
  Non-qualifying MSRs                                                         (54)          (54)           (54)
  Non-allowable capital:
     REIT Preferred Stock in excess of 25% of Tier 1                          (71)          (71)           (71)
       capital
     Intangible assets                                                       (676)         (676)          (676)
     Goodwill Litigation Asset                                               (100)         (100)          (100)
     Investment in subsidiaries                                               (53)          (53)           (53)
     Excess deferred tax asset                                                (55)          (55)           (55)
  Supplemental capital:
     Qualifying subordinated debt debentures                                   --            --             94
     General loan loss allowance                                               --            --            214
  Assets required to be deducted:
     Land loans with more than 80% LTV ratio                                   --            --            (6)
                                                                           ------       -------       -------
  Regulatory capital of the Bank                                            1,716         1,716          2,018

  Minimum regulatory capital requirement                                      456           911          1,353
  Fully capitalized items                                                       -            --              2
                                                                           ------       -------        -------
  Excess above minimum capital requirement                                 $1,260       $   805        $   663
                                                                           ======       =======        =======

</TABLE>


                                    Page 80

<PAGE>




<TABLE>
<CAPTION>
                                                 Leverage        Risk-based      Tangible
                                                 Capital          Capital        Capital
                                                  Ratio            Ratio          Ratio
                                                  -----            -----          -----
<S>                                            <C>             <C>             <C>   
     Regulatory capital of the Bank                5.65%            5.65%        11.93%
     Minimum regulatory capital requirement        1.50             3.00          8.00
                                                   ----             ----        ------
     Excess above minimum capital requirement      4.15%            2.65%         3.93%
                                                   ====             ====        ======
</TABLE>

     The amount of adjusted total assets used for the tangible and leverage
  capital ratios is $30.4 billion. Risk-weighted assets used for the risk-based
  capital ratio amounted to $16.9 billion.

     The Bank is also subject to "prompt corrective action" standards
  prescribed in the FDICIA and related OTS regulations, which, among other
  things, define specific capital categories based on an institution's capital
  ratios. See "Business--Regulation of the Bank."

     At December 31, 1997, the Bank's leverage capital, Tier 1 (core capital)
  risk-based and total risk-based capital ratios were sufficient for it to be
  considered "well capitalized" under applicable OTS regulations:

<TABLE>
<CAPTION>
                                                                                    Risk-based
                                                               Leverage      -------------------------
                                                                Capital      Tier 1     Total Capital
                                                                -------      ------     -------------
<S>                                                          <C>             <C>       <C>   
     Regulatory capital of the Bank                              5.65%        10.14%       11.93%
     "Well capitalized" ratio                                    5.00          6.00        10.00
                                                                 ----        ------        -----
     Excess above "well capitalized" ratio                       0.65%         4.14%        1.93%
                                                                 ====        ======       ======
</TABLE>

     OTS capital regulations allow a savings association to include a net
  deferred tax asset in regulatory capital, subject to certain limitations. To
  the extent that the realization of a deferred tax asset depends on a savings
  association's future taxable income, such deferred tax asset is limited for
  regulatory capital purposes to the lesser of the amount that can be realized
  within one year or 10 percent of core capital. At December 31, 1997, $55
  million of the net tax benefit was determined to be attributable to the
  amount of taxable income that may be realized in periods beyond one year.
  Accordingly, such amount has been excluded from regulatory capital at
  December 31, 1997.

  YEAR 2000

     During the year ended December 31, 1997, the Company finalized its plan to
  address issues related to required changes in computer systems for the year
  2000. Issues arise because some computer systems and related software have
  been designed to recognize only dates that relate to the 20th century.
  Accordingly, if no changes are implemented, these computer systems would
  interpret "1/1/00" as January 1, 1900 instead of January 1, 2000.
  Additionally, some equipment, being controlled by microprocessor chips, may
  not deal appropriately with a year "00."

     The Company has formed an internal task force to determine what changes
  are needed in its software as well as what other steps will be necessary to
  ensure continued operations of the Company's equipment. The Year 2000 task
  force has completed an inventory of all computer hardware and software in use
  at the Company, as well as other datesensitive equipment, such as alarm and
  building environmental systems, telephone systems and fax machines.

     Based on its current evaluation, the Company believes that, by December
  31, 1998, substantially all issues related to Year 2000 will be addressed,
  either by programming changes to the Company's custom software, by
  programming changes implemented by third party vendors to purchased systems,
  or through the upgrading or purchase of year 2000- compliant hardware and
  software. Extensive testing is expected to occur during 1999. Year 2000 is
  the highest priority project within the Information and Technology Services
  unit of the Company. Management believes there is no material risk that the
  Company will fail to address year 2000 issues in a timely manner. It is
  currently expected that costs related to Year 2000 will total approximately
  $14 million over the years of 1997 to 1999, of which $1.2 million was
  incurred during the year ended December 31, 1997.


                                    Page 81

<PAGE>



  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     ALCO, which includes senior management representatives, monitors and
  considers methods of managing the rate and sensitivity repricing
  characteristics of the balance sheet components consistent with maintaining
  acceptable levels of changes in net portfolio value ("NPV") and net interest
  income. A primary purpose of the Company's asset and liability management is
  to manage interest rate risk to effectively invest the Company's capital and
  to preserve the value created by its core business operations. As such,
  certain management monitoring processes are designed to minimize the impact
  of sudden and sustained changes in interest rates on NPV and net interest
  income.

     The Company's exposure to interest rate risk is reviewed on at least a
  quarterly basis by the Board of Directors of the Bank and the ALCO. Interest
  rate risk exposure is measured using interest rate sensitivity analysis to
  determine the Company's change in NPV and net interest income in the event of
  hypothetical changes in interest rates and interest rate sensitivity gap
  analysis is used to determine the repricing characteristics of the Company's
  assets and liabilities. If estimated changes to NPV and net interest income
  are not within the limits established by the Board, the Board may direct
  management to adjust its asset and liability mix to bring interest rate risk
  within Board-approved limits.

     In order to reduce the exposure to interest rate fluctuations, the Company
  has developed strategies to manage its liquidity, shorten its effective
  maturities of certain interest-earning assets, and increase the interest rate
  sensitivity of its asset base. Management has sought to decrease the average
  maturity of its assets by emphasizing the origination of adjustable-rate
  residential mortgage loans and consumer loans, which are retained by the
  Company for its portfolio. In addition, long-term, fixed-rate single-family
  residential mortgage loans are underwritten according to guidelines of FHLMC,
  GNMA and the FNMA, and are either swapped with the FHLMC, GNMA and the FNMA
  in exchange for mortgage-backed securities secured by such loans which are
  then sold or are sold directly for cash in the secondary market.

     Interest rate sensitivity analysis is used to measure the Company's
  interest rate risk by computing estimated changes in NPV of its cash flows
  from assets, liabilities and off-balance sheet items in the event of a range
  of assumed changes in market interest rates. NPV represents the market value
  of portfolio equity and is equal to the market value of assets minus the
  market value of liabilities, with adjustments made for off-balance sheet
  items. This analysis assesses the risk of loss in market risk sensitive
  instruments in the event of a sudden and sustained increase or decrease in
  the market interest rates of one hundred to four hundred basis points. The
  Bank's Board of Directors has adopted an interest rate risk policy which
  establishes maximum decreases in the NPV of 15%, 30%, 45% and 60% in the
  event of a sudden and sustained increase or decrease in market interest rates
  of one hundred, two hundred, three hundred and four hundred basis points,
  respectively. The following table presents the Company's projected change in
  NPV for the various rate shock levels at December 31, 1997. All market risk
  sensitive instruments presented in this table are held to maturity or
  available for sale. The Company has no trading securities.

<TABLE>
<CAPTION>
                                                                                 Percent Change
                                                                             ------------------------
              Change in            Market Value of             Actual                          Board
           Interest Rates         Portfolio Equity             Change         Actual           Limit
           --------------         ----------------             ------         ------           -----
                                                        (dollars in millions)
<S>                                <C>                  <C>               <C>                <C>  
  400 basis point rise                $1,163               $(605)            (34.2)%            (60)%
  300 basis point rise                 1,492                (276)            (15.6)             (45)
  200 basis point rise                 1,744                 (24)             (1.4)             (30)
  100 basis point rise                 1,833                   65              3.7              (15)
  Base Scenario                        1,768                   --               --               --
  100 basis point decline              1,613                (155)             (8.8)             (15)
  200 basis point decline              1,562                (206)            (11.7)             (30)
  300 basis point decline              1,581                (187)            (10.6)             (45)
  400 basis point decline              1,570                (198)            (11.2)             (60)
</TABLE>

     The preceding table indicates that at December 31, 1997, in the event of a
  sudden and sustained increase in prevailing market interest rates, the
  Company's NPV, including minority interest, would be expected to decrease,
  and that in the event of a sudden and sustained decrease in prevailing market
  interest rates, the Company's NPV would be

                                    Page 82

<PAGE>



  expected to experience little change. At December 31, 1997, the Company's
  estimated changes in NPV were within the targets established by the Board of
  Directors of the Bank.

     The fair market value of portfolio equity decreases in a rising interest
  rate environment because FN Holdings' interest-bearing liabilities generally
  reprice faster than its interest-earning assets, and certain interest-earning
  assets are subject to periodic caps. The reduction in value of the net
  interest-earning assets is partially offset by an increase in value of MSRs
  that appreciate in value as rates rise. In a declining interest rate
  environment, the reduction in value of MSRs generally outweighs the increase
  in value of the rest of the portfolio resulting from the repricing
  differences of interest-earning assets and interest-bearing liabilities.

     NPV is calculated by the Company pursuant to guidelines established by the
  OTS. The calculation is based on the net present value of estimated
  discounted cash flows utilizing market prepayment assumptions and market
  rates of interest provided by independent broker quotations and other public
  sources as of December 31, 1997, with adjustments made to reflect the shift
  in the Treasury yield curve as appropriate.

     The computation of prospective effects of hypothetical interest rate
  changes is based on numerous assumptions, including relative levels of market
  interest rates, loan prepayments and deposits decay, and should not be relied
  upon as indicative of actual results. Further, the computations do not
  contemplate any actions the ALCO could undertake in response to changes in
  interest rates.

     Certain shortcomings are inherent in the method of analysis presented in
  the computation of NPV. Actual values may differ from those projections
  presented, should market conditions vary from assumptions used in the
  calculation of the NPV. Certain assets, such as adjustable-rate loans, which
  represent one of the Company's primary loan products, have features which
  restrict changes in interest rates on a short-term basis and over the life of
  the assets. In addition, the proportion of adjustable-rate loans in the
  Company's portfolio could decrease in future periods if market interest rates
  remain at or decrease below current levels due to refinance activity.
  Further, in the event of a change in interest rates, prepayment and early
  withdrawal levels would likely deviate significantly from those assumed in
  the NPV. Finally, the ability of many borrowers to repay their
  adjustable-rate mortgage loans may decrease in the event of interest rate
  increases.

     In addition, the Company uses interest rate sensitivity gap analysis to
  monitor the relationship between the maturity and repricing of its
  interest-earning assets and interest-bearing liabilities, while maintaining
  an acceptable interest rate spread. See "Management's Discussion and Analysis
  of Financial Condition and Results of Operations--Asset/Liability
  Management."


                                    Page 83

<PAGE>



  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements of FN Holdings at December
  31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995
  are included in this report at the pages indicated.

                                                                     Page
                                                                     ----
  Independent Auditors' Report                                        F-1
  Consolidated Balance Sheets                                         F-2
  Consolidated Statements of Income                                   F-3
  Consolidated Statements of Comprehensive Income                     F-4
  Consolidated Statements of Stockholders' Equity                     F-5
  Consolidated Statements of Cash Flows                               F-6
  Notes to Consolidated Financial Statements                          F-8

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

     None.



                                    Page 84

<PAGE>



                                    PART III

  ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The following table sets forth certain information (ages as of January 1,
  1998) concerning the directors and executive officers of FN Holdings. All
  directors serve terms of one year or until the election of their respective
  successors.

<TABLE>
<CAPTION>
     Name                               Age          Position
     ----                               ---          --------
<S>                                      <C>         <C>                                                                   
     Ronald O. Perelman...................55         Chairman of the Board, Chief Executive Officer and Director
     Howard Gittis........................64         Vice Chairman and Director
     Irwin Engelman.......................62         Executive Vice President and Chief Financial Officer
     Barry F. Schwartz....................48         Executive Vice President and General Counsel
     Laurence Winoker.....................41         Vice President and Controller
</TABLE>

     The following table sets forth certain information (ages as of March 1,
  1998), concerning the directors and executive officers of the Bank. All
  directors serve terms of one year or until the election of their respective
  successors.

<TABLE>
<CAPTION>
     Name                               Age          Position
     ----                               ---          --------
<S>                                      <C>         <C>                                                                   
     Ronald O. Perelman...................55         Director
     Gerald J. Ford.......................53         Chairman of the Board, Chief Executive Officer and Director
     Carl B. Webb.........................48         President, Chief Operating Officer and Director
     Edward G. Harshfield.................61         Vice Chairman of the Board and Director
     Paul M. Bass, Jr.....................62         Director
     George W. Bramblett, Jr..............57         Director
     Bob Bullock..........................68         Director
     Irwin Engelman.......................62         Director
     Howard Gittis........................64         Director
     Gabrielle K. McDonald................55         Director
     Lynn Schenk..........................53         Director
     Robert Setrakian.....................74         Director
     Christie S. Flanagan.................59         Executive Vice President and General Counsel
     Kendall M. Fugate....................60         Executive Vice President and Information and Technology
                                                          Services Director
     Richard P. Hodge.....................43         Executive Vice President and Corporate Tax Director
     Walter C. Klein, Jr..................54         Executive Vice President; President, FNMC
     Richard A. Leweke....................44         Executive Vice President and Administrative Services Director
     Lacy G. Newman, Jr...................48         Executive Vice President and Chief Credit Officer
     James R. Staff.......................50         Executive Vice President and Chief Financial Advisor
     Richard H. Terzian...................61         Executive Vice President and Chief Financial Officer
     Peter K. Thomsen.....................55         Executive Vice President and Retail Banking Director
     Dennis L. Verhaegen..................46         Executive Vice President - Director of Corporate Finance
     Michael R. Walker....................52         Executive Vice President - Commercial Real Estate
     Renee Nichols Tucei..................41         Senior Vice President and Controller
</TABLE>


     Mr. Perelman has been Chairman of the Board of FN Holdings since its
formation in 1994 and a Director of the Bank since 1994. Mr. Perelman has been
Chairman of the Board and Chief Executive Officer of MacAndrews & Forbes and
various of its affiliates since 1980. Mr. Perelman also is Chairman of the
Executive Committees of the Boards of Directors of Cigar Holdings, MFW, The
Coleman Company, Inc. ("Coleman"), Revlon, Inc. ("Revlon") and Revlon Consumer
Products Corporation ("Products Corporation") and Chairman of the Board of
Meridian Sports Incorporated ("Meridian"). Mr. Perelman is a Director of the
following corporations which file reports pursuant to the Exchange Act:
California Federal, CLN Holdings Inc. ("CLN"), Coleman, Coleman

                                    Page 85

<PAGE>



Worldwide Corporation ("Coleman Worldwide"), Cigar Holdings, FN Holdings,
Parent Holdings, MFW, Meridian, Products Corporation, Revlon and REV Holdings
Inc. ("REV Holdings"). (On December 27, 1996, Marvel Entertainment Group
("Marvel"), Marvel (Parent) Holdings Inc. ("Marvel Parent") and Marvel Holdings
Inc. ("Marvel Holdings"), of which Mr. Perelman was a Director, Marvel III
Holdings Inc. ("Marvel III"), of which Mr. Perelman is a Director, and several
subsidiaries of Marvel filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.)

     Mr. Gittis has been Vice Chairman and a Director of FN Holdings and a
Director of the Bank since 1994. Mr. Gittis has been Vice Chairman of
MacAndrews & Forbes and various of its affiliates since 1985. Mr. Gittis is a
Director of the following corporations which file reports pursuant to the
Exchange Act: California Federal, CLN, Cigar Holdings, Jones Apparel Group,
Inc., Loral Space and Communications, Ltd., FN Holdings, Parent Holdings, MFW,
Revlon, Products Corporation, REV Holdings and Rutherford-Moran Oil
Corporation.

     Mr. Engelman has been Executive Vice President and Chief Financial Officer
of FN Holdings since its formation in 1994, and a Director of the Bank since
1992. He has been Executive Vice President and Chief Financial Officer of
MacAndrews & Forbes and various other affiliates since February 1992. He was
Executive Vice President and Chief Financial Officer of GAF Corporation from
1990 to 1991; Director, President and Chief Operating Officer of Citytrust
Bancorp Inc. from 1988 to 1990; Executive Vice President of the Blackstone
Group LP from 1987 to 1988; and Director and Executive Vice President of
General Foods Corporation for more than five years prior to 1987. Mr. Engelman
is a Director of the following corporation which files reports pursuant to the
Exchange Act: Revlon Products. (On December 27, 1996, Marvel Holdings and
Marvel Parent, of which Mr. Engelman was an executive officer, and Marvel III,
of which Mr. Engelman is an executive officer, and several of the subsidiaries
of Marvel filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code.)

     Mr. Schwartz has been Executive Vice President and General Counsel of FN
Holdings since January 1996. He has been Executive Vice President and General
Counsel of MacAndrews & Forbes and various affiliates since 1993. Mr. Schwartz
was Senior Vice President of MacAndrews & Forbes from 1989 to 1993. (On
December 27, 1996, Marvel Holdings and Marvel Parent, of which Mr. Schwartz was
an executive officer, and Marvel III, of which Mr. Schwartz is an executive
officer, and several of the subsidiaries of Marvel filed voluntary petitions
for reorganization under Chapter 11 of the United States Bankruptcy Code.)

     Mr. Winoker has been Vice President and Controller of FN Holdings since
1994. He has been Vice President and Controller of MacAndrews & Forbes and
various of its affiliates since September 1992. Mr. Winoker was Assistant Vice
President and Assistant Controller of MacAndrews & Forbes and various of its
affiliates for more than five years prior to September 1992. (On December 27,
1996, Marvel Holdings and Marvel Parent, of which Mr. Winoker was an executive
officer, and Marvel III, of which Mr. Winoker is an executive officer, and
several of the subsidiaries of Marvel filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)

     Mr. Ford has been Chairman of the Board, Chief Executive Officer and a
Director of the Bank since the consummation of the FN Acquisition and of
Preferred Capital Corp. since its formation in November 1996. Mr. Ford was
Chairman of the Board and a Director of First Madison from 1993 to 1994. Mr.
Ford previously served as Chairman of the Board, Chief Executive Officer and a
Director of First Gibraltar from 1988 through 1993. Mr. Ford served as the
Chairman of the Board, Chief Executive Officer and a Director of First United
Bank Group, Inc. ("First United Bank Group"), from 1993 through 1994. Mr. Ford
is Chairman of the Board and a Director of FNMC, FGB Services, Inc. and Madison
Realty Advisors, Inc. ("Madison Realty"). Mr. Ford has also served in the
following capacities over the past five years: Chairman of the Board, Chief
Executive Officer and Director, Ford Bank Group, Inc. ("Ford Bank Group"); and
Chairman of the Board, Chief Executive Officer and Director, United New Mexico
Financial Corporation. Mr. Ford is also Chairman of the Board and Chief
Executive Officer of Liberte Investors Inc., President and a Director of Parent
Holdings and a Director of McMoRan Oil and Gas Co.

     Mr. Webb has been the President, Chief Operating Officer and a Director of
the Bank since the consummation of the FN Acquisition and of Preferred Capital
Corp. since its formation in November 1996. Mr. Webb served as President, Chief
Executive Officer and Director of First Madison from 1993 through 1994. Mr.
Webb previously served as President, Chief Operating Officer and a Director of
First Gibraltar from 1988 through 1993. Mr. Webb also serves as a Director of
FNMC.

                                    Page 86

<PAGE>



     Mr. Harshfield has been Vice Chairman of the Board and a Director of the
Bank since January 1997. Mr. Harshfield was President, Chief Executive Officer
and a Director of Cal Fed from January 1996 to January 1997 and of Old
California Federal from October 1993 to January 1997. From October 1992 to
March 1993, Mr. Harshfield served as Chief Executive Officer and a Director of
First City Texas National Bank. From February 1991 to December 1992, he served
as President, Chief Executive Officer and a Director of Federal Capital Bank, a
private investment bank. Since 1988, Mr. Harshfield has been the principal,
Chairman and Chief Executive Officer of EH Thrift Management Inc., a special
purpose management company, and general partner of U.S. Thrift Opportunity
Partners, L.P., a Merrill Lynch sponsored limited partnership that invests in
undercapitalized thrift institutions. Prior to 1988, Mr. Harshfield served as
President and Chief Executive Officer of Household Financial Services. Mr.
Harshfield also held various senior positions with Citicorp/Citibank and
Pepsico Inc.

     Mr. Bass has been a Director of the Bank since May, 1993. Mr. Bass is
currently the Vice Chairman and Director of First Southwest Company. Mr. Bass
is a Director and Chairman of the Audit Committee of Keystone Consolidated
Industries, and is a Director of Source Services, Inc. Mr. Bass has served in
the following capacities during the past five years: Director, Endevco, Inc.;
Director, Jayhawk Acceptance Corporation; Director, Ford Bank Group; and
Chairman of the Board and Director, Pizza Inn, Inc.

     Mr. Bramblett has been a Director of the Bank since May, 1993. Mr.
Bramblett has been associated with the law firm of Haynes & Boone since 1973
and is currently a Partner and a member of the Executive Committee of that
firm. Mr. Bramblett has served in the following capacities during the past five
years: Member of the Texas Higher Education Coordinating Board of the Texas
College and University System of Texas and Trustee of the Baylor College of
Dentistry.

     Mr. Bullock has served as a Director of the Bank since 1994. Mr. Bullock
has been Lieutenant Governor of the State of Texas since 1990. Mr. Bullock is
Chairman of the Board, Director and President of JFB-RDB, Inc. Mr. Bullock
served as a Director of the Ford Bank Group from 1992 to 1993, and as Director
of the First United Bank Group from 1992 to 1993. Prior to 1990, Mr. Bullock
served as the State of Texas Comptroller of Public Accounts. Mr. Bullock has
been Of Counsel to the law firm of Scott, Douglass, Luton and McConnico, L.L.P.
since 1992.

     Ms. McDonald has served as a Director of the Bank since 1990. Ms. McDonald
also served as a Director of FGB- San Antonio in 1992. Ms. McDonald currently
serves as a Judge on the International Criminal Tribunal for the former
Yugoslavia. Ms. McDonald is also currently a Professor of Law at the Thurgood
Marshall School of Law of Texas Southern University. Ms. McDonald currently
serves as a director of Freeport McMoRan Inc., McMoRan Oil & Gas Co. and
Freeport McMoRan Copper & Gold Inc. Ms. McDonald was Of Counsel to the Walker &
Satterthwaite firm from 1991 to 1993. She was a partner in the law firm of
Matthews & Branscomb from 1988 through 1991. Prior to that time, Ms. McDonald
served as a United States District Court Judge for the Southern District of
Texas.

     Ms. Schenk has been a Director of the Bank since November, 1996. Ms.
Schenk has been a Senior Consultant to Baker & McKenzie, San Diego, California
since 1995. From January, 1993 to January, 1995, Ms. Schenk served in the U.S.
House of Representatives as Congresswoman representing the 49th Congressional
District in the State of California. During her term in the House of
Representatives, Ms. Schenk served on the Energy and Commerce Committee and the
Merchant Marine and Fisheries Committee. Ms. Schenk served as the State of
California Secretary of Business, Transportation and Housing prior to 1983.
From 1983 until her election to Congress, Ms. Schenk was in private law
practice in California and served as an independent consultant to various
public and private businesses with respect to government relations. From 1985
to 1993, Ms. Schenk served as a director of Long Beach Bank, F.S.B. She is
currently a director of IDEC Pharmaceuticals, Inc., a corporation which files
reports pursuant to the Exchange Act.

     Mr. Setrakian has been a Director of the Bank since November 1994. Mr.
Setrakian previously served as a Director of Old FNB for more than 10 years.
Mr. Setrakian is presently the Chairman and President of the William Saroyan
Foundation and the former Chairman and President of Mid-State Horticultural
Company. He is also a former Chairman and member of the Board of Governors of
the United States Postal Service; former Commissioner of the Federal Maritime
Commission; former Chairman and Chief Executive Officer of the California
Growers Winery, Inc.; and former Chairman and founder of the National Bank of
Agriculture.


                                    Page 87

<PAGE>



     Mr. Flanagan has been the Executive Vice President and General Counsel of
the Bank since the consummation of the FN Acquisition. Mr. Flanagan has been
the Executive Vice President, General Counsel and a Director of Preferred
Capital Corp. since its formation in November 1996. He also serves as a
Director of FNMC. Mr. Flanagan has been associated with the law firm of Jenkens
& Gilchrist, P.C. and its predecessors since 1968 in various capacities,
including Managing Partner, and he is currently Of Counsel to that firm.

     Mr. Fugate has been an Executive Vice President of the Bank since the
consummation of the FN Acquisition. Mr. Fugate previously served as Executive
Vice President of Old FNB from 1991 to 1994, and held various executive
positions with Citibank, N.A. and Citibank California, FSB from 1982 to 1991.

     Mr. Hodge has been an Executive Vice President of the Bank since January
1996 and has been employed by the Bank since November 1995. Mr. Hodge
previously was associated with the public accounting firm of KPMG Peat Marwick
LLP and its predecessors since 1981, including most recently as a tax partner
since 1986.

     Mr. Klein has been an Executive Vice President of the Bank and the
President of FNMC since January 1996. He also serves as a Director of FNMC. Mr.
Klein previously was associated with PNC Mortgage Corp. of America and its
predecessor, Sears Mortgage Corporation, since 1986, including most recently as
Chairman and Chief Executive Officer.

     Mr. Leweke has been an Executive Vice President of the Bank since January
1998. Mr. Leweke served as Senior Vice President--Administrative Services since
the consummation of the FN Acquisition. Prior to that time, he served in the
same capacity for Old FNB from 1992 to 1994.

     Mr. Newman has been Executive Vice President and Chief Credit Officer of
the Bank since the consummation of the FN Acquisition. Mr. Newman has also
served as Executive Vice President of First Madison from 1993 to 1994, and
Executive Vice President of First Gibraltar since 1992. In addition, he served
as President and a Director of Madison Realty since 1992.

     Mr. Staff has been an Executive Vice President of the Bank since October
17, 1994. He also serves as a Director of Preferred Capital Corp. and FNMC and
as Chairman and Director of FGB Realty. Mr. Staff previously was associated
with the public accounting firm of KPMG Peat Marwick LLP and its predecessors
since 1979, including most recently as Partner-in-charge of Financial Services
for the Southwest-Dallas area.

     Mr. Terzian has served as Executive Vice President and Chief Financial
Officer of the Bank since April 1, 1995. Mr. Terzian has been the Executive
Vice President, Chief Financial Officer and a Director of Preferred Capital
Corp. since its formation in November 1996. For the five years prior to April
1, 1995, Mr. Terzian served as Chief Financial Officer of Dime Bancorp, Inc.
and its subsidiary, The Dime Savings Bank of New York, FSB.

     Mr. Thomsen has been an Executive Vice President of the Bank since the
consummation of the FN Acquisition. Mr. Thomsen previously served as Senior
Executive Vice President of Old FNB and a Director from 1992 to 1994. Mr.
Thomsen was an Executive Vice President of Old FNB from 1991 to 1992. Mr.
Thomsen had been Executive Vice President of Michigan National Corporation from
1986 to 1991 and a Director from 1989 to 1991, and the President of Michigan
National Bank from 1988 to 1991 and a Director from 1989 to 1991. Mr. Thomsen
was Chairman of Independence One Mortgage Corporation, a subsidiary of Michigan
National Bank, from 1986 to 1990.

     Mr. Verhaegen has been an Executive Vice President of the Bank since
February 1997. Mr. Verhaegen previously served as a Managing Director of First
Southwest Company from 1992 to 1994. Mr. Verhaegen served as a Senior Managing
Director and co-head of the Financial Institutions Group of Bear Stearns & Co.
Inc. from 1988 to 1992. From 1994 to 1996, Mr. Verhaegen operated his own
financial advisory and consulting firm.

     Mr. Walker has been an Executive Vice President of the Bank since the
consummation of the FN Acquisition. Mr. Walker served as Senior Vice President
of First Madison from 1993 to 1994. Mr. Walker previously served as Senior Vice
President of First Gibraltar from 1988 to 1993.


                                    Page 88

<PAGE>



     Ms. Tucei has been a Senior Vice President and the Controller of the Bank
since the consummation of the FN Acquisition. Ms. Tucei previously served as
Senior Vice President and Controller of First Madison from 1993 to 1994, and as
Senior Vice President for First Gibraltar from 1988 to 1993.

     Compensation of Directors

     Directors of the Bank who do not receive compensation as officers or
employees of the Bank or any of its affiliates are paid a fee of $3,500 for
each meeting of the Board of Directors they attend and each director who
attends 67% or more of the regular meetings of the Board of Directors during a
fiscal year will receive an additional fee of $9,000. Members of the Audit
Committee of the Board of Directors of the Bank who do not receive compensation
as officers or employees of the Bank or any of its affiliates are paid a fee of
$1,500 for each meeting of the Audit Committee they attend.


                                    Page 89

<PAGE>



  ITEM 11.  EXECUTIVE COMPENSATION

     FN Holdings is a holding company with no business operations of its own
  and accordingly, engages its business through the Bank and its subsidiaries.
  The officers of FN Holdings receive no compensation for their services to FN
  Holdings. Accordingly, the following table sets forth certain compensation
  awarded to, earned by or paid to the Chief Executive Officer of the Company's
  operating subsidiary, California Federal, and the four most highly paid
  executive officers of California Federal, other than the Chief Executive
  Officer, who served as executive officers of California Federal at December
  31, 1997 for services rendered in all capacities to California Federal and
  its subsidiaries during the years ended December 31, 1997, 1996 and 1995.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
                                                             Annual Compensation
                                                  ----------------------------------------
                                                                           Other Annual        All Other
    Name and Principal Position          Year      Salary        Bonus   Compensation (1)   Compensation (2)
    ---------------------------          ----      ------        -----   ----------------  -----------------
<S>                                    <C>     <C>            <C>              <C>           <C>    
    Gerald J. Ford                      1997    $1,500,000     $375,000         $7,572        $70,045
         Chairman & Chief               1996     1,500,000      300,000          1,152         63,000
         Executive Officer              1995     1,500,000            0          7,644         49,511

     Carl B. Webb (3)                   1997       900,000      375,000         26,542        838,421
         President & Chief              1996       900,000      300,000         22,218         56,206
         Operating Officer              1995       900,000            0        274,351         66,707

     Christie S. Flanagan               1997       700,000      150,000         15,059        631,556
         Executive Vice President &     1996       700,000      120,000         16,173         52,171
         General Counsel                1995       700,000       20,000         10,892         44,854

     James R. Staff                     1997       650,000      200,000         17,034        588,657
         Executive Vice President &     1996       533,352      250,000         10,411         48,722
         Chief Financial Advisor        1995       450,000            0         17,348         27,001

     Edward G. Harshfield (4)           1997       709,723            0        106,079         48,623
         Vice Chairman
</TABLE>

     ------------------
     (1) Includes: (i) the value of group term life insurance, (ii) amounts
         paid under relocation programs for Mr. Webb in 1995, (iii) the value
         of the use of Bank-owned automobiles for Messrs. Webb, Flanagan and
         Staff, (iv) club dues, (v) personal financial planning services paid
         by the Bank, (vi) security expenses paid by the Bank for Messrs. Webb,
         Flanagan and Staff, (vii) amounts totalling $100,104 paid under a
         consulting agreement with Mr. Harshfield and (viii) amounts reimbursed
         for payment of taxes.

     (2) Includes: (i) amounts calculated with respect to the Bank's net income
         and deferred pursuant to the Deferred Compensation Plan (as defined
         herein) of $742,500, $577,500 and $536,250 for Messrs. Webb, Flanagan
         and Staff, respectively, in 1997, (ii) the Bank's contributions to the
         401(k) plan of $8,871 and $8,571 in 1997 and 1996, respectively, for
         each of Messrs. Ford, Webb, Flanagan and Staff, and $9,111 for Mr.
         Harshfield in 1997, (iii) the Bank's contribution to the Supplemental
         Employees' Investment Plan of $58,628, $85,630, $42,128, $42,130 and
         $39,512 in 1997 for Messrs. Ford, Webb, Flanagan, Staff and
         Harshfield, respectively, and $54,429, $45,430, $40,629 and $38,430 in
         1996 for Messrs. Ford, Webb, Flanagan and Staff, respectively, and
         (iv) premiums on supplemental life insurance paid by the Bank for
         Messrs. Ford, Webb, Flanagan and Staff of $2,546, $1,420, $3,057 and
         $1,406, respectively, in 1997 and for Messrs. Webb, Flanagan and Staff
         of $2,205, $2,971 and $1,721, respectively, in 1996.

     (3) Does not include a 1996 payment of $10 million to Mr. Webb by FN
         Holdings under its long term management incentive plan.

     (4) Mr. Harshfield became Vice Chairman on January 27, 1997.

                                    Page 90

<PAGE>



     Certain executive officers of the Bank have entered into employment
  agreements with the Bank. See "Certain Relationships and Related
  Transactions--Executive Employment Agreements." Also, Gerald J. Ford has been
  and is presently a party to certain consulting and similar agreements with
  certain affiliates of FN Holdings, as more fully described in "Certain
  Relationships and Related Transactions--Transactions with Mr. Ford."

     Effective October 1, 1995, FN Holdings adopted the Incentive Plan with
  respect to certain executive officers of the Bank (the "Participants").
  Awards under the Incentive Plan are made in the form of performance units.
  Each performance unit entitles the Participants to receive cash and/or stock
  options ("Bonuses") based on the Participant's vested interest in a bonus
  pool.

     Generally, the Incentive Plan provides for the payment of Bonuses, on a
  quarterly basis, to the Participants upon the occurrence of certain events.
  Bonuses vest at 20% per year beginning October 1, 1995. The aggregate amount
  of Bonuses payable under the Incentive Plan is subject to a cap of $50
  million. During 1997, 1996 and 1995, expenses of $12.4 million, $35.6 million
  and $2 million, respectively, were recorded relative to the Incentive Plan.
  As of December 31, 1997, the Incentive Plan has been fully accrued.

     There were no long-term incentive plan awards in 1997 or 1996 to the
  executive officers named in the preceding table. The Golden State Merger 
  constitutes a change in control pursuant to the terms of the Incentive Plan.

     On May 19, 1997, the Bank adopted a Deferred Executive Compensation Plan
  (the "Deferred Compensation Plan") with respect to certain officers of the
  Bank (the "Officers"). The Deferred Compensation Plan provides for an award
  to be made to each Officer as a percentage of such Officer's base annual
  salary determined based upon the net income of the Bank with respect to the
  immediately preceding fiscal year expressed as a percentage of the target net
  income established by the Board with respect to such fiscal year. The award
  so determined may be increased at the discretion of the Chief Operating
  Officer of the Bank.

     An Officer's award with respect to each fiscal year will be paid in cash
  in five equal annual installments on each of the first five anniversaries of
  the date of grant of the award. Each installment of the award will include
  interest from the date of the grant of the award at a rate of 6% per annum.

     If a participant's employment terminates due to death, disability or
  retirement, the participant (or his estate) shall receive any unpaid
  installments of the award (with interest thereon) upon such termination. Upon
  any other termination of employment, any unpaid installments of a
  participant's award will be forfeited.

     Upon a change in control of the Bank or FNMC (with respect to participants
  employed by FNMC), in each case, as described in the Deferred Compensation
  Plan, each Officer will receive any unpaid installments of the award (with
  interest thereon). In addition, upon a change in control of the Bank or FNMC
  (with respect to participants employed by FNMC), each Officer will receive an
  additional award, determined in accordance with the applicable provisions of
  the Deferred Compensation Plan, but in any case in an amount not in excess of
  125% of the Officer's annual base salary.

     During the year ended December 31, 1997, expenses of $5.7 million were
  recorded relative to the Deferred Compensation Plan.

     Compensation Committee Interlocks and Insider Participation

     FN Holdings has no compensation committee. The following directors serve
  on the Compensation Committee of the Board of the Bank: Gerald J. Ford,
  Howard Gittis, Paul Bass and George Bramblett. During 1997, 1996 and 1995,
  Mr. Ford was Chairman of the Board of the Bank. In addition, Mr. Ford
  controls Hunter's Glen, which owns 100% of the class B common stock of FN
  Holdings, representing 20% of the voting common stock (representing
  approximately 15% of the voting power of its common stock) of FN Holdings.
  Mr. Gittis is a director of FN Holdings and of the Bank. See "Certain 
  Relationships and Related Transactions--Transactions with Mr. Ford."



                                    Page 91

<PAGE>



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Ronald O. Perelman, a director of the Bank and Chairman of the Board,
Chief Executive Officer and a director of FN Holdings, 35 East 62nd Street, New
York, New York 10021, through MacAndrews & Forbes, beneficially owns 100% of
the class A common stock of FN Holdings, representing 80% of its voting common
stock (representing approximately 85% of the voting power of its common stock).
Hunter's Glen, a limited partnership controlled by Gerald J. Ford, Chairman of
the Board, Chief Executive Officer and a director of the Bank, 200 Crescent
Court, Suite 1350, Dallas, Texas 75201, owns 100% of the class B common stock
of FN Holdings, representing 20% of its voting common stock (representing
approximately 15% of the voting power of its common stock).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Relationship with MacAndrews & Forbes

     FN Holdings is an 80% owned indirect subsidiary of MacAndrews & Forbes. As
a result, MacAndrews & Forbes is able to direct and control the policies of FN
Holdings and its subsidiaries, including mergers, sales of assets and similar
transactions.

     MacAndrews & Forbes is a diversified holding company with interests in
several industries. Through its 83% ownership of Revlon, MacAndrews & Forbes is
engaged in the cosmetics and skin care, fragrance and personal care products
business. MacAndrews & Forbes also owns 82% of Coleman, which is engaged in the
manufacture and marketing of recreational outdoor products, portable
generators, spas and hot tubs, and 65% of Meridian Sports, a manufacturer and
marketer of specialized boats and water sports equipment. On February 27, 1998,
MacAndrews & Forbes entered into an agreement with Sunbeam Corporation pursuant
to which MacAndrews & Forbes' ownership interest in Coleman will be sold to
Sunbeam Corporation. The sale is expected to be consummated in late March or
early April 1998. Through its 64% ownership of Cigar Holdings, MacAndrews &
Forbes is engaged in the manufacture and distribution of cigars and pipe
tobacco. Through its 36% ownership of MFW (assuming conversion of certain
preferred stock), MacAndrews & Forbes is in the business of processing licorice
and other flavors. On December 18, 1997, MacAndrews & Forbes entered into an
agreement pursuant to which MacAndrews & Forbes will acquire a controlling
interest in Panavision Inc., a manufacturer and supplier of film camera systems
to the motion picture and television industries. MacAndrews & Forbes is also in
the financial services business through the Bank. The principal executive
offices of MacAndrews & Forbes are located at 35 East 62nd Street, New York,
New York 10021.

     FN Holdings and certain affiliates of MacAndrews & Forbes are afforded
coverage under selected common insurance policies obtained by MacAndrews &
Forbes. FN Holdings pays MacAndrews & Forbes its allocable portion of the cost
of this insurance.

     Tax Sharing Agreement

     The Bank, FN Holdings and Mafco Holdings are parties to the Tax Sharing
Agreement. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Provision for Federal and State Income Taxes."

     Loans to Affiliates

     FN Holdings loaned approximately $46.8 million to an affiliate on March 1,
1996. Such loan accrued interest at the rate of 10.5% over the prevailing yield
to maturity of the five year United States treasury note, and was an unsecured
subordinated obligation of the borrower guaranteed by certain other affiliates
of FN Holdings, which obligation to FN Holdings was evidenced by a promissory
note (the "Promissory Note"). Management believes that the terms and conditions
of such loan were at least as favorable to FN Holdings as might have been
obtained in a similar transaction with an unaffiliated party. On May 15, 1996,
FN Holdings distributed the Promissory Note to Parent Holdings as a partial
redemption of and dividend on class C common stock.

     On September 27, 1996, FN Holdings issued $150 million aggregate
liquidation value of the FN Holdings Preferred Stock to Special Purpose Corp.
and loaned to an affiliate approximately $19 million of the proceeds therefrom.
Such

                                    Page 92

<PAGE>



  loan accrued interest at the rate of 14%, and was an unsecured subordinated
  obligation of the borrower, which obligation to FN Holdings was evidenced by
  a promissory note. Management believes that the terms and conditions of such
  loan were at least as favorable to FN Holdings as might have been obtained in
  similar transaction with an unaffiliated party. Such loan, together with the
  accrued interest thereon, was repaid to FN Holdings on January 3, 1997.

     FN Escrow Merger and Issuance of FN Escrow Preferred Stock

     Concurrent with the issuance of the 10-5/8% Notes, FN Escrow issued
  approximately $36 million aggregate liquidation value of cumulative perpetual
  preferred stock, (the "FN Escrow Preferred Stock") to TNIS. The FN Escrow
  Preferred Stock had a stated liquidation value of $100,000 per share, plus
  accrued and unpaid dividends, if any. Cash dividends on the FN Escrow
  Preferred Stock were cumulative and accrued at an annual rate of
  approximately 7.3% of the stated liquidation value.

     On January 3, 1997 and prior to the consummation of the Cal Fed
  Acquisition, FN Escrow was merged with and into FN Holdings in the FN Escrow
  Merger and FN Holdings assumed FN Escrow's obligations under the 10-5/8% Notes
  and the Indenture. In connection with the FN Escrow Merger, each share of FN
  Escrow Preferred Stock was converted into and became one share of cumulative
  perpetual preferred stock of FN Holdings (the "FN Holdings/FN Escrow
  Preferred Stock"), which stock had the same relative rights, terms and
  preferences as the FN Escrow Preferred Stock. Immediately after issuance, FN
  Holdings redeemed the FN Holdings/FN Escrow Preferred Stock at a redemption
  price equal to its stated liquidation value plus accrued and unpaid dividends
  to January 3, 1997.

     Transactions with Mr. Ford

     Madison Financial, Inc. ("Madison Financial"), a corporation formerly
  owned by Gerald J. Ford, the Chairman of the Board, Chief Executive Officer
  and a Director of the Bank, was party to a Consulting Agreement (the
  "Consulting Agreement"), effective as of February 1, 1993, between Madison
  Financial and TNIS, pursuant to which Madison Financial provided consulting
  services to TNIS for a term ending on December 31, 1998. The Consulting
  Agreement was terminated in July 1994 in connection with the Exchange
  Agreement (as defined herein). Certain costs related to the Consulting
  Agreement were charged to FN Holdings.

     The Company is an indirect subsidiary of First Gibraltar Holdings. In
  connection with the offering of the 12-1/4% Senior Notes, First Gibraltar
  Holdings incorporated Parent Holdings and a wholly owned subsidiary of Parent
  Holdings, FN Holdings, to hold 100% of the common stock of the Bank. First
  Gibraltar Holdings contributed all of its shares of capital stock of the Bank
  to Parent Holdings, which contributed such shares to FN Holdings in exchange
  for 1,000 shares of common stock of FN Holdings. FN Holdings amended its
  certificate of incorporation to create 800 shares of class A common stock
  having one vote per share, 200 shares of class B common stock having .75
  votes per share and 230.3 shares of nonvoting class C common stock, and
  Parent Holdings exchanged its 1,000 shares of common stock for 800 shares of
  class A common stock. Pursuant to the terms of an Exchange Agreement entered
  into between FN Holdings, Mr. Ford and Parent Holdings (the "Exchange
  Agreement"), and in connection with the consummation of the FN Acquisition,
  Parent Holdings acquired 100% of the class C common stock of FN Holdings (all
  of which were redeemed on June 3, 1996) in exchange for $210 million and Mr.
  Ford acquired 100% of the class B common stock of FN Holdings in exchange for
  his 6.25% of the class A common stock of First Gibraltar Holdings and all of
  the shares of Madison Financial, the sole asset of which was the Consulting
  Agreement. In addition, FN Holdings also assumed indebtedness of Mr. Ford in
  the amount of approximately $11.9 million to TNIS (the "Ford Obligation"),
  which obligation has been forgiven by TNIS. As a result of the consummation
  of the transactions contemplated by the Exchange Agreement, Mr. Ford owns
  100% of the class B common stock of FN Holdings, representing 20% of its
  voting common stock (representing approximately 15% of the voting power of
  its voting common stock), and Parent Holdings owns 100% of the class A common
  stock of FN Holdings, representing 80% of its voting common stock
  (representing approximately 85% of the voting power of its voting common
  stock). FN Holdings, Parent Holdings and Mr. Ford have entered into a
  stockholders agreement (the "Stockholders Agreement") pursuant to which,
  among other things, Mr. Ford and FN Holdings have the right to transfer their
  respective shares to certain affiliates. In addition, the Stockholders
  Agreement contains other customary provisions regarding restrictions on
  transfer and registration rights. On December 29, 1995, Mr. Ford transferred
  his shares of class B common stock to Hunter's Glen, which assumed the
  obligations under, and will receive the benefits of, the Stockholders
  Agreement.


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     Mr. Ford has entered into a loan agreement with NationsBank of Texas, N.A.
("NationsBank"), whereby NationsBank has loaned Mr. Ford $5 million. Such loan
has a maturity of up to one year and bears interest at a floating interest rate
based on LIBOR. The loan is secured by Mr. Ford's 12-1/4% Senior Notes. The
terms of the loan provide that, in the event of default by Mr. Ford under such
loan or in the event of certain rapid and material declines in the value of the
12-1/4% Senior Notes pledged as collateral, NationsBank or any successor or
assignee thereof will have the right to foreclose on the pledged 12-1/4% Senior
Notes and sell, or direct Mr. Ford to sell, such 12-1/4% Senior Notes, to
certain Qualified Institutional Buyers ("QIBs") (as such term is defined in
Rule 144A under the Securities Act) pursuant to Rule 144A under the Securities
Act, pursuant to Regulation S under the Securities Act, to FN Holdings or
pursuant to a shelf registration statement.

     Mr. Ford has entered into an employment agreement with the Bank calling
for his continued employment by the Bank in his current executive capacity with
an annual base salary in 1998 of $1,000,000. The term of this agreement extends
through December 31, 2000, and provides for, among other things, a life
insurance policy on the life of Mr. Ford in an amount equal to three times his
base salary.

     Mr. Ford has also entered into a consulting agreement with First
Nationwide Management Corp. ("First Nationwide Management"), an affiliate of FN
Holdings, providing for the payment to him of annual consulting fees of
$2,000,000 for 1998 and in increasing amounts through 2000, and certain other
related expenses. Pursuant to an arrangement between First Nationwide
Management and FN Holdings, such consulting fees and other related expenses
paid by First Nationwide Management are charged to FN Holdings. Such charges
amounted to approximately $1,291,000, $1,225,000 and $964,000 in 1997, 1996 and
1995, respectively.

     In 1996, as part of the financing for the Cal Fed Acquisition, Special
Purpose Corp. invested $150 million in cash in FN Holdings in exchange for $150
million aggregate liquidation value of FN Holdings Preferred Stock. Such
investment was funded through borrowings by First Gibraltar Holdings under a
credit facility, which borrowings were loaned by First Gibraltar Holdings to
Special Purpose Corp. Special Purpose Corp. pledged its shares of FN Holdings
Preferred Stock to secure the borrowings by First Gibraltar Holdings under such
credit facility. The common stock of Special Purpose Corp. is owned by Mr.
Ford.

     At December 31, 1997, the issued and outstanding FN Holdings Preferred
Stock and Additional FN Holdings Preferred Stock had a combined liquidation
value of $25.7 million.

     Executive Employment Agreements

     In addition to the employment agreement between Mr. Ford and the Bank (see
"--Transactions with Mr. Ford"), Messrs. Webb, Flanagan, Staff, Newman and
Hodge have entered into employment agreements with the Bank calling for their
continued employment by the Bank in their current executive capacities. All
five agreements are substantially similar in their terms except that Messrs.
Webb, Staff and Newman's employment agreements terminate on December 31, 2000,
Mr. Hodge's terminates on December 31, 1998, and Mr. Flanagan's terminates May
31, 1999 and except that Mr. Flanagan's agreement provides for a $20,000
"substitution" bonus which was paid in 1996. If any of these agreements are
terminated without cause or by the executive without good reason prior to the
respective scheduled termination dates, the relevant executive would receive
payments of base salary and benefits due for the balance of the term.
Additionally, each employment agreement provides for a life insurance policy on
the life of the insured in an amount double the base salary payable by the Bank
to such individual. Pursuant to such employment agreements, the annual base
salaries payable by the Bank in 1998 to Messrs. Webb, Flanagan, Staff, Newman
and Hodge are $1,200,000, $700,000, $700,000, $500,000, and $300,000,
respectively.

     Pursuant to an Agreement for Provision of Services between California
Federal and First Nationwide Management, dated December 1, 1994 (the "Services
Agreement"), a portion of the salaries payable by the Bank in 1998 to Messrs.
Webb, Flanagan and Staff is charged to First Nationwide Management so that the
annual net base compensation payable by the Bank will be $800,000, $350,000 and
$350,000 for Messrs. Webb, Flanagan and Staff, respectively. All of such
amounts paid by First Nationwide Management are charged to FN Holdings for
services performed by these executives. The total amounts received by
California Federal pursuant to the Services Agreement were approximately
$1,885,000, $1,379,000 and $1,092,000 in 1997, 1996 and 1995, respectively,
which amounts are included in the amounts allocated by First Nationwide
Management to FN Holdings.


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<PAGE>



     In January 1997, the Bank entered into a Consulting Agreement with Mr.
  Harshfield whereby he agreed to assist the Bank in its pursuit of the
  California Federal Litigation. Mr. Harshfield will receive $100,000 per year
  for each of the two years of the agreement.

     Effective January 8, 1996, FNMC entered into an employment agreement with
  Mr. Klein, for a term ending January 7, 1999. Pursuant to this employment
  agreement, Mr. Klein receives a base salary of $300,000 per year. The
  agreement also provides for life insurance on the life of Mr. Klein in the
  amount of $450,000. If Mr. Klein's agreement is terminated by the Bank
  without cause or by Mr. Klein without good reason prior to the scheduled
  termination date, he would receive payment for base salary and benefits due
  for the balance of the term. In addition, Mr. Klein has a salary guarantee
  that would provide a payment equal to the greater of $1.35 million or three
  times his prior year base salary plus bonus, should FNMC be sold during the
  term of his agreement.

     Services Agreements

     First Nationwide Management allocates certain of its expenditures to FN
  Holdings. Such expenditures relate to salaries and benefits payable to
  selected Bank employees (including Messrs. Webb, Flanagan and Staff),
  aviation and other expenses. Pursuant to this arrangement, approximately
  $2,600,000, $2,524,000 and $1,935,000 was allocated by First Nationwide
  Management to FN Holdings for the years ended December 31, 1997, 1996 and
  1995, respectively, including the fees paid to California Federal under the
  Services Agreement.

     Effective December 1, 1994, California Federal entered into the Services
  Agreement with First Nationwide Management whereby selected Bank employees
  (including Messrs. Webb, Flanagan, and Staff) provided services for First
  Nationwide Management and certain of its subsidiaries. Fees are paid to
  California Federal under the Services Agreement at the rate of approximately
  $107,000 per month based on actual services provided. Such fees approximated
  $1,885,000, $1,379,000 and $1,092,000 for the years ended December 31, 1997,
  1996 and 1995, respectively.

     Effective on June 1, 1995, the Bank entered into an agreement whereby it
  provides marketing and other support services to TNIS in connection with the
  insurance agency business it purchased from a Bank subsidiary on the same
  date. Service charges under this agreement amounted to approximately $5,200,
  $13,300 and $43,000 per month during 1997, 1996 and 1995, respectively.
  Management believes that the terms and conditions of these arrangements are
  at least as favorable to the Bank as those which could be obtained from
  similar arrangements with an unaffiliated party.

     Sale of Business to TNIS

     Effective on June 1, 1995, FNC Insurance Agency, Inc., a wholly owned
  subsidiary of the Bank, sold that portion of its insurance agency business
  related to marketing insurance products to the Bank's retail deposit and
  consumer loan customers to TNIS for approximately $0.7 million. Management
  believes that the terms and conditions of this transaction are at least as
  favorable to the Bank as might have been obtained in a similar transaction
  with an unaffiliated party.

     Loans to Executive Officers and Directors

     Some of the Bank's executive officers, directors, and members of their
  immediate families have engaged in loan transactions with the Bank. Such
  loans were made: (i) in the ordinary course of the Bank's business, (ii) on
  substantially the same terms, including interest rates and collateral, as
  those prevailing at the time for comparable transactions between the Bank and
  other persons, and (iii) did not involve more than the normal risk of
  collectibility or present other unfavorable features.



                                    Page 95

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                                    PART IV

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

  (A)    1.  FINANCIAL STATEMENT SCHEDULES

     Schedules are omitted because of the absence of conditions under which
  they are required or because the required information is provided in the
  consolidated financial statements or notes thereto.

  (B)    EXHIBITS

     2.1  Agreement and Plan of Reorganization, dated as of February 4, 1998,
          by and among First Nationwide (Parent) Holdings Inc., First
          Nationwide Holdings Inc., First Gibraltar Holdings, Inc., Hunter's
          Glen/Ford, Ltd. Golden State Bancorp Inc. and Golden State Financial
          Corporation. (Incorporated by reference to Exhibit 2.1 to the
          Registrant's Current Report on Form 8-K, dated February 4, 1998 (the
          "February 1998 Form 8-K")).

     3.1  Fifth Restated Certificate of Incorporation of the Registrant.
          (Incorporated by reference to Exhibit 3.1 to Amendment No. 1 to the
          Registrant's Registration Statement on Form S-1 (File No. 333-
          21015)).

     3.2  By-laws of the Registrant, as amended. (Incorporated by reference to
          Exhibit 3.2 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     4.1  Indenture, dated as of September 19, 1996, between First Nationwide
          Escrow Corp. and The Bank of New York, as trustee, relating to the
          10-5/8% Senior Subordinated Exchange Notes Due 2003 (the "New
          Notes"). (Incorporated by reference to Exhibit 4.1 to Amendment No. 1
          to the Registrant's Registration Statement on Form S-1 (File No.
          333-21015)).

     4.2  First Supplemental Indenture, dated as of January 3, 1997, among the
          Registrant, First Nationwide Escrow Corp. and The Bank of New York,
          as trustee, relating to the New Notes. (Incorporated by reference to
          Exhibit 4.2 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     4.3  Indenture, dated as of January 31, 1996, between the Registrant and
          The Bank of New York, as trustee, relating to the 9-1/8% Senior
          Subordinated Exchange Notes Due 2003. (Incorporated by reference to
          Exhibit 4.1 to the Registrant's Registration Statement on Form S-1
          (File No. 333- 00854)).

     4.4  Indenture, dated as of July 15, 1994, between the Registrant and The
          First National Bank of Boston, as trustee, relating to the 12-1/4%
          Senior Exchange Notes Due 2001 (the "12-1/4% Senior Note Indenture").
          (Incorporated by reference to Exhibit 4.1 to the Registrant's
          Registration Statement on Form S-1 (File No. 33-82654)).

     4.5  First Supplemental Indenture, dated as of January 17, 1997, between
          the Registrant and State Street Bank and Trust Company, as trustee,
          supplementing the 12-1/4% Senior Note Indenture. (Incorporated by
          reference to Exhibit 4.5 to Amendment No. 1 to the Registrant's
          Registration Statement on Form S-1 (File No. 333-21015)).

     4.6  Indenture, dated as of October 1, 1986, between First Nationwide
          Bank, A Federal Savings Bank, and Bank of America National Trust and
          Savings Association Re: $100,000,000 10% Subordinated Debentures due
          2006 (the "2006 Indenture"). (Incorporated by reference to Exhibit
          4.5 to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 1994.)


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<PAGE>



     4.7  First Supplemental Indenture, dated as of September 30, 1994, among
          First Madison Bank, FSB, First Nationwide Bank, A Federal Savings
          Bank, and Bank of America National Trust and Savings Association,
          supplementing the 2006 Indenture. (Incorporated by reference to
          Exhibit 4.6 to the Registrant's Annual Report on Form 10-K for the
          year ended December 31, 1994.)

     4.8  Second Supplemental Indenture, dated as of January 3, 1997, among
          First Nationwide Bank, A Federal Savings Bank, California Federal
          Bank, A Federal Savings Bank and Bank of America National Trust and
          Savings Association, as trustee, supplementing the 2006 Indenture.
          (Incorporated by reference to Exhibit 4.8 to Amendment No. 1 to the
          Registrant's Registration Statement on Form S-1 (File No.
          333-21015)).

     4.9  Indenture, dated February 15, 1986, between Cal Fed Bancorp Inc. and
          Manufacturers Hanover Trust Company, as trustee, relating to the
          6-1/2% Convertible Subordinated Debentures Due 2001 (the "6-1/2%
          Convertible Debenture Indenture"). (Incorporated by reference to
          Exhibit 4.11 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     4.10 First Supplemental Indenture, dated as of December 16, 1992, among
          Cal Fed Bancorp Inc., XCF Acceptance Corporation, California Federal
          Bank, A Federal Savings Bank, and Chemical Bank, supplementing the
          6-1/2% Convertible Debenture Indenture. (Incorporated by reference to
          Exhibit 4.12 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     4.11 Second Supplemental Indenture dated as of December 13, 1996 among XCF
          Acceptance Corporation, California Federal Bank, A Federal Savings
          Bank, and The Chase Manhattan Bank, as trustee, supplementing the
          6-1/2% Convertible Debenture Indenture. (Incorporated by reference to
          Exhibit 4.13 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333- 21015)).

     4.12 Third Supplemental Indenture dated as of December 13, 1996 among Cal
          Fed Bancorp Inc., XCF Acceptance Corporation, California Federal
          Bank, A Federal Savings Bank, and The Chase Manhattan Bank, as
          Trustee, supplementing the 6-1/2% Convertible Debenture Indenture.
          (Incorporated by reference to Exhibit 4.14 to Amendment No. 1 to the
          Registrant's Registration Statement on Form S-1 (File No.
          333-21015)).

     4.13 Fourth Supplemental Indenture dated as of December 13, 1996 among Cal
          Fed Bancorp Inc., XCF Acceptance Corporation, and The Chase Manhattan
          Bank, as trustee, supplementing the 6-1/2% Convertible Debenture
          Indenture. (Incorporated by reference to Exhibit 4.15 to Amendment
          No. 1 to the Registrant's Registration Statement on Form S-1 (File
          No. 333-21015)).

     4.14 Indenture, dated December 1, 1992, between California Federal Bank, A
          Federal Savings Bank and Chemical Bank, as trustee, relating to the
          10% Subordinated Debentures Due 2003. (Incorporated by reference to
          Exhibit 4.16 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     4.15 Agreement Regarding Contingent Litigation Recovery Participation
          Interests, dated as of June 30, 1995, between California Federal
          Bank, A Federal Savings Bank, and Chemical Trust Company of
          California, as Interest Agent. (Incorporated by reference to Exhibit
          4.17 to Amendment No. 1 to the Registrant's Registration Statement on
          Form S-1 (File No. 333-21015)).

     4.16 Agreement regarding Secondary Contingent Litigation Recovery
          Participation Interests, dated as of December 2, 1996, between
          California Federal Bank, A Federal Savings Bank, and ChaseMellon
          Shareholder Services, L.L.C., as Interest Agent. (Incorporated by
          reference to Exhibit 4.18 to Amendment No. 1 to the Registrant's
          Registration Statement on Form S-1 (File No. 333-21015)).

     4.17 Note Agreement Regarding $50,000,000 aggregate principal amount of
          10.668% Senior Subordinated Notes Due 1998 of California Federal
          Bank, A Federal Savings Bank. (Incorporated by reference to

                                    Page 97

<PAGE>



          Exhibit 4.19 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

     10.1 Tax Sharing Agreement, effective as of January 1, 1994, by and among
          First Madison Bank, FSB, First Nationwide Holdings Inc. and Mafco
          Holdings, Inc. (Incorporated by reference to Exhibit 10.10 to the
          Registration Statement on Form S-1 (File No. 33-82654)).

     10.2 Asset Purchase Agreement, dated as of April 14, 1994, between First
          Madison Bank, FSB, and First Nationwide Bank, A Federal Savings Bank.
          (Incorporated by reference to Exhibit 2.1 to the Registrant's Current
          Report on Form 8-K dated October 3, 1994.)

     10.3 Amendment No. 1 to the Asset Purchase Agreement, dated as of
          September 30, 1994, between First Madison Bank, FSB, and First
          Nationwide Bank, A Federal Savings Bank. (Incorporated by reference
          to Exhibit 2.3 to the Registrant's Current Report on Form 8-K dated
          October 3, 1994.)

     10.4 Amendment No. 2 to the Asset Purchase Agreement, dated as of
          September 30, 1994, between First Madison Bank, FSB, and First
          Nationwide Bank, A Federal Saving Bank. (Incorporated by reference to
          Exhibit 2.4 to the Registrant's Current Report on Form 8-K dated
          October 3, 1994.)

     10.5 Exchange Agreement dated September 26, 1994 by and among Gerald J.
          Ford, the Registrant and NationsBank of Texas, N.A. (Incorporated by
          reference to Exhibit 10.12 to Amendment No.2 to the Registrant's
          Registration Statement on Form S-1 (File No. 33-82654)).

     10.6 Exchange Agreement dated October 20, 1994 between Carl B. Webb and
          the Registrant. (Incorporated by reference to Exhibit 10.11 to
          Registrant's Registration Statement on Form S-1 (File No.
          333-00854)).

     10.7 Stockholders Agreement dated October 3, 1994 by and among Gerald J.
          Ford, the Registrant and First Nationwide (Parent) Holdings Inc.
          (Incorporated by reference to Exhibit 10.16 to Amendment No. 2 to the
          Registrant's Registration Statement on Form S-1 (File No. 33-82654)).

     10.8 Office Lease, dated as of November 15, 1990, between Webb/San
          Francisco Ventures, Ltd. and First Nationwide Bank, A Federal Savings
          Bank. Confidential treatment has been granted for portions of this
          document (Incorporated by reference to Exhibit 10.6 to Amendment No.
          3 to the Registrant's Registration Statement on Form S-1 (File No.
          33-82654)).

     10.9 Employment Agreement between First Nationwide Bank, A Federal Savings
          Bank, and Gerald J. Ford, dated as of October 1, 1994. (Incorporated
          by reference to Exhibit 10.13 to the Registrant's Annual Report on
          Form 10-K for the year ended December 31, 1994.)

    10.10 Amendment to Employment Agreement between California Federal Bank, A
          Federal Savings Bank, and Gerald J. Ford, dated as of January 1,
          1998.

    10.11 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, and Carl B. Webb, II, dated as of February 1, 1995.
          (Incorporated by reference to Exhibit 10.14 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1994.)

    10.12 Amendment to Employment Agreement, dated as of June 1, 1996, between
          First Nationwide Bank, A Federal Savings Bank, and Carl B. Webb, II.
          (Incorporated by reference to Exhibit 10.1 to the Registrant's
          Current Report on Form 8-K dated August 30, 1996 ( the "August 1996
          Form 8-K")).

    10.13 Employment Agreement dated as of January 1, 1998 between California
          Federal Bank, A Federal Savings Bank, and Carl B. Webb II.


                                    Page 98

<PAGE>



    10.14 Employment Agreement, dated as of June 1, 1996, between First
          Nationwide Bank, A Federal Savings Bank, and Christie S. Flanagan.
          (Incorporated by reference to Exhibit 10.4 to the August 1996 Form
          8-K.)

    10.15 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, and James R. Staff, dated as of February 1, 1995.
          (Incorporated by reference to Exhibit 10.16 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1994.)

    10.16 Amendment to Employment Agreement, dated as of June 1, 1996, between
          First Nationwide Bank, A Federal Savings Bank, and James R. Staff.
          (Incorporated by reference to Exhibit 10.3 to the August 1996 Form
          8-K.)

    10.17 Employment Agreement dated as of January 1, 1998 between California
          Federal Bank, A Federal Savings Bank, and J. Randy Staff.

    10.18 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, and Lacy G. Newman, Jr. dated as of February 1, 1995.
          (Incorporated by reference to Exhibit 10.17 to the Registrant's
          Registration Statement on Form S-1 (File No. 333-00854)).

    10.19 Amendment to Employment Agreement, dated as of June 1, 1996, between
          First Nationwide Bank, A Federal Savings Bank, and Lacy G. Newman,
          Jr. (Incorporated by reference to Exhibit 10.5 to the August 1996
          Form 8-K.)

    10.20 Employment Agreement dated as of January 1, 1998 between California
          Federal Bank, A Federal Savings Bank, and Lacy G. Newman, Jr.

    10.21 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, and Roger L. Gordon as of January 20, 1996.
          (Incorporated by reference to Exhibit 10.15 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1995.)

    10.22 Employment Agreement dated as of January 1, 1996, between First
          Nationwide, A Federal Savings Bank and Richard P. Hodge.
          (Incorporated by reference to Exhibit 10.16 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1995.)

    10.23 Amendment to Employment Agreement, dated as of June 1, 1996, between
          First Nationwide Bank, A Federal Savings Bank, and Richard P. Hodge
          (Incorporated by reference to Exhibit 10.2 to the August 1996 Form
          8-K.)

    10.24 Employment Agreement between First Nationwide Mortgage Corporation,
          and Walter C. Klein, Jr., dated as of January 8, 1996. (Incorporated
          by reference to Exhibit 10.43 to Amendment No. 1 to the Registrant's
          Registration Statement on Form S-1 (File No. 333-21015)).

    10.25 Amendment to Employment Agreement dated as of July 10, 1997, between
          First Nationwide Mortgage Corporation and Walter C. Klein, Jr.

    10.26 Post-Employment Consulting Agreement between California Federal
          Bank, A Federal Savings Bank and Edward G. Harshfield, dated January
          6, 1997. (Incorporated by reference to Exhibit 10.44 to Amendment No.
          1 to the Registrant's Registration Statement on Form S-1 (File No.
          333-21015)).

    10.27 Special Bonus Agreement, dated as of November 25, 1996, by and
          between the Registrant and Carl B. Webb II. (Incorporated by
          reference to Exhibit 10.22 to the Registrant's Annual Report on Form
          10-K for the year ended December 31, 1996.)

    10.28 Mortgage Company Asset Sale Agreement by and among Resolution Trust
          Corporation as conservator for Standard Federal Savings Association,
          America's Mortgage Servicing, Inc., A

                                    Page 99

<PAGE>



                  Mortgage Company, America's Lending Network, Inc., and
                  Stanfed Financial Services, Inc.; and First Nationwide
                  Mortgage Corporation dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.18 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.29    Receivables Sale Agreement by and among Resolution Trust
                  Corporation as conservator for Standard Federal Savings
                  Association, America's Mortgage Servicing, Inc., A Mortgage
                  Company, and America's Lending Network, Inc.; and First
                  Nationwide Mortgage Corporation, dated as of December 1,
                  1994. (Incorporated by reference to Exhibit 10.19 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.30    Purchase and Sale Agreement by and between Resolution Trust
                  Corporation in its corporate capacity and First Nationwide
                  Mortgage Corporation, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.20 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.31    Purchase and Sale Agreement by and among Resolution Trust
                  Corporation as receiver of or conservator for certain
                  associations and First Nationwide Mortgage Corporation, dated
                  as of December 1, 1994. (Incorporated by reference to Exhibit
                  10.21 to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994.)

         10.32    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated December 2,
                  1994, regarding the Mortgage Company Asset Sale Agreement,
                  Receivable Sales Agreement, and two Purchase and Sales
                  Agreements among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.22 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.33    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 23,
                  1995, regarding the Mortgage Company Asset Sale Agreement,
                  Receivable Sales Agreement, and two Purchase and Sales
                  Agreements among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.23 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.34    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 24,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.24 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.35    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 28,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994 (power of
                  attorney matters). (Incorporated by reference to Exhibit
                  10.25 to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994.)

         10.36    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 28,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994 (amendments
                  to schedules). (Incorporated by reference to Exhibit 10.26 to
                  the Registrant's Annual Report on Form 10-K for the year
                  ended December 31, 1994.)

         10.37    Agreement for Provision of Services between First Nationwide 
                  Bank, A Federal Savings Bank and Trans Network Insurance 
                  Services, Inc. (then named "First Gibraltar (Parent) Holdings
                  Inc."), dated

                                    Page 100

<PAGE>



          as of December 1, 1994. (Incorporated by reference to Exhibit 10.27
          to the Registrant's Annual Report on Form 10-K for the year ended
          December 31, 1994.)

    10.38 Assignment from Trans Network Insurance Services Inc. to First
          Nationwide Management Corp. of Agreement for Provision of Services.
          (Incorporated by reference to Exhibit 10.37 to the Registrant's
          Annual Report on Form 10-K for the year ended December 31, 1995.)

    10.39 Asset Purchase Agreement between Trans Network Insurance Services
          Inc. and FNC Insurance Agency, Inc. dated effective June 1, 1995.
          (Incorporated by reference to Exhibit 10.24 to Post-Effective
          Amendment No. 1 to the Registrant's Registration Statement on Form
          S-1 (File No. 33-82654)).

    10.40 Trans Network Marketing and Support Services Agreement between First
          Nationwide Bank, A Federal Savings Bank, and Trans Network Insurance
          Services Inc. dated effective June 1, 1995. (Incorporated by
          reference to Exhibit 10.25 to Post-Effective Amendment No. 1 to the
          Registrant's Registration Statement on Form S-1 (File No. 33-82654)).

    10.41 Amendment No. 2 to Lease between First Nationwide Bank, A Federal
          Savings Bank, and RNM 135 Main, L.P. dated April 6, 1995.
          (Incorporated by reference to Exhibit 10.26 to Post-Effective
          Amendment No. 1 to the Registrant's Registration Statement on Form
          S-1 (File No. 33-82654)).

    10.42 Consulting Agreement between First Nationwide Management Corp. and
          Gerald J. Ford dated as of October 1, 1994 (Incorporated by reference
          to Exhibit 10.27 to Post-Effective Amendment No. 1 to the
          Registrant's Registration Statement on Form S-1 (File No. 33-82654)).

    10.43 Amendment to Consulting Agreement between First Nationwide
          Management Corp. and Gerald J. Ford, dated effective December 17,
          1997.

    10.44 First Amendment, dated as of January 1, 1995, by and among First
          Nationwide Management Corp., Diamond A-Ford Corporation, Trans
          Network Insurance Services, Inc. and Gerald J. Ford, supplementing
          the Consulting Agreement between First Nationwide Management Corp.
          and Gerald J. Ford dated as of October 1, 1994 (Incorporated by
          reference to Exhibit 10.33 to the Registrant's Registration Statement
          on Form S-1 (File No. 333-00854)).

    10.45 Management Incentive Plan for Certain Employees of First Nationwide
          Bank, A Federal Savings Bank. (Incorporated by reference to Exhibit
          10.34 to Registrant's Registration Statement on Form S-1 (File No.
          333-00854)).

    10.46 Deferred Executive Compensation Program.

    10.47 Reimbursement and Expense Allocation Agreement, dated as of January
          1, 1996, by and between First Nationwide Management Corp. and the
          Registrant. (Incorporated by reference to Exhibit 10.35 to
          Registrant's Registration Statement on Form S-1 (File No.
          333-00854)).

    10.48 Registration Agreement, dated September 13, 1996, among the
          Registrant, First Nationwide Escrow Corp. and the initial purchasers
          named therein relating to the New Notes. (Incorporated by reference
          to Exhibit 4.20 to Amendment No. 1 to the Registrant's Registration
          Statement on Form S-1 (File No. 333-21015)).

    10.49 Amended and Restated Agreement and Plan of Merger dated as of the
          27th day of July, 1996 by and among the Registrant, CFB Holdings,
          Inc., Cal Fed Bancorp Inc. and California Federal Bank, A Federal
          Savings Bank. (Incorporated by reference to Exhibit 2.1 to the
          Registrant's Registration Statement on Form S-1 (File No.
          333-21015)).


                                    Page 101

<PAGE>


    10.50 Stock Option Agreement, dated as of February 4, 1998, by and between
          Golden State Bancorp Inc. and First Nationwide (Parent) Holdings Inc.
          (Incorporated by reference to Exhibit 99.1 to the February 1998 Form
          8-K.)
          
    10.51 Litigation Management Agreement, dated as of February 4, 1998, by and
          among Golden State Bancorp Inc., Glendale Federal Bank, Federal
          Savings Bank, California Federal Bank, A Federal Savings Bank,
          Stephen J. Trafton and Richard A. Fink. (Incorporated by reference to
          Exhibit 99.2 to the February 1998 Form 8-K.)
          
    12.1  Statement regarding the computation of ratio of earnings to combined
          fixed charges, minority interest and preferred stock dividends for
          the Registrant.
          
    21.1  Subsidiaries of the Registrant. (Incorporated by reference to Exhibit
          21.1 to Amendment No. 1 to the Registrant's Registration Statement on
          Form S-1 (File No. 333-21015)).
          
    23.1  Consent of KPMG Peat Marwick LLP, Independent Auditors of the
          Registrant.
          
    24.1  Power of Attorney executed by Ronald O. Perelman.
          
    24.2  Power of Attorney executed by Howard Gittis.
          
    27.1  Financial Data Schedule.
         
  (C) REPORTS ON FORM 8-K

     None.                              


                                    Page 102

<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.

     Dated: March 25, 1998

                                         FIRST NATIONWIDE HOLDINGS INC.





                                         By: /s/ Laurence Winoker
                                            ------------------------------
                                              Laurence Winoker
                                              Vice President and Controller
                                              (Signing on behalf of the
                                              Registrant and as the Principal
                                              Accounting Officer)


     Pursuant to the requirement of the Securities Exchange Act of 1934, this
  report has been signed below by the following persons on behalf of the
  Registrant and in the capacities and on the date indicated.

<TABLE>
<CAPTION>
                    NAME                         TITLE                                DATE
                    ----                         -----                                ----
<S>                                   <C>                                          <C> 
                 *                       Chairman of the Board, Chief              March 25, 1998
---------------------------------        Executive Officer and Director
         Ronald O. Perelman      

                 *                       Vice Chairman  and Director               March 25, 1998
---------------------------------            
            Howard Gittis

        /s/ Irwin Engelman               Executive Vice President and              March 25, 1998
---------------------------------        Chief Financial Officer
            Irwin Engelman               (Principal Financial Officer)
</TABLE>



     *    Joram C. Salig, by signing his name hereto, does hereby execute
          this report on Form 10-K on behalf of the directors and officers of
          the Registrant indicated above by asterisks, pursuant to powers of
          attorney duly executed by such directors and officers and filed as
          exhibits to this report on Form 10-K.

                                           By:     /s/ Joram C. Salig
                                              ----------------------------
                                                Joram C. Salig
                                                Attorney-in-fact


<PAGE>



                          INDEPENDENT AUDITORS' REPORT


The Board of Directors
First Nationwide Holdings Inc.:

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

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

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






                             KPMG Peat Marwick LLP

Dallas, Texas
February 23, 1998







                                      F-1

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                          Consolidated Balance Sheets
                           December 31, 1997 and 1996
                 (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                        Assets                                                       1997              1996
                        ------                                                       ----              ----
<S>                                                                            <C>              <C>          
Cash and amounts due from banks                                                  $   350,214      $   135,534
Interest-bearing deposits in other banks                                              36,164           20,619
Short-term investment securities                                                      25,933          113,716
                                                                                 -----------      -----------
     Cash and cash equivalents                                                       412,311          269,869

Securities available for sale, at fair value                                         813,085          542,019
Securities held to maturity (fair value $58,299 in 1997 and $4,287 in 1996)           58,299            4,272
Mortgage-backed securities available for sale, at fair value                       5,076,598        1,598,652
Mortgage-backed securities held to maturity (fair value $1,373,289 in 1997
     and $1,653,847 in 1996)                                                       1,337,877        1,621,662
Loans held for sale, net                                                           1,483,466          825,316
Loans receivable, net                                                             19,424,410       10,212,583
Investment in Federal Home Loan Bank ("FHLB") System                                 468,191          220,962
Office premises and equipment, net                                                   159,349          100,164
Foreclosed real estate, net                                                           76,997           51,987
Accrued interest receivable                                                          188,203          106,034
Intangible assets (net of accumulated amortization of $60,294 in 1997
     and $11,141 in 1996)                                                            675,927          140,564
Mortgage servicing rights                                                            536,703          423,692
Other assets                                                                         635,663          500,392
                                                                                 -----------      -----------
         Total assets                                                            $31,347,079      $16,618,168
                                                                                 ===========      ===========

         Liabilities, Minority Interest and Stockholders' Equity

Deposits                                                                         $16,202,605      $ 8,501,883
Securities sold under agreements to repurchase                                     1,842,442        1,583,387
Borrowings                                                                        10,769,594        4,902,696
Other liabilities                                                                    702,475          401,609
                                                                                 -----------      -----------
         Total liabilities                                                        29,517,116       15,389,575
                                                                                 -----------      -----------

Commitments and contingencies                                                             --               --

Minority interest                                                                    986,456          309,376

Stockholders' equity:
     Floating rate cumulative perpetual preferred stock, $1.00 par value,
         liquidation value of $15,000 per share, 24,000 shares authorized,
         1,712.0 shares and 10,052.8 shares issued and outstanding at
         December 31, 1997 and 1996, respectively                                     25,680          150,792
     Class A common stock, $1.00 par value, 800 shares authorized,
         issued and outstanding                                                            1                1
     Class B common stock, $1.00 par value, 200 shares authorized,
         issued and outstanding                                                           --               --
     Additional paid-in capital                                                       31,890           47,752
     Net unrealized holding gain on securities available for sale                     35,162           46,219
     Retained earnings (substantially restricted)                                    750,774          674,453
                                                                                 -----------      -----------
         Total stockholders' equity                                                  843,507          919,217
                                                                                 -----------      -----------
         Total liabilities, minority interest and stockholders' equity           $31,347,079      $16,618,168
                                                                                 ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.



                                      F-2

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                       Consolidated Statements of Income
                  Years Ended December 31, 1997, 1996 and 1995
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                             1997               1996             1995
                                                                             ----               ----             ----
<S>                                                                      <C>                   <C>                <C>      
Interest income:
     Loans receivable                                                    $1,553,210            $ 884,905          $ 799,607
     Mortgage-backed securities available for sale                          297,816              115,983                 --
     Mortgage-backed securities held to maturity                            113,300              135,103            212,880
     Covered assets                                                              --                1,413             10,705
     Loans held for sale                                                     76,364               61,595             24,257
     Securities available for sale                                           53,936               31,416                 --
     Securities held to maturity                                              2,436                  257             26,885
     Interest-bearing deposits in other banks                                 5,638                3,127              1,511
                                                                        -----------            ---------          ---------
         Total interest income                                            2,102,700            1,233,799          1,075,845
                                                                        -----------            ---------          ---------
Interest expense:
     Deposits                                                               746,985              419,174            447,359
     Securities sold under agreements to repurchase                         140,547              120,280            104,957
     Borrowings                                                             553,272              268,346            182,499
                                                                        -----------            ---------          ---------
         Total interest expense                                           1,440,804              807,800            734,815
                                                                        -----------            ---------          ---------
         Net interest income                                                661,896              425,999            341,030
Provision for loan losses                                                    79,800               39,600             37,000
                                                                        -----------            ---------          ---------
         Net interest income after provision for loan losses                582,096              386,399            304,030
                                                                        -----------            ---------          ---------
Noninterest income:
     Loan servicing fees, net                                               143,919              123,887             70,265
     Customer banking fees and service charges                              100,048               45,044             47,493
     Management fees                                                          6,211                9,694             15,141
     Gain (loss) on sales of loans, net                                      24,721               17,802               (26)
     Gain on sales of assets, net                                            38,230               38,118                173
     Gain on sales of branches                                                3,569              363,342                 --
     Gain from termination of Assistance Agreement                               --               25,632                 --
     Dividends on FHLB stock                                                 24,790               11,670              6,546
     Other income                                                            22,996               18,189             11,381
                                                                        -----------            ---------          ---------
         Total noninterest income                                           364,484              653,378            150,973
                                                                        -----------            ---------          ---------
Noninterest expense:
     Compensation and employee benefits                                     256,448              204,818            154,288
     Occupancy and equipment                                                 81,914               51,936             49,897
     Savings Association Insurance Fund ("SAIF")
         deposit insurance premium                                           10,680               81,149             22,262
     Loan expense                                                            60,437               31,282             12,431
     Marketing                                                               20,186               10,908             10,810
     Professional fees                                                       48,771               18,986             11,202
     Data processing                                                         12,402               10,491              9,787
     Foreclosed real estate operations, net                                 (3,304)              (7,390)              (927)
     Amortization of intangible assets                                       49,153                9,445              1,474
     Other                                                                  112,032               78,944             61,329
                                                                        -----------            ---------          ---------
         Total noninterest expense                                          648,719              490,569            332,553
                                                                        -----------            ---------          ---------

Income before income taxes, extraordinary item and minority
     interest                                                               297,861              549,208            122,450
Income tax expense (benefit)                                                 47,148             (73,131)           (57,185)
                                                                        -----------            --------           --------
Income before extraordinary item and minority interest                      250,713              622,339            179,635
Extraordinary item - (loss) gain on early extinguishment of
     debt, net                                                                   --              (1,586)              1,967
                                                                        -----------            --------           --------
Income before minority interest                                             250,713              620,753            181,602
Minority interest                                                            89,344               43,230             34,584
                                                                        -----------            ---------          ---------
         Net income                                                         161,369              577,523            147,018
Preferred stock dividends                                                    12,791                4,815                 --
                                                                        -----------            ---------          ---------
         Net income available to common stockholders                    $   148,578            $ 572,708          $ 147,018
                                                                        ===========            =========          =========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-3

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                Consolidated Statements of Comprehensive Income
                  Years Ended December 31, 1997, 1996 and 1995
                                 (in thousands)



<TABLE>
<CAPTION>
                                                                          1997              1996             1995
                                                                          ----              ----             ----
<S>                                                                     <C>               <C>              <C>
Net income                                                              $161,369          $577,523         $147,018

Other comprehensive income, net of tax:
     Unrealized holding gain on securities available for sale:
         Unrealized holding gains arising during the period               10,907            18,225           53,980
         Less: reclassification adjustment for gains
              included in net income                                     (21,964)          (35,518)          (1,468)
                                                                        --------          --------         --------
     Other comprehensive income                                          (11,057)          (17,293)          52,512
                                                                        --------          --------         --------
Comprehensive income                                                    $150,312          $560,230         $199,530
                                                                        ========          ========         ========
</TABLE>



See accompanying notes to consolidated financial statements.


                                      F-4

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 1997, 1996 and 1995
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                           Net unrealized
                                                                           holding gain on
                                                                Additional   securities                       Total
                                          Preferred    Common    paid-in   available for     Retained      stockholders'
                                            stock      stock     capital       sale          earnings         equity
                                            -----      -----     --------  -------------    ------------      ------
<S>                                    <C>             <C>       <C>          <C>            <C>           <C>
Balance at December 31, 1994               $      --      $ 1     $283,801    $11,000         $ 58,070       $352,872

Net income                                        --       --           --         --          147,018        147,018
Redemption of class C common stock                --       --      (60,801)        --               --        (60,801)
Dividends on class C common stock                 --       --           --         --          (29,185)       (29,185)
Change in net unrealized holding gains
     on securities available for sale             --       --           --     52,512               --         52,512
                                            ---------     ---     --------    -------         ---------      --------

Balance at December 31, 1995                      --        1      223,000     63,512          175,903        462,416

Net income                                        --       --           --         --          577,523        577,523
Redemption of class C common stock                --       --     (169,497)        --               --       (169,497)
Dividends on class C common stock                 --       --           --         --           (8,575)        (8,575)
Dividends on class A common stock                 --       --           --         --          (52,467)       (52,467)
Dividends on class B common stock                 --       --           --         --          (13,116)       (13,116)
Issuance of preferred stock                  150,000       --       (5,751)        --               --        144,249
Dividends on preferred stock                     792       --           --         --           (4,815)        (4,023)
Change in net unrealized holding gains
     on securities available for sale             --       --           --    (17,293)              --        (17,293)
                                            ---------     ---     --------    -------         ---------      --------


Balance at December 31, 1996                 150,792        1       47,752     46,219          674,453        919,217

Net income                                        --       --           --         --          161,369        161,369
FN Escrow Merger                              35,983       --           --         --           (1,163)        34,820
Redemption of FN Holdings/FN Escrow
     Preferred Stock                        (35,983)       --           --         --               --        (35,983)
Issuance costs of FN Holdings Preferred
     Stock                                        --       --         (650)        --               --           (650)
Issuance costs of REIT Preferred Stock            --       --      (17,551)        --               --        (17,551)
Redemption of FN Holdings Preferred
     Stock                                 (127,339)       --        2,339         --               --       (125,000)
Stock dividends                                2,227       --           --         --           (2,227)            --
Cash dividends on common stock                    --       --           --         --          (71,094)       (71,094)
Cash dividends on preferred stock                 --       --           --         --          (10,564)       (10,564)
Change in net unrealized holding gains
     on securities available for sale             --       --           --    (11,057)              --        (11,057)
                                            ---------     ---     --------    -------         ---------      --------

Balance at December 31, 1997               $  25,680      $ 1     $ 31,890    $35,162         $750,774       $843,507
                                           =========      ===     ========    =======         ========       ========
</TABLE>



See accompanying notes to consolidated financial statements.


                                      F-5

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows
                  Years Ended December 31, 1997, 1996 and 1995
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                               1997              1996             1995
                                                                               ----              ----             ----
<S>                                                                         <C>                <C>             <C>
Cash flows from operating activities:
Net income                                                                  $ 161,369          $ 577,523       $ 147,018
Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:
   Amortization of intangible assets                                           49,153              9,445           1,474
   (Accretion) amortization of purchase accounting premiums
      and discounts, net                                                      (20,650)           (15,771)           (946)
   Amortization of mortgage servicing rights                                  110,282             90,981          33,892
   Provision for loan losses                                                   79,800             39,600          37,000
   Provision for accrued termination and facilities costs                       1,233              8,679          12,772
   Gain on sales of assets, net                                               (38,230)           (38,118)           (173)
   Gain on sale of branches                                                    (3,569)          (363,342)             --
   Gain on sales of foreclosed real estate                                    (12,087)           (12,951)         (3,010)
   Loss on sale of loans, net                                                  95,744             63,226          17,928
   Gain from termination of Assistance Agreement                                   --            (25,632)             --
   Extraordinary loss (gain) on early extinguishment of debt, net                  --              1,586          (1,967)
   Depreciation and amortization of office premises
      and equipment                                                            16,773             10,921           8,884
    Amortization of deferred issuance costs                                     5,766              1,811             766
   FHLB stock dividend                                                        (24,790)           (11,670)         (6,546)
   Capitalization of mortgage servicing rights                               (120,465)           (81,028)        (17,902)
   Purchases and originations of loans held for sale                       (6,293,262)        (4,822,753)     (1,773,437)
   Proceeds from the sale of loans held for sale                            5,510,777          5,157,186       1,191,281
   Decrease (increase) in other assets                                        164,871            (89,224)        (97,258)
   (Increase) decrease in accrued interest receivable                         (11,197)            20,991          (9,743)
   (Decrease) increase in other liabilities                                  (144,255)           (48,804)         33,155
   Minority interest                                                           89,344             43,230          34,584
                                                                          -----------        -----------     -----------
      Net cash (used in) provided by
         operating activities                                                (383,393)           515,886        (392,228)
                                                                          -----------        -----------     -----------
</TABLE>



See accompanying notes to consolidated financial statements.
                                                                    (Continued)


                                      F-6

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                     Consolidated Statements of Cash Flows,
                    continued Years Ended December 31, 1997,
                                 1996 and 1995
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                              1997               1996               1995
                                                                              ----               ----               ----
<S>                                                                     <C>                  <C>               <C>
Cash flows from investing activities:
     Acquisitions and divestitures:
         Auto One Acquisition                                           $     (2,845)      $        --         $       --
         SFFed Acquisition                                                        --           (83,184)                --
         Home Federal Acquisition                                                 --            79,044                 --
         Cal Fed Acquisition                                                (161,196)               --                 --
         Mortgage loan servicing rights and operations                       (34,260)          (48,305)          (214,727)
         Branch Purchases                                                         --                --            501,351
     Purchases of securities available for sale                           (1,340,881)         (497,963)                --
     Proceeds from sales of securities available for sale                     52,014            92,320                 --
     Proceeds from maturities of securities available for sale             1,015,410           242,514                 --
     Purchases of securities held to maturity                                (58,965)           (9,303)          (162,845)
     Principal payments from securities held to maturity                          --                 5                 --
     Proceeds from maturities of securities held to maturity                   4,938             1,250            344,475
     Purchases of mortgage-backed securities available for sale           (2,589,257)         (149,724)                --
     Principal payments on mortgage-backed securities
         available for sale                                                1,099,699           475,186                 --
     Proceeds from sales of mortgage-backed securities
         available for sale                                                   50,772                --                 --
     Purchases of mortgage-backed securities held to maturity                   (458)               --            (19,825)
     Principal payments on mortgage-backed securities held
         to maturity                                                         283,696           387,891            570,945
     Proceeds from sales of loans receivable                                  21,179           123,026            431,247
     Net decrease (increase) in loans receivable                             514,377         1,498,588            (85,149)
     Decrease in covered assets                                                   --            39,349            272,254
     (Purchases) redemptions of FHLB stock, net                              (50,721)          (65,753)            25,565
     Purchases of office premises and equipment                              (66,131)          (42,368)           (15,331)
     Proceeds from the disposal of office premises and equipment              31,400             4,071              1,667
     Proceeds from sales of foreclosed real estate                           200,275           170,443             71,453
     Purchases of mortgage servicing rights                                  (29,627)          (65,994)              (774)
     Proceeds from sales of mortgage servicing rights                         31,051                --                 --
                                                                         -----------       ------------       ------------
         Net cash (used in) provided by investing activities              (1,029,530)        2,151,093          1,720,306
                                                                         -----------       ------------       ------------

Cash flows from financing activities:
     Branch Sales                                                            (79,900)       (4,585,022)                --
     Net (decrease) increase in deposits                                  (1,196,360)          (56,694)           542,633
     Proceeds from additional borrowings                                  19,595,218        10,710,331          6,151,319
     Principal payments on borrowings                                    (17,495,008)       (8,484,883)        (6,860,569)
     Net decrease in securities sold under
         agreements to repurchase                                            (40,289)         (202,169)          (913,103)
     Proceeds from FN Escrow Merger                                          603,313                --                 --
     Issuance of FN Holdings Preferred Stock, net                               (650)          144,249                 --
     Issuance of REIT Preferred Stock, net                                   482,449                --                 --
     Redemption of class C common stock                                           --          (124,670)           (60,801)
     Redemption of FN Holdings/FN Escrow Preferred Stock                     (17,250)               --                 --
     Redemption of FN Holdings Preferred Stock                              (125,000)               --                 --
     Dividends on class C common stock                                            --            (6,633)           (29,185)
     Dividends on common stock                                               (71,094)          (65,583)                --
     Dividends on preferred stock                                            (10,564)           (4,023)                --
     Dividends paid to minority stockholders, net of taxes                   (89,500)          (34,584)           (34,584)
                                                                         -----------       -----------        -----------
         Net cash provided by (used in) financing activities               1,555,365        (2,709,681)        (1,204,290)
                                                                         -----------       -----------        -----------

Net change in cash and cash equivalents                                      142,442           (42,702)           123,788
Cash and cash equivalents at beginning of year                               269,869           312,571            188,783
                                                                         -----------       -----------        -----------
Cash and cash equivalents at end of year                                 $   412,311       $   269,869        $   312,571
                                                                         ===========       ===========        ===========
</TABLE>

See accompanying notes to consolidated financial statements.


                                      F-7

<PAGE>


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


(1)  Organization

     First Nationwide Holdings Inc. (the "Company" or "FN Holdings") is a
holding company whose only significant asset is all of the outstanding shares
of common stock of California Federal Bank, A Federal Savings Bank ("California
Federal" or "Bank"), formerly First Nationwide Bank, A Federal Savings Bank
("First Nationwide"), formerly First Madison Bank, FSB ("First Madison"). The
Company is a subsidiary of First Nationwide (Parent) Holdings Inc. ("Parent
Holdings"), which is a subsidiary of First Gibraltar Holdings Inc. ("First
Gibraltar Holdings"), an indirect subsidiary of MacAndrews & Forbes Holdings
Inc. ("M&F Holdings").

     The Bank was organized and chartered as First Gibraltar Bank, FSB ("First
Gibraltar"), a federal stock savings bank, in December 1988 for the primary
purpose of acquiring substantially all of the assets and assuming deposit,
secured and certain other liabilities of five insolvent Texas savings and loan
associations ("Closed Associations") from the Federal Savings and Loan
Insurance Corporation ("FSLIC"), as receiver.

     On February 1, 1993, First Gibraltar sold to BankAmerica Corporation
certain assets, liabilities and substantially all of the branch operations of
First Gibraltar located in Texas, including $829 million of loans and 130
branches with approximately $6.9 billion in deposits (the "BAC Sale"). A net
gain of $141 million was recorded in connection with this sale. Concurrently
with the BAC Sale, First Gibraltar changed its name to First Madison Bank, FSB.

     On April 14, 1994, First Madison entered into the Asset Purchase Agreement
(the "Asset Purchase Agreement") with First Nationwide Bank, A Federal Savings
Bank ("Old FNB"), an indirect subsidiary of Ford Motor Company ("Ford Motor").
On October 3, 1994, effective immediately after the close of business on
September 30, 1994, First Madison acquired substantially all of the assets and
certain of the liabilities (the "FN Acquired Business") of Old FNB (the "FN
Acquisition") for approximately $715 million based on estimates prepared by Old
FNB. On March 2, 1995, an additional $11.5 million was paid to Old FNB pursuant
to certain settlement provisions of the Asset Purchase Agreement. Effective on
October 1, 1994, First Madison changed its name to First Nationwide Bank, A
Federal Savings Bank.

     On January 3, 1997, pursuant to an Agreement and Plan of Merger (the
"Merger Agreement") among FN Holdings, Cal Fed Bancorp Inc. ("Cal Fed") and
California Federal Bank, A Federal Savings Bank ("Old California Federal"), FN
Holdings acquired 100% of the outstanding stock of Cal Fed and Old California
Federal, and First Nationwide merged with and into Old California Federal. The
aggregate consideration paid under the Merger Agreement consisted of
approximately $1.2 billion in cash and the issuance of litigation interests
(the "Cal Fed Acquisition"). Cal Fed, a savings and loan holding company, owned
100% of the common stock of Old California Federal. At December 31, 1996, Old
California Federal had total assets of approximately $14.1 billion and deposits
of $8.9 billion, and operated 119 branches in California and Nevada. Effective
on January 3, 1997, First Nationwide changed its name to California Federal
Bank, A Federal Savings Bank. In connection with the Cal Fed Acquisition, FN
Holdings made a capital contribution to the Bank on January 3, 1997 of
approximately $685 million.

     In November 1996, the Bank created California Federal Preferred Capital
Corporation ("Preferred Capital Corp."), a real estate investment trust
("REIT"), for the purpose of acquiring, holding and managing real estate
mortgage assets. All of Preferred Capital Corp.'s common stock is owned by the
Bank. Pursuant to a subservicing agreement with the Bank's wholly-owned
mortgage banking subsidiary, First Nationwide Mortgage Corporation ("FNMC"),
FNMC services Preferred Capital Corp.'s mortgage assets. On January 31, 1997,
Preferred Capital Corp. issued to the public $500 million of its 91/8%
Noncumulative Exchangeable Preferred Stock (the "REIT Preferred Stock"), which
is reflected in the Company's 1997 consolidated balance sheet as minority
interest. Preferred Capital Corp. used the proceeds from such offering to
acquire mortgage assets from the Bank.

     The Bank is a diversified financial services company that primarily serves
consumers in California, and to a lesser extent, in Florida and Nevada. The
Bank's principal business consists of (i) operating retail deposit branches,
(ii) originating and/or purchasing 1-4 unit residential loans and, to a lesser
extent, certain commercial real estate and consumer loans, for investment and
(iii) mortgage banking activities, including originating and servicing 1-4 unit
residential loans for others. Recently, with its entry into the sub-prime
automobile finance business, the Bank broadened


                                      F-8

<PAGE>


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


its complement of consumer lending products. These operating activities are
financed principally with customer deposits, secured short-term and long-term
borrowings, collections on loans, asset sales and retained earnings.

(2)  FN Escrow Merger

     On January 3, 1997 and prior to the consummation of the Cal Fed
Acquisition, First Nationwide Escrow Corp. ("FN Escrow"), an affiliate of FN
Holdings, was merged with and into FN Holdings, pursuant to a merger agreement
by and between FN Holdings and FN Escrow (the "FN Escrow Merger"). In
connection therewith, FN Holdings acquired the net proceeds from the issuance
of FN Escrow's $575 million of senior subordinated notes due 2003 (the "105/8%
Notes") and assumed FN Escrow's obligations under the 105/8% Notes and
indenture. Deferred issuance costs associated with the 105/8% Notes of $19
million were included in FN Escrow's other assets and are being amortized over
the term of the 105/8% Notes.

     Concurrent with the issuance of the 105/8% Notes, FN Escrow issued
approximately $36 million aggregate liquidation value of cumulative perpetual
preferred stock (the "FN Escrow Preferred Stock") to Trans Network Insurance
Services Inc., an affiliate of FN Escrow. The FN Escrow Preferred Stock had a
stated liquidation value of $10,000 per share, plus accrued and unpaid
dividends, if any. Cash dividends on the FN Escrow Preferred Stock were
cumulative and accrued at an annual rate of approximately 7.3% of the stated
liquidation value. In connection with the FN Escrow Merger, each share of FN
Escrow Preferred Stock was converted into and became one share of cumulative
perpetual preferred stock of FN Holdings (the "FN Holdings/FN Escrow Preferred
Stock"), which stock had the same relative rights, terms and preferences as the
FN Escrow Preferred Stock. Immediately after issuance, FN Holdings redeemed the
FN Holdings/FN Escrow Preferred Stock at a redemption price of $36.8 million,
representing its stated liquidation value and accrued and unpaid dividends to
January 3, 1997. At the same time, a $19 million loan receivable from an
affiliate of FN Holdings was repaid.

(3)  Acquisitions and Divestitures

     LMUSA Purchases

     On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc. ("LMUSA")
a loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing portfolio of $3.1 billion), a $2.9 billion master servicing
portfolio in which FNMC monitors the performance and consolidates the reporting
and remittances of multiple servicers for various investors (a "master
servicing portfolio") and other assets for $100.9 million, and the assumption
of certain indebtedness relating to an acquired loan portfolio totalling
approximately $274 million (the "LMUSA 1995 Purchase"). On January 31, 1996,
FNMC purchased LMUSA's remaining $14.1 billion loan servicing portfolio
(including a sub-servicing portfolio of $2.4 billion), a master servicing
portfolio of $2.7 billion, $5.9 million in foreclosed real estate, $46.8
million in net other servicing receivables, $2.6 million in mortgage loans, and
$6.2 million in net other assets (including $1.4 million in cash and cash
equivalents) for a purchase price of approximately $160.9 million (the "LMUSA
1996 Purchase" and, together with the LMUSA 1995 Purchase, the "LMUSA
Purchases").




                                      F-9

<PAGE>


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


     1996 Acquisitions

     On February 1, 1996, the Bank acquired SFFed Corp. ("SFFed") and its
wholly-owned subsidiary, San Francisco Federal Savings and Loan Association
(the "SFFed Acquisition"). The following is a summary of the assets acquired
and liabilities assumed in connection with the SFFed Acquisition at February 1,
1996.
<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                         SFFed                               Bank       Remaining
                                                       Carrying        Fair Value          Carrying       Lives
                                                         Value         Adjustments           Value     (in years)
                                                       --------        -----------         --------    ----------
                                                                 (dollars in thousands)
<S>                                                 <C>            <C>                  <C>               <C>    
Cash and cash equivalents                           $   181,061         $     --        $  181,061          --
Mortgage-backed securities                              918,817           11,007           929,824         1-5
Loans receivable, net                                 2,715,758          (23,245)        2,692,513        2-12
Office premises and equipment                            20,581          (11,672)            8,909        3-10
Investment in FHLB System                                31,989               --            31,989          --
Foreclosed real estate, net                              30,018               --            30,018          --
Accrued interest receivable                              22,740               --            22,740          --
Mortgage servicing rights                                 2,238           13,762            16,000         2-4
Other assets                                             44,938           (7,773)           37,165         2-5
Deposits                                             (2,678,692)         (10,950)       (2,689,642)        1-5
Securities sold under
     agreements to repurchase                          (815,291)          (3,640)         (818,931)         --
Borrowings                                             (227,203)          (8,831)         (236,034)        1-9
Other liabilities                                       (50,805)          (6,075)          (56,880)        1-5
                                                    -----------         --------        ----------
                                                    $   196,149         $(47,417)          148,732
                                                    ===========         ========
Purchase price                                                                             264,245
Excess cost over fair value                                                             ----------
     of net assets acquired                                                             $  115,513          15
                                                                                        ==========
</TABLE>

     In connection with the SFFed Acquisition, FN Holdings issued $140 million
of 91/8% Senior Subordinated Notes Due 2003 (the "91/8% Senior Subordinated
Notes") and contributed the proceeds thereof of $133 million to the Bank as
additional paid-in capital.




                                      F-10

<PAGE>


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


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

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                        HFFC                               Bank         Remaining
                                                      Carrying         Fair Value        Carrying         Lives
                                                        Value          Adjustments         Value       (in years)
                                                      --------         -----------       --------      ----------
                                                                (dollars in thousands)
<S>                                                   <C>            <C>                 <C>            <C>  
Cash and cash equivalents                             $146,867          $   --           $146,867          --
Mortgage-backed securities                               4,053             (65)             3,988         1-5
Loans receivable, net                                  538,722           4,020            542,742        2-12
Office premises and equipment                            4,202          (2,125)             2,077        3-10
Investment in FHLB System                                6,259              --              6,259
Foreclosed real estate, net                              2,421            (198)             2,223          --
Accrued interest receivable                              3,594              --              3,594          --
Mortgage servicing rights                                  817           2,243              3,060         2-4
Other assets                                            10,016           2,392             12,408         2-5
Deposits                                              (632,399)         (1,875)          (634,274)        1-5
Borrowings                                             (30,000)            241            (29,759)        1-6
Other liabilities                                       (3,602)         (3,293)            (6,895)        1-5
                                                      ---------         -------          --------
                                                      $ 50,950          $1,340             52,290
                                                      =========         =======
Purchase price                                                                             67,823
Excess cost over fair value                                                              --------
     of net assets acquired                                                              $ 15,533          15
                                                                                         ========
</TABLE>

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



                                       F-11

<PAGE>


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


      Cal Fed Acquisition

      The following is a summary of the assets acquired and liabilities assumed
in connection with the Cal Fed Acquisition at January 3, 1997.

<TABLE>
<CAPTION>
                                                                                                        Estimated
                                                        Cal Fed                             Bank        Remaining
                                                       Carrying        Fair Value         Carrying        Lives
                                                         Value         Adjustments         Value       (in years)
                                                       --------        -----------        --------     ----------
                                                                 (dollars in thousands)
<S>                                                  <C>           <C>                  <C>              <C>
Cash and cash equivalents                            $1,027,491         $     --       $ 1,027,491          --
Securities                                                6,013               12             6,025           1
Mortgage-backed securities                            1,963,869            4,532         1,968,401         6-9
Loans receivable, net                                10,084,170          (23,991)       10,060,179        2-12
Office premises and equipment, net                       58,900          (17,592)           41,308        3-10
Investment in FHLB System                               166,786               --           166,786          --
Foreclosed real estate, net                              18,482              (16)           18,466          --
Accrued interest receivable                              71,868               --            71,868          --
Mortgage servicing rights                                 4,759           39,738            44,497         2-7
Other assets                                             87,096          142,634           229,730         2-5
Deposits                                             (8,985,630)          (9,699)       (8,995,329)        1-8
Borrowings                                           (3,468,004)          (2,918)       (3,470,922)        1-5
Other liabilities                                      (198,454)        (188,892)         (387,346)       1-10
Preferred stock                                        (172,500)              --          (172,500)         --
                                                     -----------        --------       -----------
                                                     $  664,846         $(56,192)          608,654
                                                     ==========         ========
Purchase price                                                                           1,188,687
Excess cost over fair value                                                            -----------
     of net assets acquired                                                            $   580,033          15
                                                                                       ===========
</TABLE>

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

     Weyerhaeuser Purchase

     On May 31, 1997, FNMC acquired a 1-4 unit residential loan servicing
portfolio of approximately $3.2 billion and approximately 40,000 loans from WMC
Mortgage Corporation (the "Weyerhaeuser Purchase") for $37.1 million. The
Company's consolidated statement of income for the year ended December 31, 1997
includes the results of the acquired servicing portfolio from June 1, 1997.

     Auto One Acquisition

     On September 1, 1997, the Bank acquired Auto One Acceptance Corporation
("Auto One") in a purchase transaction (the "Auto One Acquisition"). Auto One
primarily engages in indirect sub-prime auto financing activities, providing
loan processing, funding and loan servicing for over 800 franchised automobile
dealers. Auto One is a licensed lender in 47 states. Auto One is headquartered
in Dallas, Texas, and is a wholly-owned subsidiary of the Bank. The results of
operations for Auto One for the period from September 1, 1997 are included in
the Company's consolidated statement of income for the year ended December 31,
1997.



                                      F-12

<PAGE>


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


     Servicing Sale

     On September 30, 1997, FNMC sold servicing rights for approximately 52,000
loans with an unpaid principal balance of approximately $2.3 billion,
recognizing a pre-tax gain of $14.0 million (the "Servicing Sale").

     Branch Sales

     During the first six months of 1996, the Bank consummated the sale of its
retail deposits and the related retail banking assets comprised of cash on
hand, loans on deposits, and facilities in Ohio, New York, New Jersey and
Michigan (collectively, the "Branch Sales") at gross prices which represented
an average premium of 7.96% of the approximately $4.6 billion deposits sold.
The Bank recorded a pre-tax gain of $363.3 million in connection with the
Branch Sales. The Company's consolidated statement of income for the year ended
December 31, 1996 includes the results of operations of those branches sold in
the Branch Sales for the period prior to sale.

      Garberville Branch Sale

      On May 9, 1997, the Bank consummated the sale of deposit accounts and
related retail banking assets comprised of cash on hand, loans on deposits and
facilities totalling $21.7 million to Humboldt Bank at a gross price
representing a deposit premium of 4.5% (the "Garberville Branch Sale"), and
resulting in a net pre-tax gain on sale of $1.1 million.

      Texas Branch Sale

      On December 12, 1997, the Bank sold its retail deposits and all related
retail banking facilities in the state of Texas (consisting of three branches)
totalling $57.6 million at a gross price representing a deposit premium of 4.1%
and resulting in a pre-tax net gain on sale of $2.5 million (the "Texas Branch
Sale").

      Pro Forma Financial Information

      The following unaudited pro forma financial information combines the
historical results of the Company as if the Cal Fed Acquisition and the
issuances of the REIT Preferred Stock and the 105/8% Notes had occurred as of
the beginning of the first year presented (in thousands):

                                               Year ended December 31,
                                               -----------------------
                                                1997          1996
                                                ----          ----
      Net interest income                     $663,484      $725,775
      Net income                               159,529       270,858

      The gains recognized related to the Branch Sales, net of related taxes,
and certain sales of branches by Cal Fed are excluded from the above table. The
pro forma information does not include the effect of the Home Federal
Acquisition, the SFFed Acquisition, the LMUSA 1996 Purchase, the Weyerhaeuser
Purchase, the Auto One Acquisition, the Servicing Sale, the Branch Sales, the
Garberville Branch Sale, the Texas Branch Sale, the sales of certain branches
by Cal Fed or the issuance of the 91/8% Senior Subordinated Notes because such
effect is not significant. The pro forma results are not necessarily indicative
of the results which would have actually been obtained if the Cal Fed
Acquisition and the issuances of the REIT Preferred Stock and the 105/8% Notes
had been consummated in the past nor do they project the results of operations
in any future period.

      Purchase Accounting Adjustments

      Premiums and discounts related to interest-earning assets acquired and
interest-bearing liabilities assumed are amortized (accreted) to operations
using the interest method over the estimated remaining lives of the respective
assets and liabilities.



                                      F-13

<PAGE>


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


      GSAC Acquisition

      On September 5, 1997, the Bank entered into an agreement with Gulf States
Acceptance Company, a Delaware limited partnership ("GSAC") and its general
partner, Gulf States Financial Services, a Texas corporation, pursuant to which
Auto One will acquire 100% of the partnership interests in GSAC and GSAC will
be liquidated and its assets and liabilities will be transferred to Auto One
(the "GSAC Acquisition"). The aggregate consideration to be paid in connection
with the GSAC Acquisition is approximately $22.5 million and a 20% interest in
the common stock of Auto One. This transaction closed on February 4, 1998. See
note 36 "Subsequent Events" for further discussion.

(4)  Summary of Significant Accounting Policies

     The accounting and reporting policies of FN Holdings conform to generally
accepted accounting principles and general practices within the savings and
loan industry. The following summarizes the more significant of these policies.

     (a)  Basis of Presentation

          The accompanying consolidated financial statements include the
     accounts of FN Holdings, the Bank and the Bank's wholly-owned subsidiaries
     not subject to the Assistance Agreement (as defined herein). Earnings per
     share data is not presented due to the limited ownership of the Company.
     All significant intercompany accounts and transactions have been
     eliminated.

     (b)  Cash and Cash Equivalents

          For purposes of the consolidated statements of cash flows, cash and
     cash equivalents include cash and amounts due from banks, interest-bearing
     deposits in other banks, and other short-term investment securities with
     original maturities of three months or less. Savings and loan associations
     are required by the Federal Reserve System to maintain non-interest
     bearing cash reserves equal to a percentage of certain deposits. The
     reserve balance for California Federal at December 31, 1997 was $51.0
     million.

     (c)  Securities and Mortgage-backed Securities

          The Company's investment in securities consists primarily of U.S.
     government and agency securities and mortgage-backed securities. FN
     Holdings classifies debt and equity securities, including mortgage-backed
     securities, into one of three categories: held to maturity, available for
     sale or trading securities. Securities held to maturity represent
     securities which management has the positive intent and ability to hold to
     maturity and are reported at amortized cost. Securities bought and held
     principally for the purpose of selling them in the near term are
     classified as trading securities and reported at fair value, with
     unrealized gains and losses included in income. All other securities are
     classified as available for sale and are carried at fair value, with
     unrealized holding gains and losses, net of tax, reported as a separate
     component of stockholders' equity until realized. Should an other than
     temporary decline in the fair value of a security classified as held to
     maturity or available for sale occur, the carrying value of such security
     would be written down to fair value by a charge to operations. Realized
     gains or losses on securities available for sale are computed on a
     specific identification basis and are accounted for on a trade-date basis.

          Amortization and accretion of premiums and discounts relating to
     mortgage-backed securities is recognized using the interest method over
     the estimated lives of the underlying mortgages with adjustments based on
     prepayment experience.



                                      F-14

<PAGE>


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


     (d)  Loans Held for Sale, Net

          One-to-four unit residential loans originated and intended for sale
     in the secondary market are carried at the lower of aggregate cost or
     market value as determined by outstanding commitments from investors or
     current investor yield requirements calculated on an aggregate basis. Net
     unrealized losses are recognized in a valuation allowance by charges to
     income.

     (e)  Loans Receivable, Net

          Loans receivable, net, is stated at unpaid principal balances, less
     the allowance for loan losses, and net of deferred loan origination fees
     and purchase discounts or premiums.

          Discounts or premiums on 1-4 unit residential loans are accreted or
     amortized to income using the interest method over the remaining period
     the loans are expected to be outstanding. Discounts or premiums on
     consumer and other loans are recognized over the lives of the loans using
     the interest method.

          A significant portion of the Company's real estate loan portfolio is
     comprised of adjustable-rate mortgages. The interest rate and payment
     terms of these mortgages adjust on a periodic basis in accordance with
     various published indices. The majority of these adjustable-rate mortgages
     have terms which limit the amount of interest rate adjustment that can
     occur each year and over the life of the mortgage. During periods of
     limited payment increases, negative amortization may occur on certain
     adjustable-rate mortgages. See note 32.

          The allowance for loan losses is increased by charges to income and
     decreased by charge-offs (net of recoveries). Management's periodic
     evaluation of the adequacy of the allowance is based on such factors as
     the Company's past loan loss experience, delinquency trends, known and
     inherent risks in the portfolio, adverse situations that may affect the
     borrower's ability to repay, the estimated value of any underlying
     collateral, and current economic conditions. As management utilizes
     information currently available to make such evaluation, the allowance for
     loan losses is subjective and may be adjusted in the future depending on
     changes in economic conditions or other factors. Additionally, regulatory
     authorities, as an integral part of their regular examination process,
     review the Bank's allowance for estimated losses on a periodic basis.
     These authorities may require the Bank to recognize additions to the
     allowance based on their judgment of information available to them at the
     time of their examination.
 .
          Uncollectible interest on loans that are contractually ninety days or
     more past due is charged off, or an allowance is established, based on
     management's periodic evaluation. The allowance is established by a charge
     to interest income equal to all interest previously accrued, and income is
     subsequently recognized only to the extent that cash payments are
     received. When, in management's judgment, the borrower's ability to make
     periodic interest and principal payments resumes, the loan is returned to
     accrual status.

     (f)  Auto One Loans

          Since the consummation of the Auto One Acquisition, California
     Federal has purchased sub-prime auto financing contracts from an
     established dealer network throughout the United States. Any premium or
     discount is amortized using the interest method over the estimated lives
     of the loans. The allowance for estimated losses is regularly assessed by
     management, and such allowances are maintained on a static pool basis.

     (g)  Impaired Loans

          The Company considers a loan is impaired when it is "probable" that a
     creditor will be unable to collect all amounts due (i.e., both principal
     and interest) according to the contractual terms of the loan agreement.
     Any insignificant delay (i.e., 60 days or less) or insignificant shortfall
     in amount of payments will not cause a loan to be considered impaired. In
     determining impairment, the Company considers large non-homogeneous loans


                                      F-15

<PAGE>


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


     including nonaccrual loans, troubled debt restructurings, and performing
     loans which exhibit, among other characteristics, high loan-to-value
     ratios, low debt-coverage ratios, or other indications that the borrowers
     are experiencing increased levels of financial difficulty. The Company
     bases the measurement of collateral-dependent impaired loans on the fair
     value of the loan's collateral. The amount, if any, by which the recorded
     investment of the loan exceeds the measure of the impaired loan's value is
     recognized by recording a valuation allowance.

          The measurement of impairment may be based on (i) the present value
     of the expected future cash flows of the impaired loan discounted at the
     loan's original effective interest rate, (ii) the observable market price
     of the impaired loan, or (iii) the fair value of the collateral of a
     collateral-dependent loan. Large groups of smaller balance homogeneous
     loans are collectively evaluated for impairment. For the Company, loans
     collectively reviewed for impairment include all single-family loans, and
     performing multi-family and commercial real estate loans under $500,000,
     excluding loans which have entered the workout process.

          Cash receipts on impaired loans not performing according to
     contractual terms are generally used to reduce the carrying value of the
     loan, unless the Company believes it will recover the remaining principal
     balance of the loan. Impairment losses are included in the allowance for
     loan losses through a charge to provision for loan losses. Adjustments to
     impairment losses due to changes in the fair value of collateral of
     impaired loans are included in provision for loan losses. Upon disposition
     of an impaired loan, loss of principal, if any, is recorded through a
     charge-off to the allowance for loan losses.

     (h)  Loan Origination and Commitment Fees and Related Costs

          Loan origination fees, net of direct underwriting and closing costs,
     are deferred and amortized to interest income using the interest method
     over the contractual term of the loans, adjusted for actual loan
     prepayment experience. Unamortized fees on loans sold or paid in full are
     recognized as income. Adjustable-rate loans with lower initial interest
     rates during the introductory period result in the amortization of a
     substantial portion of the net deferred fee during the introductory
     period.

          Fees received in connection with loan commitments are deferred and
     recognized as fee revenue on a straight-line basis over the term of the
     commitment. If the commitment is subsequently exercised during the
     commitment period, the remaining unamortized commitment fee at the time of
     exercise is recognized over the term of the loan using the interest
     method.

          Commitment fees paid to investors, for the right to deliver permanent
     residential mortgages in the future to the investors at a specified yield,
     are deferred. Amounts are included in the recognition of gain (loss) on
     sale of loans as loans are delivered to the investor in proportion to the
     percentage relationship of loans delivered to the total commitment amount.
     Any unused fee is recognized as an expense at the expiration of the
     commitment date, or earlier, if it is determined that the commitment will
     not be filled.

          Other loan fees and charges, which represent income from the
     prepayment of loans, delinquent payment charges, and miscellaneous loan
     services, are recognized as income when collected.

     (i)  Office Premises and Equipment

          Land is carried at cost. Premises, equipment and leasehold
     improvements are stated at cost, less accumulated depreciation and
     amortization. Premises, equipment and leasehold improvements are
     depreciated or amortized on a straight-line basis over the lesser of the
     lease term or the estimated useful lives of the various classes of assets.
     Maintenance and repairs on premises and equipment are charged to expense
     in the period incurred.

          Closed facilities of the Company and its subsidiaries are carried at
     fair value. In the case of leased premises that are vacated by the
     Company, a liability is recorded representing the difference between the
     net present value


                                      F-16

<PAGE>


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


     of future lease payments and holding costs and the net present value of
     anticipated sublease income, if any, for the remaining term of the lease.

     (j)  Foreclosed Real Estate

          Real estate acquired through foreclosure is initially recorded at
     fair value less estimated disposal costs at the time of foreclosure.
     Subsequent to foreclosure, the Company charges current earnings with a
     provision for estimated losses when the carrying value of the collateral
     property exceeds its fair value. Gains or losses on the sale of real
     estate are recognized upon disposition of the property. Carrying costs
     such as maintenance and property taxes are expensed as incurred.

     (k)  Intangible Assets

          Intangible assets, which primarily consist of the excess of cost over
     fair value of net assets acquired in business combinations accounted for
     as a purchase, are amortized on a straight-line basis over the expected
     period to be benefited of 15 years. The Company periodically reviews the
     operations of the businesses acquired to determine that income from
     operations continues to support the recoverability of its intangible
     assets and the amortization periods used.

     (l)  Mortgage Servicing Rights

          The Company purchases mortgage servicing rights separately and
     acquires mortgage servicing rights by purchasing or originating mortgage
     loans and selling those loans with servicing rights retained. Generally,
     purchased mortgage servicing rights are capitalized at the cost to acquire
     the rights and are carried at the lower of cost, net of accumulated
     amortization, or fair value. Originated mortgage servicing rights are
     capitalized based on the relative fair value of the servicing right to the
     fair value of the loan and the servicing right and are carried at the
     lower of the capitalized amount, net of accumulated amortization, or fair
     value.

          A portion of the cost of originating a mortgage loan is allocated to
     the mortgage servicing right based on its fair value. To determine the
     fair value of mortgage servicing rights, the Company uses market prices
     for comparable mortgage servicing contracts, when available, or
     alternatively uses a valuation model that calculates the present value of
     future net servicing income. In using this valuation method, the Company
     incorporates assumptions that market participants would use in estimating
     future net servicing income, which include estimates of the cost of
     servicing, the discount rate, mortgage escrow earnings rate, an inflation
     rate, ancillary income, prepayment speeds and default rates and losses.

          Mortgage servicing rights are amortized in proportion to, and over
     the period of, estimated net servicing income. The amortization of the
     mortgage servicing rights is analyzed periodically and is adjusted to
     reflect changes in prepayment rates and other estimates. A decline in
     long-term interest rates generally results in an acceleration in mortgage
     loan prepayments.

          The Company measures the impairment of servicing rights based on the
     difference between the carrying amount and current fair value of the
     servicing rights. In determining impairment, the Company aggregates all
     mortgage servicing rights and stratifies them based on the predominant
     risk characteristics of interest rate, loan type and investor type. A
     valuation allowance is established for any excess of amortized cost over
     the current fair value, by risk stratification, by a charge to income.

          The Company employs hedging techniques through the use of interest
     rate floor contracts and principal-only swap agreements to reduce the
     sensitivity of its earnings and value of its servicing rights to declining
     interest rates and borrower prepayments as further discussed in note 17.
     The Company uses hedge accounting because mortgage servicing rights expose
     the Company to interest rate risk and at the inception and throughout the
     hedge period, high correlation of changes in the market value of the hedge
     instruments and the fair value of the mortgage servicing


                                      F-17

<PAGE>


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


     rights are probable so that the results of the hedge instruments will
     substantially offset the effects of interest rate changes on the mortgage
     servicing rights. If these requirements are not met, the hedge instruments
     are considered speculative and are marked to market with changes in market
     value reflected in current earnings.

           The premium paid by the Company on the interest rate floor contracts
     is amortized based on the option decay rate. Amounts receivable or payable
     under the principal-only swap agreements and amounts receivable under the
     interest rate floor contracts or terminated hedges are included in the
     carrying value of mortgage servicing rights and are amortized as part of
     the mortgage servicing rights basis.

     (m)  Gains/Losses on Sales of Mortgage Loans

          Mortgage loans are generally sold with the mortgage servicing rights
     retained by the Company. The carrying value of mortgage loans sold is
     reduced by the cost allocated to the associated mortgage servicing rights.
     Gains or losses on sales of mortgage loans are recognized based on the
     difference between the selling price and the carrying value of the related
     mortgage loans sold. Deferred origination fees and expenses, net of
     commitment fees paid in connection with the sale of the loans, are
     recognized at the time of sale in the gain or loss determination.

     (n)  Servicing Fee Income

          Servicing fee income is recorded for fees earned for servicing
     mortgage loans under servicing agreements with Fannie Mae ("FNMA"),
     Freddie Mac ("FHLMC"), the Government National Mortgage Association
     ("GNMA"), and certain private investors. The fees are based on a
     contractual percentage of the outstanding principal balance or a fixed
     amount per loan and are recorded as income when received. The amortization
     of mortgage servicing rights is netted against servicing fee income.

     (o)  Interest Rate Swap Agreements

          The Bank is a party to various interest rate swap agreements as a
     means of managing its interest rate exposure relative to the Bank's FHLB
     advances. Amounts receivable or payable under these derivative financial
     instruments are recognized as adjustments to interest expense of the
     hedged liability (FHLB advances). Gains and losses on early termination of
     these agreements are included in the carrying amount of the related
     liability and amortized over the remaining term of the liability.

     (p)  Income Taxes

          For federal income tax purposes, FN Holdings is a member of the Mafco
     Holdings Inc. ("Mafco," the indirect parent of FN Holdings) affiliated
     group, and accordingly, its federal taxable income or loss will be
     included in the consolidated federal income tax return filed by Mafco. FN
     Holdings may also be included in certain state and local income tax
     returns of Mafco or its subsidiaries. FN Holdings' tax sharing agreement
     with Mafco provides that income taxes will be based on the separate
     results of FN Holdings. The agreement generally provides that FN Holdings
     will pay to Mafco amounts equal to the taxes that FN Holdings would be
     required to pay if it were to file a return separately from the affiliated
     group. Furthermore, the agreement provides that FN Holdings shall be
     entitled to take into account any net operating loss carryovers in
     determining its tax liability. The agreement also provides that Mafco will
     pay FN Holdings amounts equal to tax refunds FN Holdings would be entitled
     to if it had always filed a separate company tax return.

          Income taxes are accounted for under the asset and liability method.
     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases and operating loss and tax credit carryforwards. Deferred tax
     assets and liabilities are measured using enacted tax rates expected to
     apply to taxable income in the years in which those temporary differences
     are expected to be recovered or settled. The effect on


                                      F-18

<PAGE>


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


     deferred tax assets and liabilities of a change in tax rates is recognized
     in income in the period that includes the enactment date.

     (q)  Extraordinary Gain or Loss from Extinguishment of Debt

         During 1996, California Federal repurchased $44 million aggregate
     principal amount of the $50 million in 11.20% Senior Notes (as defined
     herein) assumed in the SFFed Acquisition resulting in an extraordinary
     loss of approximately $1.6 million, net of income taxes, on the early
     extinguishment of debt. During 1995, California Federal prepaid $250
     million in FHLB advances resulting in an extraordinary gain of
     approximately $2.0 million, net of income taxes, on the early
     extinguishment of such borrowings.

     (r) Management's Use of Estimates

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

     (s) Reclassification

         Certain amounts within the consolidated financial statements have been
     reclassified to conform to the current year presentation.

     (t) Newly Issued Accounting Pronouncements

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

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

         In June 1997, the FASB issued Statement of Financial Accounting
     Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS
     No. 130 establishes standards for reporting and display of comprehensive
     income and its components (revenues, expenses, gains and losses) in a full
     set of general purpose financial statements. SFAS No. 130 requires that
     all items that are required to be recognized under accounting standards as
     components of comprehensive income be reported in a financial statement
     that is displayed with the same prominence as other financial statements.
     It does not require a specific format for that financial statement but


                                     F-19
<PAGE>


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

     requires that an enterprise display an amount representing total
     comprehensive income for the period in that financial statement. This
     statement is effective for fiscal years beginning after December 15, 1997.
     Reclassification of financial statements for earlier periods provided for
     comparative purposes is required. This statement has no impact on the
     financial condition or results of operations of the Company, but does
     impact the Company's disclosure requirements. The Company adopted this
     statement effective October 1, 1997.

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

(5)  Supplemental Disclosure of Cash Flow Information (in thousands)

     Cash paid for interest for the years ended December 31, 1997, 1996 and
1995 was $1,402,800, $812,547, and $702,254, respectively.

     During the year ended December 31, 1997, noncash activity consisted of
transfers from loans receivable and loans held for sale to foreclosed real
estate of $179.6 million, $19.4 million of loans made to facilitate sales of
real estate owned, and the issuance of additional preferred stock through
preferred stock dividends of $2.2 million. In addition, $50.8 million was
transferred from loans held for sale to mortgage-backed securities classified
as trading securities upon the securitization of certain of the Bank's
qualifying single-family loans.

     During the year ended December 31, 1996, noncash activity consisted of
transfers from loans receivable and loans held for sale to foreclosed real
estate of $109.8 million, $13.0 million of loans made to facilitate sales of
real estate owned, the reclassification of certain consumer loans from loans
held for sale (at lower of cost or market) to loans receivable totalling $27.7
million, a reduction in loans receivable of $46.8 million through the
redemption of and dividends on class C common stock in amounts totalling $44.8
million and $.2 million, respectively, and the issuance of additional preferred
stock through preferred stock dividends of $.8 million.

     During the year ended December 31, 1995, the Financial Accounting
Standards Board issued a Special Report, "A Guide to Implementation of
Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities" (the "Special Report"). The Special Report provided all entities an
opportunity to reassess their ability and intent to hold securities to maturity
and allowed a one time reclassification of securities from held-to-maturity to
available-for-sale without "tainting" the remaining held-to-maturity
securities. On December 29, 1995, the Company reclassified $1.5 billion and
$231.8 million in carrying value of mortgage-backed securities and U.S.
government and agency securities, respectively, from the respective
held-to-maturity categories to securities available for sale. In addition,
other noncash activity included $326.0 million of consumer loans reclassified
from loans receivable to loans held for sale, transfers from loans receivable
to foreclosed real estate of $79.6 million, and $376.3 million transferred from
loans receivable to mortgage-backed securities held to maturity representing
the securitization of certain of the Bank's qualifying single-family loans.



                                     F-20
<PAGE>


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

(6)  Securities Available for Sale

     At December 31, 1997 and 1996, securities available for sale and the
related unrealized gain or loss consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                                                     December 31, 1997
                                                 --------------------------------------------------------------
                                                                                         Net
                                                   Amortized Unrealized  Unrealized   Unrealized      Carrying
                                                     Cost      Gains       Losses        Gain           Value
                                                     ----      -----       ------        ----           -----
<S>                                                <C>          <C>        <C>            <C>         <C> 
Marketable equity securities                       $     --     $ --        $  --          $ --        $     --
U.S. government and agency obligations              812,716      957         (588)          369         813,085
                                                   --------     ----        -----          ----        --------

         Total                                     $812,716     $957        $(588)          369        $813,085
                                                   ========     ====        =====                      ========
Estimated tax effect                                                                        (47)
                                                                                           ----
    Net unrealized holding gain
        in stockholders' equity                                                            $322
                                                                                           ====
</TABLE>


<TABLE>
<CAPTION>
                                                                    December 31, 1996
                                                 --------------------------------------------------------------
                                                                                          Net
                                                 Amortized    Unrealized   Unrealized  Unrealized     Carrying
                                                    Cost         Gains       Losses       Gain          Value
                                                    ----         -----       ------       ----          -----
<S>                                              <C>            <C>         <C>          <C>         <C>      
Marketable equity securities                      $ 27,034      $34,954     $    --      $34,954     $ 61,988
U.S. government and agency obligations             480,317          936      (1,222)        (286)     480,031
                                                  --------      -------     -------      -------     --------

         Total                                    $507,351      $35,890     $(1,222)      34,668     $542,019
                                                  ========      =======     =======      =======     ========
Estimated tax effect                                                                      (3,466)
                                                                                         -------
     Net unrealized holding gain
         in stockholders' equity                                                         $31,202
                                                                                         =======
</TABLE>

     The following represents a summary of the amortized cost, carrying value
and weighted average yield of securities available for sale with related
maturities (dollars in thousands):


<TABLE>
<CAPTION>
                                                               December 31, 1997
                                                  ------------------------------------------
                                                                     Estimated      Weighted
                                                      Amortized         Fair         Average
                                                         Cost           Value         Yield
                                                         ----           -----         -----
<S>                                                    <C>           <C>              <C>
Marketable equity securities                           $     --      $      --          --%
U.S. government and agency obligations:
     Maturing within 1 year                             107,771        107,680        5.92
     Maturing after 1 year but within 5 years           704,945        705,405        6.52
     Maturing after 5 years through 10 years                 --             --          --
                                                       --------      ---------        ----
     Total                                             $812,716      $ 813,085        6.44%
                                                       ========      =========        ====
</TABLE>

     At December 31, 1997, U.S. government and agency obligations available for
sale of $78.2 million were pledged as collateral for various obligations.

     Marketable equity securities available for sale at December 31, 1996
represented approximately 5.93% of the outstanding stock of Affiliated Computer
Services ("ACS"), representing 2.24% of the voting power with a cost basis of
$27 million. The ACS stock represents the only marketable equity security
classified as available for sale at December 31, 1996. Pursuant to the terms of
a settlement agreement dated June 17, 1991 between the Bank, ACS, and the
Federal Deposit Insurance Corporation ("FDIC"), the FDIC was entitled to share
in a defined portion of the proceeds from the sale of the stock, which, at
December 31, 1995, approximated $34.5 million, and which was recorded in other


                                      F-21

<PAGE>


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

liabilities. On June 28, 1996, the Bank sold 2,000,000 shares of its investment
in common stock of ACS for gross proceeds totalling $92.3 million from which it
satisfied its full obligation to the FDIC. A pre-tax gain of $40.4 million
resulted from this transaction and was recorded as a gain on sale of assets in
the 1996 consolidated statement of income. The Bank's remaining shares of ACS
stock were sold in October 1997, resulting in a pre-tax gain of approximately
$25.0 million.

(7)  Securities Held to Maturity

     At December 31, 1997 and 1996 securities held to maturity consist of the
following (in thousands):


<TABLE>
<CAPTION>
                                                             December 31, 1997
                                           -----------------------------------------------------

                                              Amortized   Unrealized      Unrealized    Estimated
                                                Cost        Gains          Losses     Fair Value
                                                ----        -----          ------     ----------
<S>                                           <C>           <C>             <C>       <C>      
Municipal securities                          $   170       $  --           $ --        $   170
Commercial paper                               58,129          --             --         58,129
                                              -------       -----           ----        -------
     Total                                    $58,299       $  --           $ --        $58,299
                                              =======       =====           ====        =======



                                                           December 31, 1996
                                           -----------------------------------------------------

                                              Amortized   Unrealized      Unrealized    Estimated
                                                Cost        Gains          Losses     Fair Value
                                                ----        -----          ------     ----------

Municipal securities                           $  190         $--           $ --         $  190
U.S. government and agency
     obligations                                3,800          15             --          3,815
Commercial paper                                  282          --             --            282
                                               ------         ---           ----         ------
     Total                                     $4,272         $15           $ --         $4,287
                                               ======         ===           ====         ======
</TABLE>

     The weighted average stated interest rates on securities held to maturity
were 5.32% and 6.85% at December 31, 1997 and 1996, respectively.

     The following represents a summary of the carrying values (amortized
cost), estimated fair values, and weighted average yield of securities held to
maturity with related maturities (dollars in thousands):


<TABLE>
<CAPTION>
                                                           December 31, 1996
                                                  ----------------------------------
                                                               Estimated    Weighted
                                                  Amortized      Fair        Average
                                                     Cost        Value        Yield
                                                     ----        -----        -----
<S>                                                 <C>         <C>            <C>
Municipal securities:
     Maturing within 1 year                         $           $    --          --%
     Maturing after 1 year but within 5 years            --          --          --
     Maturing after 10 years                            170         170        8.25
Commercial paper:
     Maturing within 1 year                          58,129      58,129        5.31
                                                    -------     -------        ----
     Total                                          $58,299     $58,299        5.32%
                                                    =======     =======        ====
</TABLE>




                                      F-22

<PAGE>


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

(8)  Mortgage-Backed Securities Available for Sale

     At December 31, 1997 and 1996, mortgage-backed securities available for
sale and the related unrealized gain or loss consisted of the following (in
thousands):


<TABLE>
<CAPTION>
                                                                       December 31, 1997
                                                  --------------------------------------------------------------
                                                                                           Net
                                                    Amortized   Unrealized  Unrealized   Unrealized    Carrying
                                                      Cost        Gains       Losses        Gain         Value
                                                    ---------   ----------  ----------   ----------    --------
<S>                                                <C>         <C>          <C>          <C>         <C>        
GNMA                                               $  249,023   $ 2,710     $    --       $ 2,710     $  251,733
FNMA                                                2,408,173    17,519      (5,923)       11,596      2,419,769
FHLMC                                               1,197,867    20,097        (548)       19,549      1,217,416
Other MBS                                             574,625     5,371        (111)        5,260        579,885
Collateralized mortgage obligations                   606,965     2,698      (1,868)          830        607,795
                                                   ----------   -------     -------       -------     ----------
         Total                                     $5,036,653   $48,395     $(8,450)       39,945     $5,076,598
                                                   ==========   =======     =======                   ==========
Estimated tax effect                                                                       (5,105)
                                                                                          -------
     Net unrealized holding gain
         in stockholders' equity                                                          $34,840
                                                                                          =======

                                                                       December 31, 1997
                                                  --------------------------------------------------------------
                                                                                           Net
                                                    Amortized   Unrealized  Unrealized   Unrealized    Carrying
                                                      Cost        Gains       Losses        Gain         Value
                                                    ---------   ----------  ----------   ----------    --------
GNMA                                               $   67,130   $   652     $   (95)      $   557     $   67,687
FNMA                                                  523,894     5,113      (5,042)           71        523,965
FHLMC                                                 626,267    17,115        (310)       16,805        643,072
Collateralized mortgage obligations                   364,675       497      (1,244)         (747)       363,928
                                                   ----------   -------     -------       -------     ----------
         Total                                     $1,581,966   $23,377     $(6,691)       16,686     $1,598,652
                                                   ==========   =======     =======                   ==========
Estimated tax effect                                                                       (1,669)
                                                                                          -------
     Net unrealized holding gain
         in stockholders' equity                                                          $15,017
                                                                                          =======
</TABLE>

     The following represents a summary of the amortized cost, carrying value
and weighted average yield of mortgage-backed securities available for sale
(dollars in thousands):


<TABLE>
<CAPTION>
                                                             December 31, 1997
                                               -------------------------------------------
                                                                    Estimated     Weighted
                                                   Amortized          Fair        Average
                                                     Cost             Value        Yield
                                                     ----             -----        -----
<S>                                              <C>              <C>              <C>  
GNMA                                              $  249,023       $  251,733      7.09%
FNMA                                               2,408,173        2,419,769      6.99
FHLMC                                              1,197,867        1,217,416      7.49
Other MBS                                            574,625          579,885      6.93
Collateralized mortgage obligations                  606,965          607,795      6.80
                                                  ----------       ----------      ----
         Total                                    $5,036,653       $5,076,598      7.08%
                                                  ==========       ==========      ====
</TABLE>


     The weighted average stated interest rates on mortgage-backed securities
available for sale were 7.16% and 7.06% at December 31, 1997 and 1996,
respectively. At December 31, 1997 and 1996, mortgage-backed securities
available for sale included securities totalling $1.4 billion and $53.0
million, respectively, which resulted from the securitization of certain
qualifying mortgage loans from the Bank's, Old California Federal's and San
Francisco Federal's loan portfolios.



                                      F-23

<PAGE>


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


     At December 31, 1997 and 1996, mortgage-backed securities available for
sale included $4.6 billion and $1.1 billion respectively, of variable-rate
securities.

     At December 31, 1997, mortgage-backed securities available for sale of
$4.1 billion were pledged as collateral for various obligations as further
discussed in notes 19, 20 and 32. Further, at December 31, 1997,
mortgage-backed securities available for sale with a carrying value of $28.8
million were pledged to FNMA associated with the sales of certain securitized
multi-family loans.

(9)  Mortgage-Backed Securities Held to Maturity

     At December 31, 1997 and 1996, mortgage-backed securities held to maturity
consist of the following (in thousands):


<TABLE>
<CAPTION>
                                                                   December 31, 1997
                                                 ------------------------------------------------
                                                   Amortized     Unrealized Unrealized    Estimated
                                                     Cost          Gains     Losses      Fair Value
                                                     ----          -----     ------      ----------
<S>                                               <C>             <C>         <C>        <C>        
FHLMC                                             $  317,766      $15,364     $ --       $   333,130
FNMA                                               1,017,835       20,048       --         1,037,883
Other mortgage-backed securities                       2,276           --       --             2,276
                                                  ----------      -------     ----       -----------
     Total                                        $1,337,877      $35,412     $ --        $1,373,289
                                                  ==========      =======     ====        ==========
</TABLE>



<TABLE>
<CAPTION>
                                                                   December 31, 1996
                                                 ------------------------------------------------
                                                   Amortized     Unrealized Unrealized    Estimated
                                                     Cost          Gains     Losses      Fair Value
                                                     ----          -----     ------      ----------
<S>                                                <C>           <C>          <C>        <C>       
FHLMC                                             $  405,488     $14,811      $ --       $  420,299
FNMA                                               1,214,002      17,444       (70)       1,231,376
Other mortgage-backed securities                       2,172          --        --            2,172
                                                  ----------     --------     ----       ----------
    Total                                         $1,621,662     $32,255      $(70)      $1,653,847
                                                  ==========     ========     ====       ==========
</TABLE>


      The following represents a summary of the amortized cost, carrying value
and weighted average yield of mortgage-backed securities held to maturity
(dollars in thousands):

<TABLE>
<CAPTION>
                                                                     December 31, 1997
                                                       ----------------------------------------------
                                                                            Estimated        Weighted
                                                          Amortized           Fair            Average
                                                            Cost              Value            Yield
                                                            ----              -----            -----
<S>                                                     <C>              <C>                   <C>  
     FHLMC                                              $  317,766        $  333,130           8.17%
     FNMA                                                1,017,835         1,037,883           7.03
     Other mortgage-backed securities                        2,276             2,276           8.27
                                                        ----------        ----------           ----
         Total                                          $1,337,877        $1,373,289           7.30%
                                                        ==========        ==========           ====
</TABLE>

     The weighted average stated interest rates on mortgage-backed securities
held to maturity were 7.33% and 7.27% at December 31, 1997 and 1996,
respectively. At December 31, 1997 and 1996, mortgage-backed securities held to
maturity included variable rate securities totalling $1.3 billion and $1.6
billion, respectively, which resulted from the securitization with FNMA and
FHLMC of certain qualifying mortgage loans from the Bank's, Old California
Federal's and San Francisco Federal's loan portfolios with full recourse to the
Bank.

      At December 31, 1997, mortgage-backed securities held to maturity of $1.3
billion were pledged as collateral for various obligations as further discussed
in notes 19, 20 and 32.



                                      F-24

<PAGE>


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

(10)         Loans Receivable, Net

     At December 31, 1997 and 1996 loans receivable, net, included the
following (in thousands):

<TABLE>
<CAPTION>

Real estate loans:                        1997              1996
                                          ----              ----
<S>                                   <C>             <C>         
1-4 unit residential                  $ 14,071,258    $  6,117,974
5+ unit residential                      3,035,195       2,163,992
Commercial                               2,145,634       1,977,732
Construction                                 3,737          11,242
Land                                         4,766          11,074
                                      ------------    ------------
                                        19,260,590      10,282,014
Undisbursed loan funds                      (2,714)         (4,669)
                                      ------------    ------------
     Total real estate loans            19,257,876      10,277,345
                                      ------------    ------------
Equity-line loans                          354,966         243,011
Other consumer loans                       320,599          55,016
Commercial loans                             8,370          29,651
                                      ------------    ------------
Total consumer and other loans             683,935         327,678
                                      ------------    ------------
Total loans receivable                  19,941,811      10,605,023
Deferred fees and unearned premiums         47,219           4,740
Allowance for loan losses                 (439,233)       (246,556)
Purchase accounting discounts, net        (125,387)       (150,624)
                                      ------------    ------------
Total loans receivable, net           $ 19,424,410    $ 10,212,583
                                      ============    ============
</TABLE>

     The Bank's lending activities are principally conducted in California, New
York, Texas and Florida.

     At December 31, 1997, $11.2 billion in residential loans were pledged as
collateral for FHLB advances as further discussed in note 20.

     As a result of the FN and the Cal Fed Acquisitions, the Bank assumed
obligations for certain loans sold with recourse. The outstanding balances of
loans sold with recourse at December 31, 1997 totalled $2.8 billion. No loans
were sold with recourse during the years ended December 31, 1997, 1996 and
1995. The Bank evaluates the credit risk of loans sold with recourse and, if
necessary, records a liability (other liabilities) for estimated losses related
to these potential obligations. At December 31, 1997, such liability totalled
$52.4 million.

     The following table indicates the carrying value of loans which have been
placed on nonaccrual status as of the dates indicated (in thousands):


<TABLE>
<CAPTION>
Nonaccrual loans:                                                  At December 31,
                                                         ------------------------------
     Real estate loans:                                       1997              1996
                                                              ----              ----
         <S>                                                <C>                <C>     
         1-4 unit residential                               $164,923           $146,283
         5+ unit residential                                  12,128             12,713
         Commercial and other                                  6,240              9,406
         Construction                                          1,560                788
                                                            --------           --------
              Total real estate                              184,851            169,190
     Non-real estate                                           7,344              3,032
                                                            --------           --------
              Total nonaccrual loans                        $192,195           $172,222
                                                            ========           ========
</TABLE>



                                      F-25

<PAGE>


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

     The following table indicates the carrying value of loans classified as
troubled debt restructuring, as of December 31, 1997 and 1996 (in thousands):


<TABLE>
<CAPTION>
                                     At December 31,
                                   -----------------
                                     1997      1996
                                     ----      ----
<S>                                <C>       <C>    
1-4 unit residential               $ 2,471   $ 3,113
5+ unit residential                  6,718    55,642
Commercial and other real estate    26,296    28,754
                                   -------   -------
     Total restructured loans      $35,485   $87,509
                                   =======   =======
</TABLE>


     At December 31, 1997, the Company's loan portfolio totalling $19.9 billion
is concentrated in California. The financial condition of the Company is
subject to general economic conditions such as the volatility of interest rates
and real estate market conditions and, in particular, to conditions in the
California residential real estate market. Any downturn in the economy
generally, and in California in particular, could reduce real estate values. An
increase in the general level of interest rates may adversely affect the
ability of certain borrowers to pay the interest on and principal of their
obligations. Accordingly, in the event interest rates rise or real estate
market values decline, particularly in California, the Company and the Bank may
find it difficult to maintain its asset quality and may require additional
allowances for loss above the amounts currently estimated by management.

     For nonaccrual loans and loans classified as troubled debt restructurings,
the following table summarizes the interest income recognized ("Recognized")
and total interest income that would have been recognized had the borrowers
performed under the original terms of the loans ("Contractual") for the years
ended December 31, 1997 and 1996 (in thousands).

<TABLE>
<CAPTION>
                                            December 31, 1997                    December 31, 1996
                                        -------------------------           --------------------------
                                        Recognized    Contractual           Recognized     Contractual
                                        ----------    -----------           ----------     -----------
         <S>                              <C>           <C>                   <C>            <C>    
         Restructured loans               $ 3,532       $ 3,583               $12,977        $13,430
         Nonaccrual loans                   6,779        15,880                 4,860         13,752
                                          -------       -------               -------        -------
                                          $10,311       $19,463               $17,837        $27,182
                                          =======       =======               =======        =======
</TABLE>

     At December 31, 1997 and 1996, the Bank and its wholly-owned subsidiary,
FGB Realty Advisors, Inc., managed principally non-performing loan and asset
portfolios totalling $1.2 million and $1.0 billion, respectively, for
investors. During 1997, substantially all the asset management and disposition
contracts held by FGB Realty Advisors, Inc. have expired, and operations of the
subsidiary have substantially ceased. Revenues related to such activities are
included in management fees in the accompanying statements of income.

     Activity in the allowance for loan losses for the years ended December 31,
1997, 1996 and 1995 is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            1997              1996             1995
                                                                            ----              ----             ----
         <S>                                                              <C>              <C>               <C>     
         Balance - beginning of year                                      $246,556         $210,484          $202,780
         Purchases, net                                                    164,378           38,486                --
         Provision for loan losses                                          79,800           39,600            37,000
         Charge-offs                                                      (56,124)         (44,785)          (32,344)
         Recoveries                                                          4,623            2,771             3,048
                                                                          --------         --------          --------
         Balance - end of year                                            $439,233         $246,556          $210,484
                                                                          ========         ========          ========
</TABLE>


     FN Holdings loaned approximately $46.8 million to an affiliate on March 1,
1996. Such loan bore interest at the rate of 10.5% over the prevailing yield to
maturity of the five-year United States treasury note, and was an unsecured
subordinated obligation of the borrower guaranteed by certain other affiliates
of FN Holdings, which obligation to FN Holdings was evidenced by a promissory
note (the "Promissory Note"). Management believes that the terms and conditions
of such loan were at least as favorable to FN Holdings as might have been
obtained in a similar transaction


                                      F-26

<PAGE>


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

with an unaffiliated party. On May 15, 1996, FN Holdings distributed the
Promissory Note to Parent Holdings as a partial redemption of and dividends on
class C common stock.

     During 1996 FN Holdings loaned approximately $19 million to an affiliate.
Such loan accrued interest at the rate of 14%, and was an unsecured
subordinated obligation of the borrower, which obligation to FN Holdings was
evidenced by a promissory note. Management believes that the terms and
conditions of such loan were at least as favorable to FN Holdings as might have
been obtained in a similar transaction with an unaffiliated party. On January
3, 1997, such loan, together with the accrued interest thereon, was repaid.

(11) Impaired Loans

     At December 31, 1997 and 1996, the carrying value of loans that are
considered to be impaired totalled $110.1 million and $102.1 million
respectively (of which $18.6 million and $22.6 million, respectively, were on
nonaccrual status). The average recorded investment in impaired loans during
the years ended December 31, 1997, 1996 and 1995 was approximately $112.9
million, $103.7 million and $125.5 million, respectively. For the years ended
December 31, 1997, 1996 and 1995, the Company recognized interest income on
those impaired loans of $10.5 million, $10.7 million and $12.9 million,
respectively, which included $.6 million, $.3 million and $.2 million,
respectively, of interest income recognized using the cash basis method of
income recognition.

     Generally, specific allowances for loan losses relative to impaired
multi-family and commercial real estate loans, which comprised the majority of
impaired loans, have not been established. Generally, the carrying value of
such loans, net of purchase accounting adjustments, does not exceed the loans'
related collateral values less estimated selling costs. There have been no
significant multi-family or commercial real estate loans originated since
October 1, 1994.

(12) Put Agreement

     In connection with the FN Acquisition, the Bank assumed generally the same
rights under an agreement ("Put Agreement") Old FNB had with Granite Management
and Disposition, Inc. ("Granite"), an indirect subsidiary of Ford Motor,
whereby Old FNB had the option to sell ("put") to Granite, on a quarterly
basis, up to approximately $500 million of certain assets, primarily
non-performing commercial real estate loans and residential mortgage loans with
an original principal balance greater than $250,000. The Put Agreement expired
on November 30, 1996. The aggregate purchase price of assets "put" to Granite
equals $500 million, including assets "put" to Granite by Old FNB through
October 3, 1994. Granite purchased these assets for an amount equal to the
assets' outstanding principal balance, accrued interest and certain other
expenses.

(13) Receivables from the FSLIC/RF - Covered Assets

     As part of First Gibraltar's 1988 acquisition of the five Closed
Associations, it entered into an assistance agreement (the "Assistance
Agreement") with the FSLIC. Assets subject to the Assistance Agreement were
known as "Covered Assets." The Assistance Agreement generally provided for
guaranteed yield amounts to be paid on the book value of the Covered Assets,
and paid the Bank for 90% of the losses incurred upon disposition of the
Covered Assets ("Capital Loss Coverage").

     In June 1995, the FDIC, as manager of the FSLIC Resolution Fund
("FSLIC/RF"), as successor to the FSLIC, exercised its rights under the
Assistance Agreement to purchase substantially all of the remaining Covered
Assets as of June 1, 1995 at the fair market value of such assets and further
purchased additional assets from the remaining Covered Asset portfolio in
September 1995 (the "FDIC Purchase"). Any losses sustained by the Bank as a
result of the FDIC Purchase were reimbursed under the Capital Loss Coverage
provision of the Assistance Agreement. Proceeds from this transaction were
reinvested in the normal course of business.

     On August 19, 1996, the Bank and the FSLIC/RF executed an agreement which
resulted in the termination of the Assistance Agreement. As a result of the
agreement, the FSLIC/RF paid the Bank the remaining Covered Asset balance


                                      F-27

<PAGE>


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

of $39 million and, among other things, assumed the responsibility for the
disposition of several litigation matters involving Covered Assets which had
been retained by the Bank following the FDIC Purchase. In connection with the
agreement, a pre-tax gain of $25.6 million was recorded.

(14)     Investment in FHLB

     The Company's investment in FHLB stock is carried at cost. The FHLB
provides a central credit facility for member institutions. As a member of the
FHLB system, the Bank is required to own capital stock in the FHLB in an amount
equal to the greater of (i) 1% of the aggregate outstanding principal amount of
its residential mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar year, (ii) .3% of total assets, or (iii) 5%
of its advances (borrowings) from the FHLB of San Francisco. The Bank was in
compliance with this requirement at December 31, 1997 and 1996. At December 31,
1997, the Bank's investment in FHLB stock was pledged as collateral for FHLB
advances as further discussed in note 20.

(15)     Office Premises and Equipment, Net

     Office premises and equipment, net, at December 31, 1997 and 1996 is
summarized as follows (dollars in thousands):


<TABLE>
<CAPTION>
                                                                                                Estimated
                                                                                           Depreciable Lives at
                                                                 1997           1996         December 31, 1997
                                                                 ----           ----       --------------------
     <S>                                                       <C>           <C>                    <C>  
     Land                                                       $ 29,942      $ 19,084              --
     Buildings and leasehold improvements                         74,141        40,103              25
     Furniture and equipment                                      85,519        50,559               6
     Construction in progress                                      5,253        10,601              --
                                                                --------      --------
                                                                 194,855       120,347
     Accumulated depreciation and amortization                   (35,506)      (20,183)
                                                                --------      --------
             Total office premises and equipment, net           $159,349      $100,164
                                                                ========      ========
</TABLE>

     Depreciation and amortization expense related to office premises and
equipment for the years ended December 31, 1997, 1996 and 1995 totalled $16.8
million, $10.9 million and $8.9 million, respectively.

     California Federal rents certain office premises and equipment under
long-term, noncancelable operating leases expiring at various dates through
2029. Rental expense under such operating leases, included in occupancy and
equipment expense, for the years ended December 31, 1997, 1996 and 1995
totalled $29.6 million, $19.3 million and $22.6 million, respectively. Rental
income from subleasing agreements for the years ended December 31, 1997, 1996
and 1995 totalled $2.0 million, $1.6 million and $2.2 million, respectively. At
December 31, 1997, the projected minimum rental commitments, net of sublease
agreements, under terms of the leases were as follows (in thousands):

<TABLE>
<CAPTION>
                                Cash                 Effect on
      Year ended             Commitment             Net Income
      ----------             ----------             ----------
      <S>                   <C>                      <C>    
      1998                   $ 31,218                $20,973
      1999                     31,085                 18,602
      2000                     30,264                 15,970
      2001                     27,914                 10,492
      2002                     24,471                  6,714
      Thereafter              116,193                 24,480
                             --------                -------
           Total             $261,145                $97,231
                             ========                =======
</TABLE>




                                      F-28

<PAGE>


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

     The effect of lease commitments on net income is different from the cash
commitment primarily as a result of lease commitments assumed in acquisitions
with related purchase accounting adjustments.

(16)     Accrued Interest Receivable

     Accrued interest receivable at December 31, 1997 and 1996 is summarized as
follows (in thousands):



<TABLE>
<CAPTION>
                                              1997       1996
                                              ----       ----
<S>                                        <C>        <C>     
Cash and cash equivalents and securities   $ 10,832   $  8,399
Mortgage-backed securities                   43,700     24,110
Loans receivable and loans held for sale    133,671     73,525
                                           --------   --------
    Total accrued interest receivable      $188,203   $106,034
                                           ========   ========
</TABLE>

(17)     Mortgage Servicing Rights

    The following is a summary of activity for mortgage servicing rights
("MSRs") and the hedge against the change in value of the mortgage servicing
rights ("MSR Hedge") for the years ended December 31, 1997, 1996 and 1995 (in
thousands):

<TABLE>
<CAPTION>
                                                                               MSR
                                                                 MSR          Hedge       Total
                                                                 ---          -----       -----
<S>                                                          <C>          <C>          <C>      
Balance at December 31, 1994                                 $  86,840      $    --    $  86,840
     Additions from Maryland Acquisition                        76,369           --       76,369
     Additions from Lomas 1995 Purchase                         93,362           --       93,362
     Additions - other                                          18,676           --       18,676
     Amortization                                              (33,892)          --      (33,892)
                                                             ---------      -------    ---------
Balance at December 31, 1995                                   241,355           --      241,355
     Additions from Lomas 1996 Purchase                        105,029           --      105,029
     Additions from SFFed Acquisition                           16,000           --       16,000
     Additions from Home Federal Acquisition                     3,060           --        3,060
     Originated servicing                                       81,028           --       81,028
     Additions - other                                          64,421           --       64,421
     Premiums paid for interest rate floor contracts              --          3,509        3,509
     Payments received under interest rate floor contracts        --            (13)         (13)
     Net paid under principal-only swap agreements                --            284          284
     Amortization                                              (90,706)        (275)     (90,981)
                                                             ---------      -------    ---------
Balance at December 31, 1996                                   420,187        3,505      423,692
     Additions from Cal Fed Acquisition                         44,497           --       44,497
     Additions from Weyerhaeuser Purchase                       41,949           --       41,949
     Originated servicing                                      120,465           --      120,465
     Additions - other                                          27,939           --       27,939
     Sales - Servicing Sale                                    (16,792)          --      (16,792)
     Sales - other                                                  (4)          --           (4)
     Premiums paid for interest rate floor contracts                --        7,088        7,088
     Payments received under interest rate floor contracts          --         (471)        (471)
     Net received under principal-only swap agreements              --       (1,378)      (1,378)
     Amortization                                             (106,972)      (3,310)    (110,282)
                                                             ---------      -------    ---------
Balance at December 31, 1997                                 $ 531,269      $ 5,434    $ 536,703
                                                             =========      =======    =========
</TABLE>

     At December 31, 1997, 1996 and 1995, the outstanding balances of 1-4 unit
residential loan participations, whole loans and mortgage pass-through
securities serviced for other investors by FNMC totalled $46.6 billion, $43.1
billion


                                      F-29

<PAGE>


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

and $28.6 billion, respectively. In addition, FNMC had $6.2 billion, $5.7
billion and $3.0 billion of master servicing at December 31, 1997, 1996 and
1995, respectively.

     The estimated fair value of the MSRs was $647 million and $529 million at
December 31, 1997 and 1996, respectively. The estimated market value of
interest rate floor contracts and swaps designated as hedges against MSRs at
December 31, 1997 was $18.0 million and $13.5 million, respectively. At
December 31, 1997 and 1996, no allowance for impairment of the MSRs was
necessary.

     A decline in long-term interest rates generally results in an acceleration
of mortgage loan prepayments. Higher than anticipated levels of prepayments
generally cause the accelerated amortization of mortgage servicing rights and
generally will result in a reduction of the market value of the mortgage
servicing rights and in the Company's servicing fee income. To reduce the
sensitivity of its earnings to interest rate and market value fluctuations, the
Company hedged the change in value of its servicing rights based on changes in
interest rates.

     At December 31, 1997, the Company, through FNMC, was a party to several
interest rate floor contracts maturing from October 2001 through June 2002. The
Company paid counterparties a premium in exchange for cash payments in the
event that the 10-year Constant Maturity Treasury rate falls below the strike
prices. At December 31, 1997, the notional amount of the interest rate floors
was $970 million and the strike prices were between 5.0% and 6.5%. In addition,
the Company, through FNMC, entered into principal-only swap agreements with a
notional amount of $99 million.

     At December 31, 1997 and 1996, servicing advances and other receivables
related to 1-4 unit residential loan servicing, net of valuation allowances of
$43.2 million and $12.7 million in 1997 and 1996, respectively, (included in
other assets) consisted of the following (in thousands):


<TABLE>
<CAPTION>
                                     1997       1996
                                     ----       ----
<S>                               <C>        <C>     
Servicing advances                $160,266   $152,465
Checks in process of collection        157     55,601
Other                                6,555     23,704
                                  --------   --------
                                  $166,978   $231,770
                                  ========   ========
</TABLE>
















                                      F-30

<PAGE>


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

(18)      Deposits

     A summary of deposits carrying values at December 31, 1997 and 1996
follows (in thousands):


<TABLE>
<CAPTION>
                                      1997           1996
                                      ----           ----
<S>                               <C>           <C>        
Passbook accounts                 $ 2,161,967   $   840,685
Demand deposits:
    Interest-bearing                1,149,294       509,788
    Noninterest-bearing             1,179,344       729,648
Money market deposit accounts       1,269,540       881,285
Term accounts                      10,389,507     5,502,902
                                  -----------   -----------
                                   16,149,652     8,464,308
Accrued interest payable               51,538        31,901
Purchase accounting adjustments         1,415         5,674
                                  -----------   -----------
Total deposits                    $16,202,605   $ 8,501,883
                                  ===========   ===========
</TABLE>

     The aggregate amount of jumbo certificates of deposit (term deposits) with
a minimum denomination of $100,000 was approximately $2 billion and $868
million at December 31, 1997 and 1996, respectively. Brokered certificates of
deposit totalling $363 million and $470 million were included in deposits at
December 31, 1997 and 1996, respectively. Total deposits at December 31, 1997
and 1996 include escrow balances for loans serviced for others of $702 million
and $550 million, respectively.

     A summary of interest expense by deposit category for the years ended
December 31, 1997, 1996 and 1995 follows (in thousands):

<TABLE>
<CAPTION>
                                      1997      1996        1995
                                      ----      ----        ----
<S>                                <C>        <C>        <C>     
Passbook accounts                  $ 68,408   $ 31,418   $ 14,668
Interest-bearing demand deposits     12,331      5,398      6,953
Money market deposit accounts        50,152     32,073     50,847
Term accounts                       616,094    350,285    374,891
                                   --------   --------   --------
                                   $746,985   $419,174   $447,359
                                   ========   ========   ========
</TABLE>

     At December 31, 1997, term accounts had scheduled maturities as follows
(in thousands):

         1998                                                   $ 7,794,543
         1999                                                     2,065,788
         2000                                                       219,650
         2001                                                       131,782
         2002                                                       166,384
         Thereafter                                                  11,360
                                                                -----------
                                                                $10,389,507
                                                                ===========


                                      F-31

<PAGE>


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

(19)     Securities Sold Under Agreements to Repurchase

     A summary of information regarding securities sold under agreements to
repurchase as of December 31, 1997 and 1996 follows (dollars in thousands):


<TABLE>
<CAPTION>
                                                                            December 31, 1997
                                                       ----------------------------------------------------
                                                            Underlying Collateral    Repurchase Liability
                                                       --------------------------    ----------------------
                                                           Recorded           Market              Interest
                                                          Value (i)           Value     Amount      Rate
                                                          ---------           ------    ------    --------
      <S>                                              <C>                <C>          <C>        <C>
      Maturing within 30 days                            $       --       $        --  $      --        --%
      Maturing 30 days to 90 days                         1,848,385         1,859,169  1,774,950      5.75
      Maturing 90 days to 1 year                             62,909            63,532     53,920      6.59
      Maturing over 1 year                                       --                --         --        --
                                                       ------------       -----------  ---------
         Total (ii)                                       1,911,294         1,922,701  1,828,870
      Purchase accounting adjustment                           (424)               --         99
      Accrued interest payable                                   --                --     13,473
                                                       ------------       -----------  ---------
                                                         $1,910,870        $1,922,701 $1,842,442
                                                       ============       ===========  =========
</TABLE>


<TABLE>
<CAPTION>
                                                                            December 31, 1996
                                                       -----------------------------------------------------
                                                            Underlying Collateral     Repurchase Liability
                                                       --------------------------     ----------------------
                                                           Recorded           Market               Interest
                                                          Value (i)           Value      Amount      Rate
                                                          ---------           ------     ------    --------
     <S>                                               <C>                <C>          <C>            <C>  
     Maturing within 30 days                            $  626,260         $  633,615 $  609,949      5.61%
     Maturing 30 days to 90 days                           573,904            585,767    550,409      5.48
     Maturing 90 days to 1 year                            342,531            345,599    350,000      6.97
     Maturing over 1 year                                   67,845             68,203     53,920      6.59
                                                        ----------         ---------- ----------
         Total (ii)                                      1,610,540          1,633,184  1,564,278
   Purchase accounting adjustment                            2,578                 --        755
   Accrued interest payable                                     --                 --     18,354
                                                        ----------         ---------- ----------    
                                                        $1,613,118         $1,633,184 $1,583,387
                                                        ==========         ========== ==========
</TABLE>

    (i)  Recorded value includes accrued interest at December 31, 1997 and
         1996. In addition, the recorded values at December 31, 1997 and 1996
         include adjustments for the unrealized gain or loss on mortgage-backed
         securities available for sale.
   (ii)  Total mortgage-backed securities collateral at December 31, 1997 and
         1996 includes $.6 billion and $1.1 billion, respectively, in
         outstanding balances of loans securitized with full recourse to the
         Bank. The market value of such collateral was $.6 billion and $1.1
         billion at December 31, 1997 and 1996, respectively.

     At December 31, 1997 and 1996, these agreements had weighted average
stated interest rates of 5.78% and 5.90%, respectively. The underlying
securities were delivered to, and are being held under the control of, third
party securities dealers. These dealers may have loaned the securities to other
parties in the normal course of their operations, but all agreements require
the dealers to resell to California Federal the identical securities at the
maturities of the agreements. The average daily balance of securities sold
under agreements to repurchase was $2.5 billion and $2.1 billion during 1997
and 1996, respectively, and the maximum amount outstanding at any month-end
during these periods was $3.1 billion and $2.7 billion, respectively.

     At December 31, 1997, securities sold under agreements to repurchase were
collateralized with $1.9 billion of mortgage-backed securities.



                                      F-32

<PAGE>


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

(20)     Borrowings

     Borrowings at December 31, 1997 and 1996 are summarized as follows
(dollars in thousands):


<TABLE>
<CAPTION>
                                                       1997                     1996
                                             ------------------------- ------------------------
                                                Carrying       Average  Carrying        Average
                                                 Value          Rate     Value           Rate
                                                 -----          ----     -----           ----
<S>                                          <C>                <C>  <C>                 <C>  
Fixed-rate borrowings from FHLB              $ 5,447,168        5.88% $3,564,953         5.93%
Variable-rate borrowings from FHLB             4,074,182        5.95     854,486         5.67
10% Subordinated debentures due 2006              92,100       10.00      92,100        10.00
11.20% Senior notes                                6,000       11.20       6,000        11.20
12 1/4% Senior notes                             200,000       12.25     200,000        12.25
91/8% Senior subordinated notes                  140,000        9.13     140,000         9.13
105/8% Senior subordinated notes                 575,000       10.63          --           --
10.668% Subordinated notes                        50,000       10.67          --           --
6 1/2% Convertible subordinated debentures         2,633        6.50          --           --
10% Subordinated debentures due 2003               4,299       10.00          --           --
Federal funds purchased                          130,000        6.50      25,000         7.50
Other borrowings                                     570        8.89         885         8.54
                                             -----------    --------   ---------        -----
       Total borrowings                       10,721,952        6.39   4,883,424         6.33
Accrued interest payable                          46,839          --      20,948           --
Purchase accounting adjustments, net                 803          --      (1,676)          --
                                             -----------    --------   ---------        -----
                                             $10,769,594        6.36% $4,902,696         6.33%
                                             ===========    ========   =========        =====
</TABLE>


     Maturities and weighted average stated interest rates of borrowings at
December 31, 1997, not including accrued interest payable or purchase
accounting adjustments, are as follows (dollars in thousands):


<TABLE>
<CAPTION>
                                                                                                   Weighted
                                                                  Balances Maturing             Average Rates
                                                         --------------------------------     -------------------
                Maturities during the Years                   FHLB               Other        FHLB          Other
                     Ending December 31                       ----               -----        ----          -----
                ---------------------------
                        <S>                                  <C>              <C>             <C>           <C>  
                            1998                             $5,263,042        $  180,148     5.88%         7.66%
                            1999                              3,090,430                64     5.94          8.90
                            2000                              1,150,000                33     5.93          9.50
                            2001                                 10,833           202,633     6.50         12.18
                            2002                                  5,000                 8     6.94          7.00
                         Thereafter                               2,045           817,716     7.83         10.30
                                                             ----------        ----------     ----         -----
                            Total                            $9,521,350        $1,200,602     5.91%        10.22%
                                                             ==========        ==========     ====         =====
</TABLE>




                                      F-33

<PAGE>


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

     Interest expense on borrowings for the years ended December 31, 1997, 1996
and 1995 is summarized as follows (in thousands):


<TABLE>
<CAPTION>
                                                1997         1996          1995
                                                ----         ----          ----
<S>                                          <C>          <C>          <C>      
FHLB advances                                $ 443,966    $ 221,017    $ 139,051
Interest rate swap agreements                  (10,743)     (11,532)     (15,177)
10% Subordinated debentures due 2006             9,210        9,210        9,210
11.20% Senior notes                                672        3,641         --
12 1/4% Senior notes                            24,500       24,504       24,500
91/8% Senior subordinated notes                 12,775       11,739           --
105/8% Senior subordinated notes                60,648           --           --
10.668% Subordinated notes                       5,291           --           --
6 1/2% Convertible subordinated debentures         172           --           --
10% Subordinated debentures due 2003               418           --           --
Federal funds purchased                          5,300        3,529        2,268
Other borrowings                                   434          199        1,403
Purchase accounting adjustments                    629        6,039       21,244
                                             ---------    ---------    ---------
      Total                                  $ 553,272    $ 268,346    $ 182,499
                                             =========    =========    =========
</TABLE>

     The following is a summary of the carrying value of assets pledged as
collateral for FHLB advances at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>

<S>                                                                     <C>        
         Real estate loans (primarily residential)                      $11,183,138
         Mortgage-backed securities                                       3,544,108
         FHLB stock                                                         468,191
                                                                        -----------
              Total                                                     $15,195,437
                                                                        ===========
</TABLE>

12 1/4% Senior Notes Due 2001

     In connection with the FN Acquisition, the Company issued $200 million
principal amount of 12 1/4% Senior Notes ("12 1/4% Senior Notes"), including
$5.5 million principal amount of 12 1/4% Senior Notes to certain directors and
officers of the Bank. The notes will mature on May 15, 2001 with interest
payable semiannually on May 15 and November 15. Deferred issuance costs
associated with the 12 1/4% Senior Notes' issuance totalling $9.9 million were
recorded in other assets and are being amortized over the term of the 12 1/4%
Senior Notes.

     The notes are redeemable at the option of the Company, in whole or in
part, during the 12-month period beginning May 15, 1999, at a redemption price
of 106.125% plus accrued interest to the date of redemption, and thereafter at
100% plus accrued interest. The notes are subordinated to all existing and
future liabilities, including deposits and other borrowings of the Bank, and to
the 11 1/2% Preferred Stock (as defined herein).

     The terms and conditions of the 12 1/4% Senior Notes indenture impose
restrictions that affect, among other things, the ability of FN Holdings to
incur debt, pay dividends, make acquisitions, create liens, sell assets and
make certain investments.

91/8% Senior Subordinated Notes Due 2003

     On January 31, 1996, the Company issued $140 million principal amount of
the 91/8% Senior Subordinated Notes. The 91/8% Senior Subordinated Notes will
mature on January 15, 2003 with interest payable semiannually on January 15 and
July 15. Deferred issuance costs associated with the issuance of the 91/8%
Senior Subordinated Notes totalling $7.0 million were recorded in other assets
and are being amortized over the term of the 91/8% Senior Subordinated Notes.



                                      F-34

<PAGE>


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

     The 9 1/8% Senior Subordinated Notes are redeemable at the option of the
  Company, in whole or in part, during the 12-month period beginning January 1,
  2001, at a redemption price of 104.5625% of the principal amount thereof,
  plus accrued interest and unpaid interest to the date of redemption, and
  thereafter at 100% of the principal amount thereof, plus accrued and unpaid
  interest.

     The 9 1/8% Senior Subordinated Notes are unsecured senior subordinated
  obligations of the Company and are subordinated in right of payment to all
  existing and future senior indebtedness of the Company and future to all
  subordinated debt, if any is issued. The 9 1/8% Senior Subordinated Notes are
  subordinated to all existing and future liabilities, including deposits,
  indebtedness and trade payables of the Company's subsidiaries, including the
  Bank, and to preferred stock issued by the Bank.

     The terms and conditions of the 9 1/8% Senior Subordinated Notes indenture
  impose restrictions that affect, among other things, the ability of FN
  Holdings to incur debt, pay dividends or make distributions, engage in a
  business other than holding the common stock of the Bank and similar banking
  institutions, make acquisitions, create liens, sell assets and make certain
  investments.

  10 5/8% Senior Subordinated Notes Due 2003

     In connection with the Cal Fed Acquisition, FN Holdings acquired the net
  proceeds from the issuance of FN Escrow's 10 5/8% Notes and assumed FN
  Escrow's obligations under the 10 5/8% Notes and indenture. Deferred issuance
  costs associated with the 10 5/8% Notes of $19 million were included in FN
  Escrow's other assets and are being amortized over the term of the 105/8%
  Notes.

     The 10 5/8% Notes are redeemable at the option of the Company, in whole or
  in part, during the 12-month period beginning January 1, 2001, at a
  redemption price of 105.313% plus accrued and unpaid interest to the date of
  redemption, during the 12-month period beginning January 1, 2002 at a
  redemption price of 102.656% plus accrued and unpaid interest to the date of
  redemption, and thereafter at 100% plus accrued and unpaid interest to the
  date of redemption.

     The 10 5/8% Notes are subordinate in right of payment to all existing and
  future subordinated debt, if any is issued, of FN Holdings. The 105/8% Notes
  are subordinated to all existing and future liabilities, including deposits,
  indebtedness and trade payables, of the subsidiaries of FN Holdings,
  including California Federal and all preferred stock issued by the Bank,
  including the Bank Preferred Stock (as defined herein).

     The terms and conditions of the 10 5/8% Notes indenture impose restrictions
  that affect, among other things, the ability of FN Holdings to incur debt,
  pay dividends, make acquisitions, create liens, sell assets and make certain
  investments.

  10% Subordinated Debentures Due 2006

     As part of the FN Acquisition, California Federal assumed subordinated
  debentures, which bear interest at 10% per annum and mature on October 1,
  2006 (the "10% Subordinated Debentures Due 2006"). At December 31, 1997 the
  aggregate principal amount of the 10% Subordinated Debentures Due 2006
  outstanding was $92.1 million.

     Events of Default under the indenture governing the 10% Subordinated
  Debentures Due 2006 (the "Old FNB Indenture") include, among other things:
  (i) a default in the payment of interest when due and such default continues
  for 30 days, (ii) a default in the payment of any principal when due, (iii)
  the failure to comply with covenants in the Old FNB Indenture, provided that
  the trustee or holders of at least 25% in principal amount of the outstanding
  10% Subordinated Debentures Due 2006 notify the Bank of the default and the
  Bank does not cure the default within 60 days after receipt of such notice,
  (iv) certain events of bankruptcy, insolvency or reorganization of the Bank,
  (v) the FSLIC/RF (or a comparable entity) is appointed to act as conservator,
  liquidator, receiver or other legal custodian for the Bank and (vi) a default
  under other indebtedness of the Bank in excess of $10 million resulting in
  such indebtedness


                                      F-35

<PAGE>


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

becoming due and payable, and such default or acceleration has not been
rescinded or annulled within 60 days after the date on which written notice of
such failure has been given by the trustee to the Bank or by holders of at
least 25% in principal amount of the outstanding 10% Subordinated Debentures
Due 2006 to the Bank and the trustee.

11.20% Senior Notes Due 2004

     As part of the SFFed Acquisition, California Federal assumed $50 million
of SFFed 11.20% Senior Notes due September 1, 2004 (the "11.20% Senior Notes").
In connection with the assumption of the 11.20% Senior Notes, the Bank and all
of the holders of the 11.20% Senior Notes entered into an agreement amending
certain provisions of the note purchase pursuant to which the 11.20% Senior
Notes were sold (as amended, the "Note Purchase Agreement"). On September 12,
1996, the Bank repurchased $44.0 million aggregate principal amount of the
11.20% Senior Notes at a price of approximately 116.45% of the principal
amount, plus the accrued interest thereon. The Bank recorded an extraordinary
loss, net of tax, of $1.6 million in connection with such repurchase. At
December 31, 1997, the aggregate principal amount of the 11.20% Senior Notes
outstanding was $6.0 million.

     Events of Default under the Note Purchase Agreement include, among other
things: (i) failure to make any payment of principal when due; (ii) any failure
to make any payment of interest when due and such payment is not made within 15
days after the date such payment was due; (iii) failure to comply with certain
covenants in the Note Purchase Agreement, provided that such failure continues
for more than 60 days; (iv) failure to deliver to holders a notice of default,
notice of event of default, or notice of claimed default as provided in the
Note Purchase Agreement; (v) failure to comply with any provision of the Note
Purchase Agreement, provided that such failure continues for more than 60 days
after notice is delivered to the Bank; (vi) a default under other indebtedness
provided that the aggregate amount of all obligations in respect of such
indebtedness exceeds $15 million; (vii) one or more final, non-appealable
judgments outstanding against the Bank or its subsidiaries for the payment of
money aggregating in excess of $15 million, any one of which has been
outstanding for 45 days and shall not have been discharged in full or stayed;
(viii) any warranty, representation or other statement contained in the Note
Purchase Agreement by the Bank or any of its subsidiaries being false or
misleading in any material respect when made; or (ix) certain events of
bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.

     As a result of the Cal Fed Acquisition, the Bank is obligated with respect
to the following outstanding securities of Old California Federal:

10.668% Subordinated Notes Due 1998

     California Federal assumed $50 million of 10.668% unsecured senior
subordinated notes which matures on December 22, 1998 (the "10.668%
Subordinated Notes"). At December 31, 1997, the aggregate principal amount of
10.668% Subordinated Notes outstanding was $50 million.

     Events of Default under the note agreement governing the 10.668%
Subordinated Notes include, among other things: (i) failure to make any payment
of principal when due; (ii) any failure to make any payment of interest when
due and such payment is not made within ten business days after the date such
payment was due; (iii) failure to comply with certain covenants in the note
agreement provided that such failure continues for more than 60 days after
notice is delivered to the Bank; (iv) the default or any event which, with the
giving of notice or the lapse of time or both, would constitute a default under
any indebtedness of the Bank and cause such indebtedness with an aggregate
principal amount exceeding $15 million to accelerate; and (v) certain events of
bankruptcy, insolvency or reorganization of the Bank.

6 1/2% Convertible Subordinated Debentures Due 2001

     In 1986, Cal Fed Inc., Old California Federal's former parent company,
issued $125 million of 6.5% convertible subordinated debentures due February
20, 2001 (the "6 1/2% Convertible Subordinated Debentures"). As a result of a
corporate restructuring in December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance Corporation ("XCF"), a subsidiary of Old California Federal. The
6 1/2% Convertible Subordinated Debentures are redeemable at


                                      F-36

<PAGE>


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

the option of the holders on February 20, 2000, at 123% of their principal
amount. At December 31, 1997, $2.6 million of the 6 1/2% Convertible
Subordinated Debentures were outstanding. Due to the purchase of all of the Cal
Fed stock by FN Holdings in the Cal Fed Acquisition on January 3, 1997, the
common stock conversion feature has been eliminated.

     Events of Default under the indenture governing the 6 1/2% Convertible
Subordinated Debentures include, among other things: (i) any failure to make
any payment of interest when due and such payment is not made within 30 days
after the date such payment was due; (ii) failure to make any payment of
principal when due; (iii) default in the performance, or breach, of any
covenant or warranty in the indenture, provided that such default or breach
continues for more than 60 days after notice is delivered to the Bank; or (iv)
certain events of bankruptcy, insolvency or reorganization of the Bank or its
subsidiaries.

10% Subordinated Debentures Due 2003

     On December 16, 1992, Old California Federal issued $13.6 million of 10.0%
unsecured subordinated debentures due 2003 (the "10% Subordinated Debentures").
During 1996 and 1995, Old California Federal repurchased $0.6 million and $8.7
million, respectively, of the 10% Subordinated Debentures, leaving $4.3 million
outstanding at December 31, 1997.

     Events of Default under the indenture governing the 10% Subordinated
Debentures include, among other things: (i) failure to make any payment of
principal when due; (ii) any failure to make any payment of interest when due
and such payment is not made within 30 days after the date such payment was
due; (iii) failure to comply with certain covenants in the indenture; (iv)
failure to comply with certain covenants in the indenture provided that such
failure continues for more than 60 days after notice is delivered to the Bank;
(v) certain events of bankruptcy, insolvency or reorganization of the Bank; or
(vi) the default or any event which, with the giving of notice or lapse of time
or both, would constitute a default under any indebtedness of the Bank and
cause such indebtedness with an aggregate principal amount exceeding $15
million to accelerate.

(21)     Interest Rate Swap Agreements

     In connection with the FN Acquisition and the Cal Fed Acquisition, the
Bank acquired the rights and assumed the obligations under certain interest
rate swap agreements. Interest rate swap agreements outstanding and their
weighted average rates at December 31, 1997 and 1996 are as follows (dollars in
thousands):

<TABLE>
<CAPTION>
                               Notional             Weighted             Estimated
                               Principal          Average Rate           Maturity           Variable
     Maturity Date              Amount           Pay       Receive       in Years          Rate Index
     -------------              ------           ---       -------       --------          ----------
     <S>                       <C>              <C>         <C>            <C>          <C>
     1997:
         April 1998            $400,000         5.76%       8.38%            .26        3 month LIBOR
     1996:
         April 1998            $400,000         5.64%       8.38%           1.26        3 month LIBOR
</TABLE>

     The Bank uses interest rate swap agreements to hedge against interest rate
risk inherent in its FHLB advances. Under the agreements, the Bank receives or
makes payments based on the differential between fixed-rate and variable-rate
interest amounts on the notional amount of the agreement. The notional amounts
of these derivatives do not represent amounts exchanged by the parties and
thus, are not a measure of the Bank's exposure through its use of derivatives.
The Bank pays the variable-rate and receives the fixed-rate under these
agreements. The variable interest rates presented in the tables above are based
on LIBOR. The current LIBOR rates have been assumed implicitly, in the
aforementioned weighted average receive rate, to remain constant throughout the
term of the respective swaps. Any changes in LIBOR interest rates would affect
the variable-rate information disclosed above.



                                      F-37

<PAGE>


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

     The Bank is exposed to credit-related losses in the event of
nonperformance by the counterparties to these agreements but does not expect
any counterparties to fail their obligations. The Bank deals only with national
investment banking firms and the FHLB of San Francisco.

(22) Segment Reporting

     The Company's operations include two primary business segments: mortgage
lending and retail banking. The Company's principal business consists of
operating retail deposit branches and originating and/or purchasing residential
real estate loans. The Company's mortgage lending activities are conducted
through FNMC and include the origination and purchase of residential mortgage
loans for sale to various investors, as well as the servicing of loans for
others.

     Selected financial information by business segment for the three years
ended December 31, 1997, 1996 and 1995 is presented in the following summary
(in thousands):


<TABLE>
<CAPTION>
                                                                     Mortgage          Retail         Consolidated
1997                                                                  Lending          Banking           Total
----                                                                  -------          -------           -----
<S>                                                                 <C>            <C>               <C>       
     Total revenue (1)                                              $ 288,360      $2,317,096        $2,467,184
     Income before income taxes, extraordinary item
         and minority interest                                       (27,782)         325,643           297,861
     Office premises and equipment, net                                26,576         132,773           159,349
     Identifiable assets (2)                                        3,072,219      31,140,248        31,347,079

1996
     Total revenue (3)                                              $ 212,325      $1,751,852        $1,887,177
     Income before income taxes, extraordinary item
         and minority interest                                          5,836         543,372           549,208
     Office premises and equipment, net                                23,410          76,754           100,164
     Identifiable assets (4)                                        1,634,258      16,248,007        16,618,168

1995
     Total revenue (5)                                              $ 100,930      $1,166,180        $1,226,818
     Income before income taxes, extraordinary item
         and minority interest                                        (7,898)         130,348           122,450
     Office premises and equipment, net                                17,376          76,133            93,509
     Identifiable assets (6)                                        1,383,451      14,425,200        14,666,781
</TABLE>

     ----------
     (1) Excludes the elimination of $14.2 million in intercompany servicing
         fees and $124.1 million in interest income on intercompany loans.
     (2) Excludes the elimination of $20.2 million in deposits maintained with
         the Bank and $2.8 billion in intercompany borrowings.
     (3) Excludes the elimination of $6.9 million in intercompany servicing
         fees and $70.1 million in interest income on intercompany loans.
     (4) Excludes the elimination of $23.3 million in deposits maintained with
         the Bank and $1.2 billion in intercompany borrowings.
     (5) Excludes the elimination of $10.6 million in intercompany servicing
         fees and $29.7 million in interest income on intercompany loans.
     (6) Excludes the elimination of $13.7 million in deposits maintained with
         the Bank and $1.1 billion in intercompany borrowings.

     The Company typically reviews the results of operations for the mortgage
banking segment based on that segment's contribution as opposed to its income
before income taxes, extraordinary item and minority interest. The main


                                      F-38

<PAGE>


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

difference between the two measures of profitability are that contribution for
the mortgage lending segment includes custodial earnings that are reported in
the retail banking segment when computing net income and that intercompany
interest expense is computed using an internal cost of funds rate instead of a
market rate. The mortgage lending segment's contribution for the years ended
December 31, 1997, 1996 and 1995 was $35.9 million, $54.9 million and $24.5
million, respectively.

(23)  Comprehensive Income

      The tax effect associated with unrealized gain on securities for the
years ended December 31, 1997, 1996 and 1995 is summarized as follows (dollars
in thousands):


<TABLE>
<CAPTION>
                                                                    Before-tax      Tax (expense)   Net-of-tax
                                                                      amount           benefit        amount
                                                                      ------           -------        ------
<S>                                                                <C>                 <C>          <C>
1997
Unrealized gains on securities:
     Unrealized holding gains arising during the period              $ 12,505          $ (1,598)     $10,907
     Less: reclassification adjustments for gains in net income       (25,182)            3,218      (21,964)
                                                                   ----------         ---------    ---------
          Other comprehensive income                                 $(12,677)         $  1,620     $(11,057)
                                                                     ========          ========     ========

1996
Unrealized gains on securities:
     Unrealized holding gains arising during the period              $ 20,250          $ (2,025)    $ 18,225
     Less: reclassification adjustments for gains in net income       (39,465)            3,947      (35,518)
                                                                    ---------         ---------    ---------
          Other comprehensive income                                 $(19,215)         $  1,922     $(17,293)
                                                                    =========         =========    =========
         
1995
Unrealized gains on securities:
     Unrealized holding gains arising during the period              $ 59,978          $ (5,998)    $ 53,980
     Less: reclassification adjustments for gains in net income        (1,631)              163       (1,468)
                                                                  -----------        ----------    ---------
          Other comprehensive income                                 $ 58,347          $ (5,835)    $ 52,512
                                                                     =========         =======      ========
</TABLE>


      Unrealized gains on securities is the only component of other
comprehensive income and accumulated other comprehensive income for the years
ended December 31, 1997, 1996 and 1995.

(24)     Minority Interest

11 1/2% Preferred Stock

     In connection with the FN Acquisition, California Federal issued 3,007,300
shares of its 11 1/2% noncumulative perpetual preferred stock ("11 1/2%
Preferred Stock") with a par value of $.01 per share, having a liquidation
preference of $300.7 million. This stock has a stated liquidation value of $100
per share. Costs related to the 11 1/2% Preferred Stock issuance were deducted
from additional paid-in capital. At or after September 1, 1999, the 11 1/2%
Preferred Stock is redeemable at the option of the Bank, in whole or in part,
at $105.75 per share prior to September 1, 2000, and at prices which will
decrease annually thereafter to the stated liquidation value of $100 per share
on or after September 1, 2004, plus declared but unpaid dividends. Dividends
are payable quarterly at an annual rate of 11.50% per share when declared by
the Bank's Board of Directors. Dividends paid on the 11 1/2% Preferred Stock
for each year during 1997 and 1996 totalled $34.6 million.




                                      F-39

<PAGE>


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

10 5/8% Preferred Stock

     In connection with the Cal Fed Acquisition, California Federal assumed Cal
Fed's 10 5/8% preferred stock with liquidation value of $172.5 million (the
"10 5/8% Preferred Stock" and, together with the 11 1/2% Preferred Stock, "Bank
Preferred Stock"). The 10 5/8% Preferred Stock resulted in a $172.5 million
increase in the Bank's stockholders' equity. Cash dividends on the 10 5/8%
Preferred Stock are noncumulative and are payable at an annual rate of 10 5/8%
per share if, when, and as declared by the Board of Directors of the Bank. The
10 5/8% Preferred Stock is generally not redeemable prior to April 1, 1999. The
10 5/8% Preferred Stock is redeemable at the option of the Bank, in whole or in
part, at $105.313 per share on or after April 1, 1999 and prior to April 1,
2000, and at prices decreasing annually thereafter to the liquidation
preference of $100.00 per share on or after April 1, 2003, plus declared but
unpaid dividends. In addition, in the event of a change of control, the 10 5/8%
Preferred Stock is redeemable at the option of the Bank or its successor on or
after April 1, 1996 and prior to April 1, 1999 in whole, but not in part, at
$114.50 per share. Dividends paid on the 10 5/8% Preferred Stock during 1997
were $18.3 million.

REIT Preferred Stock

     On January 31, 1997, Preferred Capital Corp. issued 20,000,000 shares of
the REIT Preferred Stock for $500 million. The REIT Preferred Stock has a
stated liquidation value of $25 per share, plus declared and unpaid dividends,
if any. The annual cash dividends on the 20,000,000 shares of REIT Preferred
Stock, assuming such dividends are declared by the Board of Directors of
Preferred Capital Corp., are expected to approximate $45.6 million per year. As
long as Preferred Capital Corp. qualifies as a REIT, distributions on the REIT
Preferred Stock will be a dividends-paid deduction by Preferred Capital Corp.
for tax purposes. Dividends paid on the REIT Preferred Stock during 1997 were
$36.6 million, net of the income tax benefit.

(25)    Stockholders' Equity

     (a) Common Stock

         In connection with the FN Acquisition and the offering of the 12 1/4%
     Senior Notes, First Gibraltar Holdings incorporated Parent Holdings and FN
     Holdings to hold 100% of the common stock of First Nationwide. First
     Gibraltar Holdings contributed all of its shares of capital stock of the
     Bank to Parent Holdings, which contributed such shares to FN Holdings in
     exchange for 1,000 shares of common stock of FN Holdings.

         In 1994, FN Holdings amended its certificate of incorporation to
     create 800 shares of class A common stock having one vote per share, 200
     shares of class B common stock having .75 votes per share, and 230.3
     shares of nonvoting class C common stock. Parent Holdings exchanged its
     1,000 shares of common stock of FN Holdings for 800 shares of class A
     common stock.

         Pursuant to the terms of an exchange agreement between FN Holdings,
     the Bank's Chairman and Parent Holdings (the "Exchange Agreement"), and in
     connection with the consummation of the FN Acquisition, FN Holdings issued
     100% of its class C common stock to Parent Holdings for approximately
     $210.3 million, and the Bank's Chairman acquired 100% of the class B
     common stock of FN Holdings in exchange for his 6.25% of the class A
     common stock of First Gibraltar Holdings.

         As a result of the consummation of the transactions contemplated by
     the Exchange Agreement, the Bank's Chairman owns 100% of the class B
     common stock of FN Holdings, representing 20% of its voting common stock
     (representing approximately 15% of the voting power of its common stock),
     and Parent Holdings owns (i) 100% of the class A common stock of FN
     Holdings, representing 80% of its voting common stock (representing
     approximately 85% of the voting power of its common stock) and (ii) 100%
     of the class C common stock of FN Holdings. The class C common stock was
     redeemed out of distributions from the Bank for $230.3 million plus
     accrued interest during 1995 and 1996. On December 29, 1995, the Bank's
     Chairman transferred his shares of class


                                      F-40

<PAGE>


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

     B common stock to a limited partnership, Hunter's Glen/Ford Ltd.
     ("Hunter's Glen"), over which he maintains control.

         No dividends were payable on the class A common stock or the class B
     common stock of the Company as long as any shares of the class C common
     stock remained outstanding. Dividends on the Company's class C common
     stock during 1995 totalled $29.2 million and 60.8 shares of the Company's
     class C common stock were redeemed, resulting in a capital distribution
     totalling $60.8 million. Dividends on the Company's class A, B and C
     common stock during 1996 totalled $52.5 million, $13.1 million and $8.6
     million, respectively. In addition, the remaining 169.5 shares of the
     class C common stock were redeemed during the period, resulting in a
     capital distribution totalling $169.5 million. Dividends on the Company's
     class A and B common stock during 1997 totalled $56.9 million and $14.2
     million, respectively.

     (b) Preferred Stock

         On September 19, 1996, the Company issued 10,000 shares of preferred
     stock ("FN Holdings Preferred Stock") with a liquidation value of $150
     million to a corporation owned by the Chairman of the Board of the Bank,
     ("Special Purpose Corp."). Cash dividends on the FN Holdings Preferred
     Stock are cumulative and are payable: (i) in cash at an annual rate of the
     cost of funds to an affiliate of FN Holdings under such affiliate's bank
     credit facility (the "Cost of Funds Rate") and (ii) in newly issued shares
     of another series of cumulative perpetual preferred stock of FN Holdings
     ("Additional FN Holdings Preferred Stock") at an annual rate of 2% of the
     stated liquidation value of the FN Holdings Preferred Stock, if, when, and
     as declared by the Board of Directors of FN Holdings. Dividends on the
     Additional FN Holdings Preferred Stock are cumulative and accrue and are
     payable in shares of Additional FN Holdings Preferred Stock at an annual
     rate equal to the Cost of Funds Rate plus 2% of the stated liquidation
     value of the Additional FN Holdings Preferred Stock if, when and as
     declared by the Board of Directors of the Company. Additional FN Holdings
     Preferred Stock will have substantially the same relative rights, terms
     and preferences as the FN Holdings Preferred Stock except as set forth
     above with respect to the payment of dividends. Dividends on the FN
     Holdings Preferred Stock are payable quarterly each year, commencing
     January 1, 1997, out of funds legally available therefor. In addition, the
     payment of dividends by FN Holdings is subject to certain federal laws
     applicable to savings and loan holding companies. The FN Holdings
     Preferred Stock ranks prior to the common stock of the Company and to all
     other classes and series of equity securities subsequently issued.

         The FN Holdings Preferred Stock and the Additional FN Holdings
     Preferred Stock are redeemable so long as Special Purpose Corp. is the
     sole holder thereof, at any time, and, if Special Purpose Corp. is not the
     sole holder thereof, at any time after the fifth anniversary of the
     issuance of the FN Holdings Preferred Stock, in each case, upon prior
     written notice, at the option of the Company, in whole or in part, at a
     redemption price equal to the stated liquidation value of $15,000 per
     share plus any accrued and unpaid dividends. Upon any redemption of the FN
     Holdings Preferred Stock by the Company, a pro rata portion of the
     outstanding Additional FN Holdings Preferred Stock will be contributed to
     the capital of the Company, without any payment therefor, and such shares
     will be retired and canceled.

     (c) Payment of Dividends

         The terms of the 91/8% Senior Subordinated Notes indenture and the 12
     1/4% Senior Notes indenture (the "Indentures") generally will permit the
     Company to make distributions of up to 75% of the consolidated net income
     of the Company if, after giving effect to such distribution, (i) the Bank
     is "well capitalized" under applicable OTS regulations and (ii) the
     Consolidated Common Shareholders' Equity (as defined therein) of the Bank
     is at least equal to the Minimum Common Equity Amount (as defined
     therein). The Federal thrift laws and regulations of the Office of Thrift
     Supervision (the "OTS") limit the Bank's ability to pay dividends on its
     preferred or common stock. The Bank generally may not pay dividends
     without the consent of the OTS if, after the payment of the dividends, it
     would not be deemed "adequately capitalized" under the prompt corrective
     action standards of the Federal Deposit Insurance Corporation Improvement
     Act of 1991.


                                      F-41

<PAGE>


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

         As of December 31, 1997, the Bank could pay dividends of $502.4
     million without the consent of the OTS and it could pay dividends of
     $153.8 million and still be "well capitalized." As of December 31, 1997,
     the Company could pay dividends of $254.0 million without violating the
     most restrictive terms of the Indentures.

(26)     Regulatory Capital of the Bank

     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 Company's and the Bank's consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.

     Quantitative measures established by regulation to insure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of tangible and leverage capital to adjusted total assets, and of Tier 1
and total risk-based capital to risk-weighted assets. Management believes, as
of December 31, 1997, that the Bank meets all capital adequacy requirements to
which it is subject.

     As of December 31, 1997 and 1996, the most recent notification from the
OTS categorized the Bank as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Bank must
maintain minimum leverage, Tier 1 risk-based and total risk-based ratios as set
forth in the table. There are no conditions or events since the most recent
notification that management believes have changed the institution's category.



















                                       F-42

<PAGE>


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

     The Bank's actual capital amounts and ratios as of December 31, 1997 and
1996 are also presented in the table (dollars in thousands):


<TABLE>
<CAPTION>
                                             Actual                For Capital Adequacy         To Be Well Capitalized
                                   ---------------------------   -------------------------    ---------------------------
                                                     As a %                      As a %                         As a %
               1997                    Amount       of Assets       Amount      of Assets         Amount       of Assets
               ----                    ------       ---------       ------      ---------         ------       ---------
<S>                                    <C>          <C>             <C>         <C>               <C>          <C>
Stockholders' equity of the Bank
     per financial statements           $2,260,044
Minority interest in Preferred
     Capital Corp.                         500,000
Net unrealized holding gains               (35,162)
                                        ----------
                                         2,724,882
Adjustments for tangible and leverage 
     capital:
     Goodwill litigation asset            (100,000)
     Intangible assets                    (675,927)
     Non-allowable minority
         interest in Preferred
         Capital Corp.                     (71,099)
     Non-qualifying MSRs                   (53,670)
     Non-includable subsidiaries           (53,582)
     Excess deferred tax asset             (55,000)
                                        ----------
Total tangible capital                  $1,715,604       5.65%        $455,457       1.50%          N/A           N/A
                                        ==========                    ========
Total leverage capital                  $1,715,604       5.65%        $910,915       3.00%         $1,518,191       5.00%
                                        ==========                    ========                     ==========
Tier 1 risk-based capital               $1,715,604      10.14%        N/A          N/A             $1,015,036       6.00%
                                        ==========                                                 ==========


Adjustments for risk-based
capital:
     Qualifying subordinated debt
         debentures                         93,847
     General loan loss allowance           214,217
     Assets required to be
         deducted                           (5,648)
                                        ----------
     Total risk-based capital           $2,018,020      11.93%      $1,353,382       8.00%         $1,691,727      10.00%
                                        ==========                  ==========                     ==========
</TABLE>



                                      F-43

<PAGE>


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


<TABLE>
<CAPTION>
                                             Actual                For Capital Adequacy         To Be Well Capitalized
                                   ---------------------------   -------------------------    ---------------------------
                                                     As a %                      As a %                         As a %
               1996                    Amount       of Assets       Amount      of Assets         Amount       of Assets
               ----                    ------       ---------       ------      ---------         ------       ---------
<S>                                    <C>          <C>             <C>         <C>               <C>          <C>
Stockholders' equity of the Bank
     per financial statements           $1,463,862
Net unrealized holding gains               (46,219)
                                        ----------
                                         1,417,643
Adjustments for tangible and leverage 
    capital:
     Intangible assets                    (140,564)
     Non-qualifying MSRs                   (42,369)
     Non-includable subsidiaries            (6,001)
     Excess deferred tax asset             (68,000)
                                        ----------
Total tangible capital                  $1,160,709       7.17%        $242,828       1.50%          N/A           N/A
                                        ==========                    ========
Total leverage capital                  $1,160,709       7.17%        $485,655       3.00%        $   809,426       5.00%
                                        ==========                    ========                    ===========
Tier 1 risk-based capital               $1,160,709      11.50%             N/A         N/A        $   605,843       6.00%
                                        ==========                                                ===========

Adjustments for risk-based
capital:
     Qualifying subordinated debt
         debentures                         89,907
     General loan loss allowance           127,708
     Assets required to be
         deducted                           (2,882)
                                        ----------
Total risk-based capital                $1,375,442      13.62%        $807,791       8.00%         $1,009,738      10.00%
                                        ==========                    ========                     ==========


(27)     Other Noninterest Income and Expense

     Other noninterest income and expense amounts are summarized as follows for
the years ended December 31, 1997, 1996 and 1995 (in thousands):


                                                                   1997             1996           1995
                                                                   ----             ----           ----
Other noninterest income:
      Disbursement float                                          $  8,169         $ 5,369         $ 2,622
      Other                                                         14,827          12,820           8,759
                                                                  --------         -------         -------
                                                                  $ 22,996         $18,189         $11,381
                                                                  ========         -------         =======
Other noninterest expense:
      Telephone                                                   $ 15,932         $11,727         $ 7,652
      Insurance and surety bonds                                     5,642           3,811           4,005
      Postage                                                        8,070           7,141           6,856
      Printing, copying and office supplies                          9,230           6,549           6,096
      Employee travel                                                8,745           6,112           5,244
      Clerical and other losses                                     11,410           2,636           4,345
      Other                                                         53,003          40,968          27,131
                                                                  --------         -------         -------
                                                                  $112,032         $78,944         $61,329
                                                                  ========         =======         =======
</TABLE>




                                      F-44

<PAGE>


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

(28)     Income Taxes

     Total income tax expense (benefit) for the years ended December 31, 1997,
1996 and 1995 was allocated as follows (in thousands):


<TABLE>
<CAPTION>
                                                                         1997             1996            1995
                                                                         ----             ----            ----
<S>                                                                      <C>           <C>             <C>      
       Income before income taxes, extraordinary item and                $47,148       $(73,131)       $(57,185)
          minority interest
       Extraordinary item                                                     --           (176)             221
       Net unrealized holding (loss) gain on securities
          available for sale                                                  17         (1,921)           7,055
                                                                         -------       --------        ---------
                                                                         $47,165       $(75,228)       $(49,909)
                                                                         =======       ========        ========
</TABLE>

     Income tax expense (benefit) attributable to income before income taxes,
extraordinary item and minority interest for the years ended December 31, 1997,
1996 and 1995 consisted of (in thousands):


<TABLE>
<CAPTION>
                                                                       1997           1996           1995
                                                                       ----           ----           ----
       <S>                                                             <C>         <C>               <C>     
       Federal
              Current                                                   $ 5,908    $  11,733        $    285
              Deferred                                                       --     (125,000)        (69,000)
                                                                        -------    ---------        --------
                                                                          5,908     (113,267)        (68,715)
                                                                        -------    ---------        --------

       State and local
              Current                                                    41,240       40,136          11,530
              Deferred                                                       --           --              --
                                                                        -------    ---------        --------
                                                                         41,240       40,136          11,530
                                                                        -------    ---------        --------
                                                                        $47,148    $ (73,131)       $(57,185)
                                                                        =======    =========        ========
</TABLE>

     The consolidated income tax expense (benefit) for the years ended December
31, 1997, 1996 and 1995 differs from the amounts computed by applying the
statutory federal corporate tax rate of 35% for 1997, 1996 and 1995 to income
before income taxes, extraordinary item and minority interest (in thousands):


<TABLE>
<CAPTION>
                                                                 1997            1996                1995
                                                                 ----            ----                ----
<S>                                                              <C>           <C>                <C>      
Computed "expected" income tax expense                           $104,251      $192,223           $  42,858
Increase (decrease) in taxes resulting from:
      State income taxes, net of federal income
          tax benefit                                              26,806        26,088               7,495
      Tax exempt income                                                (5)         (584)             (2,636)
      Amortization of excess cost over fair
         value of net assets acquired                              16,959            33                  --
      Adjustment to prior year's tax expense                           --           595             (1,675)
      Unrealized holding (loss) gain on securities
         available for sale recognized for tax purposes          (12,234)       (3,703)              15,937
      REIT preferred dividend                                    (14,682)
      Other                                                         2,843         1,214             (1,747)
      Adjustments to deferred tax asset fully offset by 
           valuation allowance:
             Temporary differences from acquisitions            (115,633)         6,196                  --
             Adjustment to deferred tax asset                    (16,911)         2,821               7,644
      Change in the beginning-of-the-year balance of
         the valuation allowance for deferred tax assets
         allocated to income tax expense                           55,754     (298,014)           (125,061)
                                                                ---------     ---------           ---------
                                                                $  47,148     $(73,131)           $(57,185)
                                                                =========     =========           =========
</TABLE>



                                      F-45

<PAGE>


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

     The significant components of deferred income tax (benefit) expense
attributable to income before income taxes, extraordinary item and minority
interest for the years ended December 31, 1997, 1996 and 1995 are as follows
(in thousands):


<TABLE>
<CAPTION>
                                                                         1997            1996         1995
                                                                         ----            ----         ----
      <S>                                                              <C>            <C>            <C>
      Deferred tax expense (exclusive of the effects
            of other components listed below)                          $ 76,790      $ 163,997      $ 56,061
      Adjustments to deferred tax asset fully offset by
            valuation allowance                                        (132,544)         9,017            --
      Increase (decrease) in beginning-of-the-year balance
            of the valuation allowance for deferred tax assets           55,754       (298,014)     (125,061)
                                                                       --------      ---------      --------
                                                                       $     --      $(125,000)     $(69,000)
                                                                       ========      =========      ========
</TABLE>

     The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 and 1996 are presented below (in thousands):


<TABLE>
<CAPTION>
                                                                                  1997                 1996
                                                                                  ----                 ----
<S>                                                                            <C>                   <C>
      Deferred tax assets:
            Net operating loss carryforwards                                 $  715,615             $ 723,234
            Foreclosed real estate                                                    6                   312
            Loans receivable                                                     60,835                 4,774
            Securities                                                               --                    95
            Miscellaneous accruals                                               31,520                11,851
            Accrued liabilities                                                  86,617                30,017
            Deferred interest                                                     5,369                 6,440
            State taxes                                                          39,927                16,074
            Other intangible assets                                              39,848                35,476
            Alternative minimum tax credit and investment tax
                 credit carryforwards                                            16,887                14,157
            Other                                                                 5,731                 3,165
                                                                             ----------             ---------
                 Total gross deferred tax assets                              1,002,355               845,595
                 Less valuation allowance                                      (568,781)             (513,027)
                                                                             ----------             ---------
                 Net deferred tax assets                                        433,574               332,568
                                                                             ----------             ---------

      Deferred tax liabilities:
            Change in accounting method                                          30,000                23,362
            Securities                                                            8,166                    --
            Other intangible assets                                              73,872                48,280
            Purchase accounting adjustments                                      18,137                29,881
            FHLB stock                                                           52,337                12,688
            Unrealized gains on securities available for sale                     5,152                 1,640
            Goodwill litigation                                                  58,450
            Other                                                                65,279                24,357
                                                                             ----------             ---------
               Net deferred tax liabilities                                     311,393               140,208
                                                                             ----------             ---------
               Net deferred tax assets and liabilities                       $  122,181             $ 192,360
                                                                             ==========             =========
</TABLE>

     The net change in the total valuation allowance for the year ended
December 31, 1997 was an increase of $55.8 million which is attributable to
income before income taxes and minority interest.



                                      F-46

<PAGE>


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

     Based on a historical earnings trend since the consummation of the FN
Acquisition and future earnings expectations, management changed its judgment
about the realizability of the Company's net deferred tax assets and recognized
a deferred tax benefit (i.e., reduced valuation allowance) of $125.0 million in
the second quarter of 1996 and $69.0 million in the fourth quarter of 1995.
Management believes that the realization of the resulting deferred tax asset is
more likely than not, based upon the expectation that FN Holdings will generate
the necessary amount of taxable income in future periods.

     At December 31, 1997, if FN Holdings had filed a consolidated federal
income tax return on behalf of itself (as common parent) and its subsidiaries,
it would have had regular and alternative minimum tax net operating losses for
federal income tax purposes of approximately $2.0 billion and $789 million,
respectively, which expire in 2004 through 2010.

     If for any reason FN Holdings was to deconsolidate from the Mafco Group
(see note 33, "Subsequent Event"), only the amount of the net operating loss
carryovers of FN Holdings not already utilized by the Mafco Group would be
available to offset the taxable income subsequent to the date of
deconsolidation. If FN Holdings had deconsolidated as of December 31, 1997, FN
Holdings would have had approximately $970 million of regular net operating
loss carryforwards. It cannot be predicted to what extent the Mafco Group will
utilize the net operating losses of FN Holdings in the future or the amount, if
any, of net operating loss carryforwards that FN Holdings may have upon
deconsolidation. Additionally, the net operating loss carryovers are subject to
review and potential disallowance, in whole or in part, by the Internal Revenue
Service.

     On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"Act") was enacted into law generally effective for tax years beginning after
1995. One provision of the Act repealed the Section 593 reserve method of
accounting for bad debts by thrift institutions which are treated as large
banks. Another provision of the Act requires the Company to take into income
the balance of its post-1987 bad debt reserves over a six year period beginning
in 1996 subject to a two-year deferral if certain residential loan tests are
satisfied. As of December 31, 1995, the Company had approximately $279 million
of post-1987 bad debt reserves that are subject to recapture. The Company has
fully provided for the tax related to this recapture.

     In accordance with SFAS No. 109 "Accounting for Income Taxes," a deferred
tax liability has not been recognized for the base year reserves of the
Company. The base year reserves are generally the balance of the tax bad debt
reserve as of December 31, 1987 reduced proportionately for reductions in the
Company's loan portfolio since that date. At December 31, 1997, the amount of
those reserves was approximately $152 million. The amount of the unrecognized
deferred tax liability at December 31, 1997 was approximately $53 million.
Pursuant to the Act, circumstances that may require an accrual of this
unrecorded tax liability are a failure to meet the definition of a "bank" for
federal income tax purposes, dividend payments in excess of tax earnings and
profits, and other distributions, dissolution, liquidation or redemption of
stock, excluding preferred stock meeting certain conditions.

(29)     Employee Benefit Plans

     Post-retirement Benefits Plan

     The Bank provides certain post-retirement medical benefits to certain
eligible employees and their dependents through age 65. In general, early
retirement is age 55 with 10 years of service. Retirees participating in the
plans generally pay Consolidated Omnibus Budget Reduction Act premiums for the
period of time they participate.

     The estimated cost for post-retirement health care benefits has been
accrued on an actuarial net present value basis.



                                      F-47

<PAGE>


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

     The following table sets forth the plans' combined liabilities included in
the Bank's consolidated balance sheet at December 31, 1997 and 1996 (in
thousands):

<TABLE>
<CAPTION>
                                                                          1997              1996
                                                                          ----              ----
<S>                                                                      <C>              <C>
         Accumulated post-retirement benefit obligation:
              Retirees                                                    $2,228           $2,212
              Eligible active plan participants                              554              471
              Ineligible active plan participants                          1,343              733
                                                                         -------          -------
                  Accumulated post-retirement benefit
                      obligation (other liabilities)                      $4,125           $3,416
                                                                          ======           ======
</TABLE>

     The projected benefit obligation at December 31, 1997 and 1996 was
determined using a discount rate of 7.5%. At December 31, 1997, an increase of
1% in the health care cost trend rate would cause the accumulated
post-retirement benefit obligation to increase by $.4 million, and the service
and interest costs to increase by less than $.1 million.

     Net periodic post-retirement benefits cost for the years ended December
31, 1997 and 1996 included the following components (in thousands):

<TABLE>
<CAPTION>
                                                                          1997              1996
                                                                          ----              ----
         <S>                                                              <C>
         Service cost - benefits attributable
              to service during the current period                        $364               $301
         Interest cost on accumulated post-retirement
              benefit obligation                                           498                231
         Amortization of loss                                               --                 19
                                                                          ----               ----
              Periodic post-retirement benefit cost                       $862               $551
                                                                          ====               ====
</TABLE>

     The initial health care cost trend rate for medical benefits in 1997 was
9%, the average trend rate was 7.25% and the ultimate trend rate was 5.5%,
which will be reached in eight years. Similar trend rates were utilized for the
1996 valuation.

     In connection with the SFFed Acquisition, the Bank assumed SFFed's defined
benefit pension plan which covered substantially all employees of San Francisco
Federal. The SFFed benefit plan was frozen effective September 30, 1995 and no
additional benefits accrued after such time.

     The following table sets forth the funded status and amounts recognized in
the Bank's consolidated balance sheet for its defined benefit pension plan (in
thousands):


<TABLE>
<CAPTION>
                                                                             1997              1996
                                                                             ----              ----
<S>                                                                        <C>              <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of
$40,995 in 1997 and $21,720 in 1996                                        $40,995          $21,720
                                                                           =======          =======

Projected benefit obligations                                              $40,995          $21,720
Plan assets at fair value                                                   42,292           23,085
Excess (deficiency) of plan assets over projected benefit
obligations                                                                  1,297            1,365
Unrecognized net gain (loss)                                                 5,506            5,414
                                                                           -------          -------
       Accrued (prepaid) pension liability                                 $ 4,209          $ 4,049
                                                                           =======          =======
</TABLE>



                                      F-48

<PAGE>


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

     Net periodic expense for 1997, 1996 and 1995 included the following
components (in thousands):


<TABLE>
<CAPTION>
                                                          1997          1996       1995
                                                          ----          ----       ----
<S>                                                  <C>            <C>              <C>
Service cost benefit earned during the period           $    --       $    --        $--
Interest cost on projected benefit obligations            2,796         2,143         --
Expected return on plan assets                           (3,306)       (2,349)        --
Net amortization and deferral                               (91)        1,278         --
Curtailment gain                                           (404)           --         --
                                                        -------       -------        ---
     Total net periodic pension expense                 $(1,005)      $ 1,072        $--
                                                        =======       =======        ===

     Assumptions used in computing the funded status were:


                                                        1997           1996      1995
                                                        ----           ----      ----
Discount rate                                            7.75%         8.50%      --%
Rate of increase in future compensation levels             --            --       --
Long-term rate of return on assets                       9.00%         8.50%      --
</TABLE>


     In the Cal Fed Acquisition, the Bank assumed sponsorship of the Old
California Federal defined benefit plan which was frozen effective May 31, 1993
and at which time, all accrued benefits became 100% vested. Effective April 30,
1997, the SFFed benefit plan was merged with and into the Old California
Federal benefit plan. The fair value of assets transferred was $23.6 million.

     Investment Plan

     The Bank offers a defined contribution plan which is available to
substantially all employees with at least one year of employment. Employee
contributions are voluntary. The plan provides for deferral of up to 12% of
qualifying compensation of plan participants. The Bank's matching contribution
was a maximum of 100% of up to the first 3% of employee deferrals. The annual
discretionary employer profit sharing contribution is a maximum of 3% of
eligible compensation. It can be declared at any level in the range from 0% to
3%. Employees vest immediately in their own deferrals and any employer profit
sharing contributions and vest in employer matching contributions based on
completed years of service. The Bank's contributions to such plan totalled $3.8
million, $2.3 million, and $2.8 million for the years ended December 31, 1997,
1996 and 1995, respectively.

     During 1996, defined contribution plans assumed in the SFFed and Home
Federal Acquisitions were merged with and into Old FNB's defined contribution
plan. The fair value of assets transferred was $14.4 million.

     In the Cal Fed Acquisition, contributions made to Old California Federal's
defined contribution plan became 100% vested at the date of acquisition.
Effective December 31, 1997, the Old California Federal contribution plan was
merged with and into the Bank's plan. The fair value of assets transferred was
$33.6 million.

(30)     Incentive Plan

     Effective October 1, 1995, FN Holdings entered into a management incentive
plan ("Incentive Plan") with certain executive officers of the Bank
("Participants"). Awards under the Incentive Plan will be made in the form of
performance units. Each performance unit entitles Incentive Plan Participants
to receive cash and/or stock options ("Bonuses") based upon the Participants'
vested interest in a bonus pool. Generally, the Incentive Plan provides for the
payment of Bonuses, on a quarterly basis, to the Participants upon the
occurrence of certain events. Bonuses vest at 20% per year beginning October 1,
1995 and are subject to a cap of $50 million.

     Bonuses are recorded by a charge to compensation and employee benefits and
an increase to other liabilities. During 1997 and 1996, accruals relative to
the Incentive Plan totalled $12.4 million and $35.6 million, respectively.


                                      F-49

<PAGE>


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


(31)  Special SAIF Assessment

     On September 30, 1996, the Economic Growth and Regulatory Paperwork
Reduction Act ("Act") of 1996 was enacted. The Act included a special
assessment ("Special SAIF Assessment") related to the recapitalization of the
SAIF, which was levied based on a rate of 65.7 cents per $100 of SAIF-insured
domestic deposits held as of March 31, 1995. As a result of the Act, the
Company recorded a pre-tax charge of $60.1 million on September 30, 1996. The
1997 SAIF deposit premiums declined to 6.42 cents per $100 of SAIF-insured
deposits per year from the prior rate of 23 cents.

(32)  Commitments and Contingencies

     In the ordinary course of business the Company has commitments and
contingent liabilities that are not reflected in the accompanying consolidated
financial statements. The Company, through FNMC, enters into financial
instruments with off-balance sheet risk through the origination and sale of
mortgage loans and the management of the related loss exposure caused by
fluctuations in interest rates. These financial instruments include commitments
to extend credit and purchase loans (mortgage loan pipeline) and mandatory and
optional forward commitments to sell loans.

     The following is a summary of the Company's pipeline of loans in process
and mandatory forward commitments to sell loans at December 31, 1997 (in
thousands):

Commitments to originate and purchase loans                         $ 1,718,729
Mandatory commitments to sell loans                                   1,368,123

     The Company's pipeline of loans in process include loan applications in
various stages of processing. Until all required documentation is provided and
underwritten, there is no credit risk to the Company. There is no interest rate
risk until a rate commitment is extended by the Company to a borrower. Some of
these commitments will ultimately be denied by the Company or declined by the
borrower and therefore, the commitment amounts do not necessarily represent
future cash requirements.

     Loans in process for which rates were committed to the borrower totalled
approximately $691.7 million at December 31, 1997. On a daily basis, the
Company determines what percentage of the portfolio of loans in process for
which rate commitments have been extended to a borrower to hedge. Both the
anticipated percentage of the pipeline that is expected to fund and the
inherent risk position of the portfolio are considered in making this
determination.

     Mandatory and optional delivery forward commitments to sell loans are used
by the Company to hedge its interest rate exposure from the time a loan has a
committed rate to the time the loan is sold. These instruments involve varying
degrees of credit and interest rate risk. Credit risk on these instruments is
controlled through credit approvals, limits and monitoring procedures. To the
extent that counterparties are not able to fulfill forward commitments, the
Company is at risk for any fluctuations in the market value of the mortgage
loans and locked pipeline.

     Realized gains and losses on mandatory and optional-delivery forward
commitments are recognized in the period settlement occurs. Unrealized gain and
losses on mandatory and optional-delivery forward commitments are included in
the lower of cost or market valuation adjustment to mortgage loans held for
sale.

     On September 28, 1994, the Company entered into an agreement with FNMA
pursuant to which FNMA provided credit enhancements for certain bond-financed
real estate projects originated by Old FNB. The agreement requires that the
Company pledge to FNMA collateral in the form of certain eligible securities
which are held by a third party trustee. The collateral requirement varies
based on the balance of the bonds outstanding, losses incurred (if any), as
well as other factors. At December 31, 1997 and 1996, the Company had pledged
as collateral certain securities available for sale with a carrying value of
$78.2 million and $91.6 million.



                                      F-50

<PAGE>


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

     At December 31, 1997 and 1996, mortgage-backed securities available for
sale with a carrying value of $28.8 million and $33.4 million, respectively,
were pledged to FNMA associated with the sales of certain securitized
multi-family loans.

     At December 31, 1997, mortgage-backed securities available for sale and
mortgage-backed securities held to maturity of $4.1 billion and $1.3 billion,
respectively, were pledged as collateral for various obligations as discussed
in notes 8, 9, 19 and 20. At December 31, 1996, mortgage-backed securities
available for sale and mortgage-backed securities held to maturity of $936.2
million and $1.4 billion, respectively, were pledged as collateral for various
obligations.

     At December 31, 1997, $11.2 billion in residential loans were pledged as
collateral for FHLB advances.

     At December 31, 1997 and 1996, loans receivable included approximately
$7.5 billion and $2.3 billion, respectively, of loans that had the potential to
experience negative amortization.

     The Bank is the plaintiff in a claim against the United States in the
lawsuit, California Federal Bank v. United States (the "Cal Fed Litigation"),
which it assumed in the Cal Fed Acquisition. In connection with this lawsuit,
the Company recorded as an asset the estimated after-tax cash recovery from the
Cal Fed Litigation that will inure to the Company, net of amounts payable to
holders of certain publicly-traded rights in any such recovery (the "Goodwill
Litigation Asset"). In connection with the Cal Fed Acquisition, the Goodwill
Litigation Asset was recorded at its estimated fair value of $100 million, net
of estimated tax liabilities, as of January 3, 1997, and is included in the
Company's consolidated balance sheet as of December 31, 1997.

     In addition, the Company is involved in various claims and lawsuits
arising in the ordinary course of business. Management is of the opinion that
the effect, if any, of these claims and lawsuits is not material to the
Company.
















                                      F-51

<PAGE>


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

(33)          Fair Value of Financial Instruments

     The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 1997 and 1996 (in thousands):


<TABLE>
<CAPTION>
                                                                   1997                            1996
                                                        -------------------------        ------------------------
                                                        Carrying            Fair         Carrying          Fair
                                                          Value            Value          Value           Value
                                                         -------          -------        -------         -------
<S>                                                  <C>              <C>            <C>              <C>        
     Financial Assets:
         Cash and cash equivalents                   $   412,311      $   412,311    $   269,869      $   269,869
         Securities available for sale                   813,085          813,085        542,019          542,019
         Securities held to maturity                      58,299           58,299          4,272            4,287
         Mortgage-backed securities
              available for sale                       5,076,598        5,076,598      1,598,652        1,598,652
         Mortgage-backed securities
              held to maturity                         1,337,877        1,373,289      1,621,662        1,653,847
         Loans held for sale                           1,483,466        1,493,867        825,316          825,316
         Loans receivable, net                        19,424,410       19,786,805     10,212,583       10,428,934
         Investment in FHLB                              468,191          468,191        220,962          220,962
         Accrued interest receivable                     188,203          188,203        106,034          106,034
         Mortgage servicing rights                       536,703          673,975        423,692          531,726

     Financial Liabilities:
         Deposits                                     16,202,605       16,224,399      8,501,883        8,514,099
         Securities sold under agreements
              to repurchase                            1,842,442        1,842,737      1,583,387        1,585,964
         Borrowings:
              Gross                                   10,769,995       10,892,364      4,908,087        4,941,563
              Interest rate swap agreements (1)             (401)          (2,954)        (5,391)         (13,763)
                                                     ------------     -----------    -----------      -----------
                   Total borrowings                  $10,769,594      $10,889,410    $ 4,902,696      $ 4,927,800
                                                     ===========      ===========    ===========      ===========
     Off-balance sheet net unrealized gains
          (losses):
          Commitments to originate loans                                  $ 1,652                          $ (503)
          Forward commitments to sell loans                                (7,099)                          1,022
          Principal-only swap agreements                                   13,520                             112
</TABLE>

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

 (1) Designated as a hedge against FHLB advances.

     The carrying amounts in the table are included in the accompanying
consolidated balance sheet under the indicated captions, except for off-balance
sheet net unrealized gains (losses).

     The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgment was
required in estimating fair value for certain items. The subjective factors
include, among other things, the estimated timing and amount of cash flows,
risk characteristics, and interest rates, all of which are subject to changes.

     Cash and cash equivalents: Cash and cash equivalents are valued at their
carrying amounts included in the consolidated statement of financial condition,
which are reasonable estimates of fair value due to the relatively short period
to maturity of the instruments.


                                      F-52

<PAGE>


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


     Securities and mortgage-backed securities: Securities and mortgage-backed
securities are valued at quoted market prices where available. If quoted market
prices are not available, fair values are based on quoted market prices of
comparable instruments.

     Loans held for sale: Loans held for sale are valued based on quoted market
prices for mortgage-backed securities backed by similar loans.

     Loans receivable, net: Fair values are estimated for loans in groups with
similar financial and risk characteristics. Loans are segregated by type
including residential, multi-family and commercial. Each loan type is further
segmented into fixed and variable interest rate terms and by performing and
non-performing categories in order to estimate fair values.

     For performing residential mortgage loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates using
discount rates based on secondary market sources. The fair value of performing
commercial and multi-family loans is calculated by discounting scheduled
principal and interest cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the respective loan type.

     Fair value for non-performing loans is based on discounting estimated cash
flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.

     Investment in FHLB: Since no secondary market exists for FHLB stock and
the stock is bought and sold at par by FHLB, fair value of these financial
instruments approximates the carrying value.

     Accrued interest: The carrying amounts of accrued interest approximate
their fair values.

     Mortgage servicing rights: The fair value of mortgage servicing rights is
based on market prices for comparable mortgage servicing contracts, when
available, or alternatively a valuation model that calculates the present value
of future net servicing income. In using the valuation model, the Company
incorporates assumptions that market participants would use in estimating
future net servicing income, which include estimates of the cost of servicing,
the discount rate, mortgage escrow earnings rate, an inflation rate, ancillary
income, prepayment speeds and default rates and losses.

     Deposits: The fair values of demand deposits, passbook accounts, money
market accounts, and other deposits immediately withdrawable, by definition,
approximate carrying values for the respective financial instruments. For fixed
maturity deposits, the fair value was estimated by discounting expected cash
flows by the current offering rates of deposits with similar terms and
maturities.

     Securities sold under agreements to repurchase: The fair value of
securities sold under agreements to repurchase is estimated using a discounted
cash flow analysis based on interest rates currently offered on such repurchase
agreements with similar maturities.

     Borrowings: The fair value of borrowings, other than FHLB advances, is
estimated using discounted cash flow analyses based on current incremental
rates for similar borrowing arrangements. The fair values of FHLB advances are
estimated using a discounted cash flow analysis based on interest rates
currently offered on advances with similar maturities. Fair values of the
Company's interest rate swap agreements, which effectively hedge certain of the
Company's FHLB advances, are based on the net present value of the estimated
interest due to the Company as compared to the estimated interest due to the
counterparties of the agreements.

     Off-balance sheet financial instruments: Fair values of the Company's
commitments to originate loans is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the


                                      F-53

<PAGE>


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

agreements and the present creditworthiness of the counterparties. For
fixed-rate commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. Fair values of
forward commitments to sell loans are determined using current estimated
replacement costs. Fair values of the Company's floors are based on quoted
market prices for comparable floors. To calculate the value of the
principal-only swaps, dealer bids are obtained on the underlying principal-only
swaps. The change in the market price of a principal-only swap from the date of
inception to the termination date is applied to the remaining principal-only
swap.
































                                      F-54

<PAGE>


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

(34)     Selected Quarterly Financial Data (Unaudited)

     The following table presents selected quarterly financial data for the
years ended December 31, 1997 and 1996 (in thousands) (unaudited):


<TABLE>
<CAPTION>
                                                                Quarter Ended
                                        -------------------------------------------------------------
                                          December 31,      September 30,     June 30,        March 31,
                                             1997               1997            1997            1997         Total 1997
                                          ------------      -------------     --------        ---------      ----------
<S>                                        <C>                 <C>            <C>             <C>            <C>       
Total interest income                      $530,809           $531,303       $527,837        $512,751       $2,102,700
Total interest expense                     (368,883)          (365,865)      (361,065)       (344,991)      (1,440,804)
                                           --------           --------       --------        --------       ----------
Net interest income                         161,926            165,438        166,772         167,760          661,896
Provision for loan losses                   (19,950)           (19,950)       (19,950)        (19,950)         (79,800)
                                           --------           --------       --------        --------       ----------
Net interest income after
         provision for loan losses          141,976            145,488        146,822         147,810          582,096
Total noninterest income                    108,351             94,846         82,448          78,839          364,484
Total noninterest expense                  (169,957)          (154,287)      (171,189)       (153,286)        (648,719)
                                           --------           --------       --------        --------       ----------
Income before income taxes,
     extraordinary item and minority
     interest                                80,370             86,047         58,081          73,363          297,861
Income taxes                                (11,710)           (13,547)       (10,237)        (11,654)         (47,148)
                                           --------           --------       --------        --------       ----------
Income before extraordinary item
     and minority interest                   68,660             72,500         47,844          61,709          250,713
Extraordinary item                               --                 --             --              --               --
                                           --------           --------       --------        --------       ----------
Income before minority interest              68,660             72,500         47,844          61,709          250,713
Minority interest                           (23,175)           (23,176)       (23,144)        (19,849)         (89,344)
                                           --------           --------       --------        --------       ----------
Net income                                   45,485             49,324         24,700          41,860          161,369
Preferred stock dividends                    (1,786)            (2,762)        (3,720)         (4,523)         (12,791)
                                           --------           --------       --------        --------       ----------
     Net income available to
         common stockholders               $ 43,699           $ 46,562       $ 20,980        $ 37,337       $  148,578
                                           ========           ========       ========        ========       ==========


                                                                Quarter Ended
                                        -------------------------------------------------------------
                                          December 31,      September 30,     June 30,        March 31,
                                             1996               1996            1996            1996         Total 1996
                                           --------           -----------     --------        ---------      ----------
Total interest income                      $299,386           $308,137       $318,100        $308,176       $1,233,799
Total interest expense                     (194,112)          (205,047)      (208,520)       (200,121)        (807,800)
                                           --------           --------       --------        --------       ----------
     Net interest income                    105,274            103,090        109,580         108,055          425,999
Provision for loan losses                    (9,900)            (9,900)        (9,900)         (9,900)         (39,600)
                                           --------           --------    -  --------        --------       ----------
     Net interest income after
          provision for loan losses          95,374             93,190         99,680          98,155          386,399
Total noninterest income                     57,917             75,870        154,652         364,939          653,378
Total noninterest expense                  (111,669)          (157,013)      (103,666)       (118,221)        (490,569)
                                           --------           --------       --------        --------       ----------
Income before income taxes,
     extraordinary item and minority
     interest                                41,622             12,047        150,666         344,873          549,208
Income taxes                                 (6,593)            (1,627)       110,354         (29,003)          73,131
                                           --------           --------       --------        --------       ----------
Income before extraordinary item
         and minority interest               35,029             10,420        261,020         315,870          622,339
Extraordinary item                               --             (1,586)            --             --            (1,586)
                                           --------           --------       --------        --------       ----------
Income before minority interest              35,029              8,834        261,020         315,870          620,753
Minority interest                            (8,646)            (8,646)        (8,646)        (17,292)         (43,230)
                                           --------           --------       --------        --------       ----------
     Net income                              26,383                188        252,374         298,578          577,523
Preferred stock dividends                     4,815                 --             --              --            4,815
                                           --------           --------       --------        --------       ----------
     Net income available to               $ 21,568           $    188       $252,374        $298,578       $  572,708
                                           ========           ========       ========        ========       ==========
          common stockholders
</TABLE>



                                      F-55

<PAGE>


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

(35)              Condensed Parent Company Financial Information

     The following represents condensed balance sheets of the Company (parent
  company only) at December 31, 1997 and 1996 (in thousands):


<TABLE>
<CAPTION>
                                                                                   1997               1996
                                                                                   ----               ----
<S>                                                                            <C>                <C>
  Assets
             Cash and cash equivalents                                         $   18,690          $  112,496
             Investment in the Bank                                             2,260,044           1,463,862
             Loan to affiliate                                                         --              20,443
             Other assets and deferred charges                                     32,462              14,724
                                                                               ----------          ----------
            Total assets                                                       $2,311,196          $1,611,525
                                                                               ==========          ==========

  Liabilities, Minority Interest and Stockholders' Equity
      Senior notes                                                             $  200,000          $  200,000
      Senior sub notes                                                            140,000             140,000
      Senior subordinated notes due 2003                                          575,000                  --
      Accrued interest payable                                                     24,189               9,021
      Payable to affiliates                                                         1,375               4,786
      Other liabilities                                                            40,669              29,125
                                                                               ----------          ----------
      Total liabilities                                                           981,233             382,932
      Minority interest - Bank Preferred Stock                                    486,456             309,376
      Total stockholders' equity                                                  843,507             919,217
                                                                               ----------          ----------
      Total liabilities, minority interest and stockholders' equity            $2,311,196          $1,611,525
                                                                               ==========          ==========
</TABLE>

     The following represents parent company only condensed statements of
  income for the years ended December 31, 1997, 1996 and 1995 (in thousands):


<TABLE>
<CAPTION>
                                                                       1997            1996           1995
                                                                       ----            ----           ----
<S>                                                                  <C>           <C>           <C>        
  Interest income                                                    $    859        $  4,061       $    341
  Dividends received from the Bank                                    311,200         275,707        111,900
                                                                     --------        --------       --------
                                                                      312,059         279,768        112,241
  Interest expense                                                     97,923          36,243         25,539
  Noninterest expense                                                  13,610          10,850          5,819
                                                                     --------        --------       --------
  Income before equity in undistributed
        net income of the Bank                                        200,526         232,675         80,883
  Equity in undistributed net income of the Bank                        2,482         387,220         99,360
                                                                     --------        --------       --------
  Income before income taxes and minority interest                    203,008         619,895        180,243
  Income tax benefit                                                  (11,117)           (858)        (1,359)
                                                                     --------        --------       --------
  Income before minority interest                                     214,125         620,753        181,602
  Minority interest in earnings of the Bank                            52,756          43,230         34,584
                                                                     --------        --------       --------
        Net income                                                    161,369         577,523        147,018
  Preferred stock dividends                                            12,791           4,815             --
        Net income available to common stockholders                  --------        --------       --------
                                                                     $148,578        $572,708       $147,018
                                                                     ========        ========       ========
</TABLE>



                                      F-56

<PAGE>


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

     The following represents parent company only statements of cash flows for
the years ended December 31, 1997, 1996 and 1995 (in thousands):


<TABLE>
<CAPTION>
                                                                   1997         1996         1995
                                                                   ----         ----         ----
<S>                                                             <C>              <C>      <C>
Cash flows from operating activities:
      Net income                                                 $161,369     $577,523     $147,018
      Adjustments to reconcile net income to net cash
   provided by operating activities:
     Amortization of deferred issuance costs                        5,766        1,811          764
     Increase in receivable from the Bank                            --           --          3,156
     Decrease (increase) in other assets and
         deferred charges                                           2,686       (2,842)         633
     (Decrease) increase in payable to affiliates                  (3,411)       4,482         (997)
     (Decrease) increase in accrued interest payable               (2,481)       5,890           --
     Increase in other liabilities                                 11,160       27,023        1,979
     Equity in undistributed net income of the Bank                (2,482)    (387,220)     (99,360)
     Minority interest                                             52,756       43,230       34,584
                                                                 --------     --------     --------
         Total adjustments                                         63,994     (307,626)     (59,241)
                                                                 --------     --------     --------
         Net cash provided by operating activities                225,363      269,897       87,777
                                                                 --------     --------     --------

Cash flows from investing activities:
      (Decrease) increase in loans receivable                          61      (67,212)          --
      Proceeds from disposal of furniture, fixture and
          equipment                                                    --           --          414
    Capital contributions to the Bank                            (697,985)    (168,634)      (2,000)
                                                                 --------     --------     --------
          Net cash used in investing activities                  (697,924)    (235,846)      (1,586)
                                                                 --------     --------     --------

Cash flows from financing activities:
      Proceeds from issuance of Senior Sub Notes                       --      135,100           --
      Proceeds from FN Escrow Merger                              603,313           --           --
      Issuance of preferred stock, net                               (650)     144,249           --
      Redemption of FN Holdings/FN Escrow Preferred Stock         (17,250)          --           --
      Redemption of FN Holdings Preferred Stock                  (125,000)          --           --
      Redemption of class C common stock                               --     (124,670)     (60,801)
      Dividends on class A common stock                           (56,875)     (52,468)          --
      Dividends on class B common stock                           (14,219)     (13,116)          --
      Dividends on class C common stock                                --       (6,633)     (29,185)
      Dividends on preferred stock                                (10,564)      (4,023)          --
                                                                 --------     --------     --------
          Net cash provided by (used in) financing activities     378,755       78,439      (89,986)
                                                                 --------     --------     --------

Net change in cash and cash equivalents                           (93,806)     112,490       (3,795)
Cash and cash equivalents at beginning of year                    112,496            6        3,801
                                                                 --------     --------     --------
Cash and cash equivalents at end of year                         $ 18,690     $112,496     $      6
                                                                 ========     ========     ========
</TABLE>

     Noncash investing and financing activities:

      During 1997, the Company issued additional preferred stock through
preferred stock dividends of $2.2 million. During 1996, loans receivable was
reduced by $46.8 million through a reduction of cash paid for the redemption of
and dividends on class C common stock in amounts totalling $44.8 million and $2
million, respectively. The Company also issued additional preferred stock
through preferred stock dividends of $.8 million in December 1996.




                                      F-57

<PAGE>


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

(36)    Subsequent Events (Unaudited)

     GSAC Acquisition

     On February 4, 1998, Auto One completed the GSAC Acquisition in a
transaction accounted for under the purchase method of accounting. GSAC engaged
in sub-prime automobile financing activities and provided loan processing,
funding and loan servicing primarily in the states of Texas, Louisiana and
Georgia. The purchase price paid was $22.5 million and the issuance of 250
shares of Auto One's common stock. The estimated fair value of assets acquired
was approximately $102.9 million consisting of approximately 7,400 loans.

     Golden State Merger

     On February 4, 1998, Parent Holdings and Hunter's Glen entered into a
definitive merger agreement ("Golden State Merger Agreement") with Golden State
Bancorp Inc. ("Golden State"), the publicly traded parent company of Glendale
Federal Bank, Federal Savings Bank ("Glendale Federal"), pursuant to which
Parent Holdings, Hunter's Glen and Golden State agreed to a tax-free exchange
of shares in a merger transaction (the "Golden State Merger"). Following the
Golden State Merger, the combined parent company, Golden State, will have 135
to 145 million common shares outstanding and will continue to be a publicly
traded company. As part of the Golden State Merger Agreement, Glendale Federal
will be merged with and into California Federal.

     The terms of the Golden State Merger Agreement provide for Golden State
shareholders to retain ownership of approximately 55% to 58% of the merged
entity, based on the average trading price of Golden State shares during a
period preceding the close of the transaction, as determined after distribution
of Golden State's share of certain litigation interests. The remaining
ownership of the merged entity will be retained by the principal shareholders
of California Federal, Gerald J. Ford, chairman and chief executive officer of
the Bank, and MacAndrews & Forbes Holdings Inc.
 As part of the Golden State Merger Agreement, the owners of Parent Holdings
will receive, after a final resolution of the Cal Fed Litigation, additional
Golden State stock.

     The Golden State Merger will be accounted for as a purchase. Golden
State's assets, liabilities and other items will be adjusted to their estimated
fair value at the closing date of the merger.

     As a result of the Golden State Merger, Parent Holdings and its
subsidiaries will deconsolidate from the Mafco Group. Therefore, the amount of
net operating loss carryovers available to offset the taxable income of Parent
Holdings and its subsidiaries will be reduced. See note 28.

     As of December 31, 1997, Glendale Federal had total assets of
approximately $16.0 billion and deposits of $9.5 billion, and operated 181
branches and 26 loan offices in California. During 1997, Golden State has
entered into agreements to acquire Redfed Bancorp Inc. ("Redfed") and its
federal savings bank subsidiary, Redlands Federal Bank, in a tax-free
stock-for-stock merger, and CENFED Financial Corporation ("CENFED") and its
federal savings bank subsidiary, CenFed Bank, in a tax-free exchange of shares.
At December 31, 1997, Redfed and CENFED had total assets of approximately $1.0
billion and $2.2 billion, respectively, and deposits of $.8 billion and $1.2
billion, respectively. On a pro forma basis at December 31, 1997, Golden State
would have consolidated assets of $19.2 billion and deposits of $11.9 billion.
Further, on a pro forma basis, the merged entities (including Redfed and
CENFED) would have consolidated assets of $51.9 billion and deposits of $28.1
billion at December 31, 1997.

     The Golden State Merger is subject to regulatory and stockholder approval
and is expected to close during the third quarter of 1998.



                                      F-58


<PAGE>



                                 EXHIBIT INDEX

         2.1      Agreement and Plan of Reorganization, dated as of February 4,
                  1998, by and among First Nationwide (Parent) Holdings Inc.,
                  First Nationwide Holdings Inc., First Gibraltar Holdings,
                  Inc., Hunter's Glen/Ford, Ltd. Golden State Bancorp Inc. and
                  Golden State Financial Corporation. (Incorporated by
                  reference to Exhibit 2.1 to the Registrant's Current Report
                  on Form 8-K, dated February 4, 1998 (the "February 1998 Form
                  8-K")).

         3.1      Fifth Restated Certificate of Incorporation of the
                  Registrant. (Incorporated by reference to Exhibit 3.1 to
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333- 21015)).

         3.2      By-laws of the Registrant, as amended. (Incorporated by
                  reference to Exhibit 3.2 to Amendment No. 1 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  333-21015)).

         4.1      Indenture, dated as of September 19, 1996, between First
                  Nationwide Escrow Corp. and The Bank of New York, as trustee,
                  relating to the 105/8% Senior Subordinated Exchange Notes Due
                  2003 (the "New Notes"). (Incorporated by reference to Exhibit
                  4.1 to Amendment No. 1 to the Registrant's Registration
                  Statement on Form S-1 (File No. 333-21015)).

         4.2      First Supplemental Indenture, dated as of January 3, 1997,
                  among the Registrant, First Nationwide Escrow Corp. and The
                  Bank of New York, as trustee, relating to the New Notes.
                  (Incorporated by reference to Exhibit 4.2 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         4.3      Indenture, dated as of January 31, 1996, between the
                  Registrant and The Bank of New York, as trustee, relating to
                  the 91/8% Senior Subordinated Exchange Notes Due 2003.
                  (Incorporated by reference to Exhibit 4.1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 333- 00854)).

         4.4      Indenture, dated as of July 15, 1994, between the Registrant
                  and The First National Bank of Boston, as trustee, relating
                  to the 12 1/4% Senior Exchange Notes Due 2001 (the "12 1/4%
                  Senior Note Indenture"). (Incorporated by reference to
                  Exhibit 4.1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 33-82654)).

         4.5      First Supplemental Indenture, dated as of January 17, 1997,
                  between the Registrant and State Street Bank and Trust
                  Company, as trustee, supplementing the 12 1/4% Senior Note
                  Indenture. (Incorporated by reference to Exhibit 4.5 to
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333-21015)).

         4.6      Indenture, dated as of October 1, 1986, between First
                  Nationwide Bank, A Federal Savings Bank, and Bank of America
                  National Trust and Savings Association Re: $100,000,000 10%
                  Subordinated Debentures due 2006 (the "2006 Indenture").
                  (Incorporated by reference to Exhibit 4.5 to the Registrant's
                  Annual Report on Form 10-K for the year ended December 31,
                  1994.)

         4.7      First Supplemental Indenture, dated as of September 30, 1994,
                  among First Madison Bank, FSB, First Nationwide Bank, A
                  Federal Savings Bank, and Bank of America National Trust and
                  Savings Association, supplementing the 2006 Indenture.
                  (Incorporated by reference to Exhibit 4.6 to the Registrant's
                  Annual Report on Form 10-K for the year ended December 31,
                  1994.)

         4.8      Second Supplemental Indenture, dated as of January 3, 1997,
                  among First Nationwide Bank, A Federal Savings Bank,
                  California Federal Bank, A Federal Savings Bank and Bank of
                  America National Trust and Savings Association, as trustee,
                  supplementing the 2006 Indenture. (Incorporated by reference
                  to Exhibit 4.8 to Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 333-21015)).


<PAGE>



         4.9      Indenture, dated February 15, 1986, between Cal Fed Bancorp
                  Inc. and Manufacturers Hanover Trust Company, as trustee,
                  relating to the 6 1/2% Convertible Subordinated Debentures
                  Due 2001 (the "6 1/2% Convertible Debenture Indenture").
                  (Incorporated by reference to Exhibit 4.11 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         4.10     First Supplemental Indenture, dated as of December 16, 1992,
                  among Cal Fed Bancorp Inc., XCF Acceptance Corporation,
                  California Federal Bank, A Federal Savings Bank, and Chemical
                  Bank, supplementing the 6 1/2% Convertible Debenture
                  Indenture. (Incorporated by reference to Exhibit 4.12 to
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333-21015)).

         4.11     Second Supplemental Indenture dated as of December 13, 1996
                  among XCF Acceptance Corporation, California Federal Bank, A
                  Federal Savings Bank, and The Chase Manhattan Bank, as
                  trustee, supplementing the 6 1/2% Convertible Debenture
                  Indenture. (Incorporated by reference to Exhibit 4.13 to
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333- 21015)).

         4.12     Third Supplemental Indenture dated as of December 13, 1996
                  among Cal Fed Bancorp Inc., XCF Acceptance Corporation,
                  California Federal Bank, A Federal Savings Bank, and The
                  Chase Manhattan Bank, as Trustee, supplementing the 6 1/2%
                  Convertible Debenture Indenture. (Incorporated by reference
                  to Exhibit 4.14 to Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 333-21015)).

         4.13     Fourth Supplemental Indenture dated as of December 13, 1996
                  among Cal Fed Bancorp Inc., XCF Acceptance Corporation, and
                  The Chase Manhattan Bank, as trustee, supplementing the 6
                  1/2% Convertible Debenture Indenture. (Incorporated by
                  reference to Exhibit 4.15 to Amendment No. 1 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  333-21015)).

         4.14     Indenture, dated December 1, 1992, between California Federal
                  Bank, A Federal Savings Bank and Chemical Bank, as trustee,
                  relating to the 10% Subordinated Debentures Due 2003.
                  (Incorporated by reference to Exhibit 4.16 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         4.15     Agreement Regarding Contingent Litigation Recovery
                  Participation Interests, dated as of June 30, 1995, between
                  California Federal Bank, A Federal Savings Bank, and Chemical
                  Trust Company of California, as Interest Agent. (Incorporated
                  by reference to Exhibit 4.17 to Amendment No. 1 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  333-21015)).

         4.16     Agreement regarding Secondary Contingent Litigation Recovery
                  Participation Interests, dated as of December 2, 1996,
                  between California Federal Bank, A Federal Savings Bank, and
                  ChaseMellon Shareholder Services, L.L.C., as Interest Agent.
                  (Incorporated by reference to Exhibit 4.18 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         4.17     Note Agreement Regarding $50,000,000 aggregate principal
                  amount of 10.668% Senior Subordinated Notes Due 1998 of
                  California Federal Bank, A Federal Savings Bank.
                  (Incorporated by reference to Exhibit 4.19 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         10.1     Tax Sharing Agreement, effective as of January 1, 1994, by
                  and among First Madison Bank, FSB, First Nationwide Holdings
                  Inc. and Mafco Holdings, Inc. (Incorporated by reference to
                  Exhibit 10.10 to the Registration Statement on Form S-1 (File
                  No. 33-82654)).

         10.2     Asset Purchase Agreement, dated as of April 14, 1994, between
                  First Madison Bank, FSB, and First Nationwide Bank, A Federal
                  Savings Bank. (Incorporated by reference to Exhibit 2.1 to
                  the Registrant's Current Report on Form 8-K dated October 3,
                  1994.)



<PAGE>



         10.3     Amendment No. 1 to the Asset Purchase Agreement, dated as of
                  September 30, 1994, between First Madison Bank, FSB, and
                  First Nationwide Bank, A Federal Savings Bank. (Incorporated
                  by reference to Exhibit 2.3 to the Registrant's Current
                  Report on Form 8-K dated October 3, 1994.)

         10.4     Amendment No. 2 to the Asset Purchase Agreement, dated as of
                  September 30, 1994, between First Madison Bank, FSB, and
                  First Nationwide Bank, A Federal Saving Bank. (Incorporated
                  by reference to Exhibit 2.4 to the Registrant's Current
                  Report on Form 8-K dated October 3, 1994.)

         10.5     Exchange Agreement dated September 26, 1994 by and among
                  Gerald J. Ford, the Registrant and NationsBank of Texas, N.A.
                  (Incorporated by reference to Exhibit 10.12 to Amendment No.2
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 33-82654)).

         10.6     Exchange Agreement dated October 20, 1994 between Carl B.
                  Webb and the Registrant. (Incorporated by reference to
                  Exhibit 10.11 to Registrant's Registration Statement on Form
                  S-1 (File No. 333-00854)).

         10.7     Stockholders Agreement dated October 3, 1994 by and among
                  Gerald J. Ford, the Registrant and First Nationwide (Parent)
                  Holdings Inc. (Incorporated by reference to Exhibit 10.16 to
                  Amendment No. 2 to the Registrant's Registration Statement on
                  Form S-1 (File No. 33-82654)).

         10.8     Office Lease, dated as of November 15, 1990, between Webb/San
                  Francisco Ventures, Ltd. and First Nationwide Bank, A Federal
                  Savings Bank. Confidential treatment has been granted for
                  portions of this document (Incorporated by reference to
                  Exhibit 10.6 to Amendment No. 3 to the Registrant's
                  Registration Statement on Form S-1 (File No. 33-82654)).

         10.9     Employment Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and Gerald J. Ford, dated as of October 1,
                  1994. (Incorporated by reference to Exhibit 10.13 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.10    Amendment to Employment Agreement between California Federal
                  Bank, A Federal Savings Bank, and Gerald J. Ford, dated as of
                  January 1, 1998.

         10.11    Employment Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and Carl B. Webb, II, dated as of February 1,
                  1995. (Incorporated by reference to Exhibit 10.14 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.12    Amendment to Employment Agreement, dated as of June 1, 1996,
                  between First Nationwide Bank, A Federal Savings Bank, and
                  Carl B. Webb, II. (Incorporated by reference to Exhibit 10.1
                  to the Registrant's Current Report on Form 8-K dated August
                  30, 1996 ( the "August 1996 Form 8-K")).

         10.13    Employment Agreement dated as of January 1, 1998 between
                  California Federal Bank, A Federal Savings Bank, and Carl B.
                  Webb II.

         10.14    Employment Agreement, dated as of June 1, 1996, between First
                  Nationwide Bank, A Federal Savings Bank, and Christie S.
                  Flanagan. (Incorporated by reference to Exhibit 10.4 to the
                  August 1996 Form 8-K.)

         10.15    Employment Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and James R. Staff, dated as of February 1,
                  1995. (Incorporated by reference to Exhibit 10.16 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.16    Amendment to Employment Agreement, dated as of June 1, 1996,
                  between First Nationwide Bank, A Federal Savings Bank, and
                  James R. Staff. (Incorporated by reference to Exhibit 10.3 to
                  the August 1996 Form 8-K.)



<PAGE>



         10.17    Employment Agreement dated as of January 1, 1998 between
                  California Federal Bank, A Federal Savings Bank, and J. Randy
                  Staff.

         10.18    Employment Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and Lacy G. Newman, Jr. dated as of February 1,
                  1995. (Incorporated by reference to Exhibit 10.17 to the
                  Registrant's Registration Statement on Form S-1 (File No.
                  333-00854)).

         10.19    Amendment to Employment Agreement, dated as of June 1, 1996,
                  between First Nationwide Bank, A Federal Savings Bank, and
                  Lacy G. Newman, Jr. (Incorporated by reference to Exhibit
                  10.5 to the August 1996 Form 8-K.)

         10.20    Employment Agreement dated as of January 1, 1998 between
                  California Federal Bank, A Federal Savings Bank, and Lacy G.
                  Newman, Jr.

         10.21    Employment Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and Roger L. Gordon as of January 20, 1996.
                  (Incorporated by reference to Exhibit 10.15 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1995.)

         10.22    Employment Agreement dated as of January 1, 1996, between
                  First Nationwide, A Federal Savings Bank and Richard P.
                  Hodge. (Incorporated by reference to Exhibit 10.16 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1995.)

         10.23    Amendment to Employment Agreement, dated as of June 1, 1996,
                  between First Nationwide Bank, A Federal Savings Bank, and
                  Richard P. Hodge (Incorporated by reference to Exhibit 10.2
                  to the August 1996 Form 8-K.)

         10.24    Employment Agreement between First Nationwide Mortgage
                  Corporation, and Walter C. Klein, Jr., dated as of January 8,
                  1996. (Incorporated by reference to Exhibit 10.43 to
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333-21015)).

         10.25    Amendment to Employment Agreement dated as of July 10, 1997,
                  between First Nationwide Mortgage Corporation and Walter C.
                  Klein, Jr.

         10.26    Post-Employment Consulting Agreement between California
                  Federal Bank, A Federal Savings Bank and Edward G.
                  Harshfield, dated January 6, 1997. (Incorporated by reference
                  to Exhibit 10.44 to Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 333-21015)).

         10.27    Special Bonus Agreement, dated as of November 25, 1996, by
                  and between the Registrant and Carl B. Webb II. (Incorporated
                  by reference to Exhibit 10.22 to the Registrant's Annual
                  Report on Form 10-K for the year ended December 31, 1996.)

         10.28    Mortgage Company Asset Sale Agreement by and among Resolution
                  Trust Corporation as conservator for Standard Federal Savings
                  Association, America's Mortgage Servicing, Inc., A Mortgage
                  Company, America's Lending Network, Inc., and Stanfed
                  Financial Services, Inc.; and First Nationwide Mortgage
                  Corporation dated as of December 1, 1994. (Incorporated by
                  reference to Exhibit 10.18 to the Registrant's Annual Report
                  on Form 10-K for the year ended December 31, 1994.)

         10.29    Receivables Sale Agreement by and among Resolution Trust
                  Corporation as conservator for Standard Federal Savings
                  Association, America's Mortgage Servicing, Inc., A Mortgage
                  Company, and America's Lending Network, Inc.; and First
                  Nationwide Mortgage Corporation, dated as of December 1,
                  1994. (Incorporated by reference to Exhibit 10.19 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)


<PAGE>



         10.30    Purchase and Sale Agreement by and between Resolution Trust
                  Corporation in its corporate capacity and First Nationwide
                  Mortgage Corporation, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.20 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.31    Purchase and Sale Agreement by and among Resolution Trust
                  Corporation as receiver of or conservator for certain
                  associations and First Nationwide Mortgage Corporation, dated
                  as of December 1, 1994. (Incorporated by reference to Exhibit
                  10.21 to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994.)

         10.32    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated December 2,
                  1994, regarding the Mortgage Company Asset Sale Agreement,
                  Receivable Sales Agreement, and two Purchase and Sales
                  Agreements among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.22 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.33    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 23,
                  1995, regarding the Mortgage Company Asset Sale Agreement,
                  Receivable Sales Agreement, and two Purchase and Sales
                  Agreements among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.23 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.34    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 24,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994.
                  (Incorporated by reference to Exhibit 10.24 to the
                  Registrant's Annual Report on Form 10-K for the year ended
                  December 31, 1994.)

         10.35    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 28,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994 (power of
                  attorney matters). (Incorporated by reference to Exhibit
                  10.25 to the Registrant's Annual Report on Form 10-K for the
                  year ended December 31, 1994.)

         10.36    Letter agreement between the Resolution Trust Corporation, as
                  conservator for Standard Federal Savings Association, et al.,
                  and First Nationwide Mortgage Corporation, dated February 28,
                  1995, regarding the Mortgage Company Asset Sale Agreement
                  among such parties, dated as of December 1, 1994 (amendments
                  to schedules). (Incorporated by reference to Exhibit 10.26 to
                  the Registrant's Annual Report on Form 10-K for the year
                  ended December 31, 1994.)

         10.37    Agreement for Provision of Services between First Nationwide
                  Bank, A Federal Savings Bank and Trans Network Insurance
                  Services, Inc. (then named "First Gibraltar (Parent) Holdings
                  Inc."), dated as of December 1, 1994. (Incorporated by
                  reference to Exhibit 10.27 to the Registrant's Annual Report
                  on Form 10-K for the year ended December 31, 1994.)

         10.38    Assignment from Trans Network Insurance Services Inc. to
                  First Nationwide Management Corp. of Agreement for Provision
                  of Services. (Incorporated by reference to Exhibit 10.37 to
                  the Registrant's Annual Report on Form 10-K for the year
                  ended December 31, 1995.)

         10.39    Asset Purchase Agreement between Trans Network Insurance
                  Services Inc. and FNC Insurance Agency, Inc. dated effective
                  June 1, 1995. (Incorporated by reference to Exhibit 10.24 to
                  Post- Effective Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 33- 82654)).


<PAGE>



         10.40    Trans Network Marketing and Support Services Agreement
                  between First Nationwide Bank, A Federal Savings Bank, and
                  Trans Network Insurance Services Inc. dated effective June 1,
                  1995. (Incorporated by reference to Exhibit 10.25 to
                  Post-Effective Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 33-82654)).

         10.41    Amendment No. 2 to Lease between First Nationwide Bank, A
                  Federal Savings Bank, and RNM 135 Main, L.P. dated April 6,
                  1995. (Incorporated by reference to Exhibit 10.26 to
                  Post-Effective Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 33-82654)).

         10.42    Consulting Agreement between First Nationwide Management
                  Corp. and Gerald J. Ford dated as of October 1, 1994
                  (Incorporated by reference to Exhibit 10.27 to Post-Effective
                  Amendment No. 1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 33-82654)).

         10.43    Amendment to Consulting Agreement between First Nationwide
                  Management Corp. and Gerald J. Ford, dated effective December
                  17, 1997.

         10.44    First Amendment, dated as of January 1, 1995, by and among
                  First Nationwide Management Corp., Diamond A-Ford
                  Corporation, Trans Network Insurance Services, Inc. and
                  Gerald J. Ford, supplementing the Consulting Agreement
                  between First Nationwide Management Corp. and Gerald J. Ford
                  dated as of October 1, 1994 (Incorporated by reference to
                  Exhibit 10.33 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333-00854)).

         10.45    Management Incentive Plan for Certain Employees of First
                  Nationwide Bank, A Federal Savings Bank. (Incorporated by
                  reference to Exhibit 10.34 to Registrant's Registration
                  Statement on Form S-1 (File No. 333-00854)).

         10.46    Deferred Executive Compensation Program.

         10.47    Reimbursement and Expense Allocation Agreement, dated as of
                  January 1, 1996, by and between First Nationwide Management
                  Corp. and the Registrant. (Incorporated by reference to
                  Exhibit 10.35 to Registrant's Registration Statement on Form
                  S-1 (File No. 333-00854)).

         10.48    Registration Agreement, dated September 13, 1996, among the
                  Registrant, First Nationwide Escrow Corp. and the initial
                  purchasers named therein relating to the New Notes.
                  (Incorporated by reference to Exhibit 4.20 to Amendment No. 1
                  to the Registrant's Registration Statement on Form S-1 (File
                  No. 333-21015)).

         10.49    Amended and Restated Agreement and Plan of Merger dated as of
                  the 27th day of July, 1996 by and among the Registrant, CFB
                  Holdings, Inc., Cal Fed Bancorp Inc. and California Federal
                  Bank, A Federal Savings Bank. (Incorporated by reference to
                  Exhibit 2.1 to the Registrant's Registration Statement on
                  Form S-1 (File No. 333-21015)).

         10.50    Stock Option Agreement, dated as of February 4, 1998, by and
                  between Golden State Bancorp Inc. and First Nationwide
                  (Parent) Holdings Inc. (Incorporated by reference to Exhibit
                  99.1 to the February 1998 Form 8-K.)

         10.51    Litigation Management Agreement, dated as of February 4,
                  1998, by and among Golden State Bancorp Inc., Glendale
                  Federal Bank, Federal Savings Bank, California Federal Bank,
                  A Federal Savings Bank, Stephen J. Trafton and Richard A.
                  Fink. (Incorporated by reference to Exhibit 99.2 to the
                  February 1998 Form 8-K.)
<PAGE>
         12.1     Statement regarding the computation of ratio of earnings to
                  combined fixed charges, minority interest and preferred stock
                  dividends for the Registrant.

         21.1     Subsidiaries of the Registrant. (Incorporated by reference to
                  Exhibit 21.1 to Amendment No. 1 to the Registrant's
                  Registration Statement on Form S-1 (File No. 333-21015)).

         23.1     Consent of KPMG Peat Marwick LLP, Independent Auditors of the
                  Registrant.

         24.1     Power of Attorney executed by Ronald O. Perelman.

         24.2     Power of Attorney executed by Howard Gittis.

         27.1     Financial Data Schedule.