<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, 1996

          |_| 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.)

 38 EAST 63RD STREET, NEW YORK, NEW YORK                        10021
(Address of principal executive offices)                      (Zip Code)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 212-572-8500
        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 25, 1997: 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 25, 1997:
800 shares of class A common stock and 200 shares of class B common stock.

                     DOCUMENTS INCORPORATED BY REFERENCE:
                                     None


<PAGE>



                         FIRST NATIONWIDE HOLDINGS INC.
                        1996 ANNUAL REPORT ON FORM 10-K

                               TABLE OF CONTENTS

                                     PART I
<TABLE>
<CAPTION>

                                                                                                               Page
<S>               <C>                                                                                            <C>
Item 1.           Business........................................................................................4
                     General......................................................................................4
                         First Nationwide Holdings
                           General................................................................................5
                           Lending Activities....................................................................10
                           Non-performing Assets.................................................................18
                           Investment Activities.................................................................21
                           Sources of Funds......................................................................28
                           Other Activities......................................................................37
                           Dividend Policy.......................................................................40
                           Employees.............................................................................41
                           Competition...........................................................................41
                           Regulation of FN Holdings.............................................................42
                           Regulation of the Bank................................................................43
                           Taxation..............................................................................51

                         Cal Fed and California Federal Bank
                           General...............................................................................53
                           Interest Rate Risk Management.........................................................54
                           Lending Activities....................................................................55
                           Loan Portfolio Risk Elements..........................................................63
                           Credit Loss Experience................................................................65
                           Real Estate Held for Sale.............................................................67
                           Investment Activities.................................................................68
                           Sources of Funds......................................................................71
                           Competition...........................................................................77
                           Subsidiaries..........................................................................78
                           Employees.............................................................................78
                           Taxation..............................................................................78
Item 2.           Properties.....................................................................................80
Item 3.           Legal Proceedings..............................................................................82
Item 4.           Submission of Matters to a Vote of Security Holders............................................82

                                                      PART II

Item 5.           Market for the Registrant's Common Equity and Related Stockholder Matters......................83
Item 6.           Selected Financial Data........................................................................84
Item 7.           Management's Discussion and Analysis
                      of Financial Condition and Results of Operations...........................................87
                         First Nationwide Holdings
                           General...............................................................................87
                           Results of Operations.................................................................91
                           Provision for Federal and State Income Taxes.........................................100
                           Tax Effects of Dividend Payments by the Bank.........................................101


<PAGE>


                                          FIRST NATIONWIDE HOLDINGS INC.
                                          1996 ANNUAL REPORT ON FORM 10-K

                                                 TABLE OF CONTENTS
                                                    (CONTINUED)


                           Provision for Loan Losses............................................................101
                           Asset/Liability Management...........................................................101
                           Liquidity............................................................................103
                           Impact of Inflation and Changing Prices..............................................107
                           Problem and Potential Problem Assets.................................................107
                           Mortgage Banking Operations..........................................................111
                           Capital Resources....................................................................112

                         Cal Fed and California Federal Bank
                           Overview.............................................................................115
                           Net Interest Income..................................................................117
                           Asset/Liability Management...........................................................121
                           Problem and Potential Problem Assets.................................................124
                           Provision for Loan Losses............................................................127
                           Other Income.........................................................................129
                           Other Expenses.......................................................................130
                           Income Taxes.........................................................................132
                           Contingencies........................................................................132
                           Liquidity and Capital Resources......................................................132
                           Capital Requirements.................................................................135
                           Goodwill Litigation..................................................................136
Item 8.           Financial Statements and Supplementary Data...................................................138
Item 9.           Changes in and Disagreements with Accountants
                      on Accounting and Financial Disclosures...................................................138

PART III

Item 10.          Directors and Executive Officers of the Registrant............................................139
Item 11.          Executive Compensation........................................................................144
Item 12.          Security Ownership of Certain Beneficial Owners and Management................................146
Item 13.          Certain Relationships and Related Transactions................................................146

                                                      PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................151

Index to Financial Statements...................................................................................F-1


</TABLE>

<PAGE>



                                     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, formerly First Nationwide Bank, A Federal Savings Bank
("First Nationwide" 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, 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) "First Nationwide"
refers to First Nationwide Bank, A Federal Savings Bank prior to the
consummation of the Cal Fed Acquisition, (ii) "Cal Fed" and "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 (iii) the "Bank" refers to California Federal Bank, A Federal
Savings Bank, the surviving entity after the consummation of 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 Bank's principal business consists of operating retail deposit
branches and originating and/or purchasing residential real estate loans and,
to a lesser extent, certain consumer loans, and is conducted primarily in
California, Florida, Nevada and Texas. The Bank actively manages its commercial
real estate loans acquired through acquisitions and is active in mortgage
banking and loan servicing. 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 23 of
the Company's consolidated financial statements for additional information
about the Company's business segments.

     Revenues are derived from interest charged on loans, interest and
dividends received on securities and mortgage-backed securities, fees received
in connection with loan servicing, customer banking, securities brokerage and
other customer service transactions, and asset management fees. 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.

     The Bank is 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.
The Bank is also a member of the Federal Home Loan Bank System ("FHLBS").

                          Page 4

<PAGE>





FIRST NATIONWIDE HOLDINGS

     As of December 31, 1996, FN Holdings had assets totalling approximately
$16.6 billion. Also at December 31, 1996, First Nationwide had deposits
totalling approximately $8.5 billion, and operated retail branch offices at 116
locations in three states.

     The Texas Closed Banks were purchased effective December 28, 1988 pursuant
to five substantially similar acquisition agreements and an assistance
agreement ("Assistance Agreement") among the FSLIC/RF, First Gibraltar, First
Gibraltar Holdings Inc. ("First Gibraltar Holdings"), an indirect parent of the
Bank, and MacAndrews Holdings. Assets subject to the Assistance Agreement are
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 for 90% of the losses incurred upon disposition of the Covered Assets
("Capital Loss Provision"). The remaining 10% not reimbursed, net of 10% of all
asset recoveries and certain agreed-upon Covered Asset disposition fees
("Shared Gain"), was known as the "FSLIC/RF Reimbursement." In January 1992,
certain provisions of the Assistance Agreement were renegotiated and amended or
modified. In connection with such modification, First Gibraltar accrued the
present value of the FSLIC/RF Reimbursement over the life of the Assistance
Agreement, resulting in a $60 million charge to operations in 1992.

     On December 31, 1992, First Gibraltar sold or otherwise transferred a
substantial portion of its business operations in Oklahoma, consisting of
approximately $3 million of loans and 27 branches with $809 million in deposits
in the First Gibraltar Oklahoma Sale. A gain of $19 million was recorded in
connection with this sale.

     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. In anticipation of
the BAC Sale, management sold long-term interest-earning assets, primarily
loans and mortgage-backed securities, based on BankAmerica's intention to
acquire primarily shorter-term assets. As a result, First Gibraltar recognized
gains on the sale of interest-earning assets totalling $203 million during the
year ended December 31, 1992. Concurrently with the BAC Sale, First Gibraltar
changed its name to First Madison Bank, FSB.

     From August 1991 through March 31, 1993, the Company conducted most of its
mortgage banking operations through First Gibraltar Mortgage Holdings, Inc.
("FGMH"). Effective July 1, 1992, FGMH acquired all of the outstanding stock of
the mortgage banking company, Troy and Nichols, Inc. of Monroe, Louisiana, with
a servicing portfolio of 129,000 loans totalling approximately $5.9 billion.
This transaction was accounted for under the purchase method of accounting. On
March 31, 1993, the stock of FGMH was distributed by First Madison Bank to its
then immediate parent. FGMH was subsequently sold during 1993 for a gain of
approximately $95 million.

     Following the BAC Sale, and through September 1994, First Madison's
principal business was the funding of the Covered Assets and the performance of
its obligations under the Assistance Agreement. 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. In June 1995, the FDIC, as manager for the FSLIC/RF,
exercised its right 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 have been reimbursed
under the Capital Loss Coverage provision of the Assistance Agreement.

     On August 19, 1996, First Nationwide and the FSLIC/RF executed an
agreement which resulted in the termination of the Assistance Agreement.
Accordingly, a gain of $25.6 million was recorded.

     On April 14, 1994, First Madison entered into the Asset Purchase Agreement
(the "Asset Purchase Agreement") with

                          Page 5

<PAGE>



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." On
October 7, 1994, First Nationwide sold the FN Acquired Business' branch network
in Illinois, with approximately $1.2 billion in deposits, to Household Bank,
f.s.b. (the "Illinois Sale").

     First Madison financed the FN Acquisition and paid related fees and
expenses with: (i) a capital contribution by FN Holdings funded with the net
proceeds of (a) the issuance of FN Holdings' 12-1/4% Senior Notes Due 2001 (the
"Senior Notes"), (b) the issuance of its class C common stock to First
Nationwide (Parent) Holdings Inc. ("Parent Holdings"), an indirect subsidiary
of MacAndrews Holdings (all of which was redeemed by June 3, 1996), (ii) the
net proceeds from the issuance of the Bank's 11-1/2% Noncumulative Perpetual
Preferred Stock ("Preferred Stock") and (iii) existing cash and proceeds from
securities sold under agreements to repurchase. See "Certain Relationships and
Related Transactions."

     In connection with the FN Acquisition, management of First Nationwide
developed a business strategy to enhance the value of the Bank. The key
elements of the strategy include streamlining the Bank's operations to be
competitive, including concentrating on opportunities in the California market
and enhancing the activities that produce fee income, particularly mortgage
banking. Since October 1994, as a part of this strategy, First Nationwide has
consummated several acquisitions and has divested certain operations.

     In December 1994, First Nationwide's wholly-owned mortgage bank operating
subsidiary, First Nationwide Mortgage Corporation ("FNMC"), entered into a
series of agreements with the Resolution Trust Corporation as conservator for
Standard Federal Savings Association and subsidiaries of Frederick, Maryland
("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 mortgage loan servicing
portfolio of approximately $11.4 billion (including $1.8 billion of mortgage
servicing rights ("MSRs"), which are rights to service mortgages held by
others, that are owned by third parties who have subcontracted to FNMC the
servicing function (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 has moved its mortgage servicing
operations to Maryland from its former location in Sacramento, California.
Costs totalling $5.7 million associated with such consolidation are included in
noninterest expense in the Company's consolidated statement of operations for
the year ended December 31, 1995.

     In April 1995, First Nationwide closed substantially all of its retail
mortgage loan production offices. Costs associated with such closures of
approximately $2.1 million are included in noninterest expense in the Company's
consolidated statement of operations for the year ended December 31, 1995.

     In April 1995, First Nationwide acquired approximately $13 million in
deposits located in Tiburon, California from East-West Federal Bank, a federal
savings bank (the "Tiburon Purchase"). In August 1995, First Nationwide
acquired three retail branches located in Orange County, California with
deposit accounts totalling approximately $356 million from ITT Federal Bank,
fsb (the "ITT Purchase"). On December 8, 1995, First Nationwide acquired four
retail branches located in Sonoma County, California with deposit accounts of
approximately $144 million, from Citizens Federal Bank, a Federal Savings Bank
(the "Sonoma Purchase" and, collectively with the Tiburon Purchase and the ITT
Purchase, the "Branch Purchases"). The weighted average deposit premium paid in
connection with the Branch Purchases was 3.78%.

     On October 2, 1995, FNMC purchased from Lomas Mortgage USA, Inc.
("LMUSA"), a subsidiary of Lomas Financial Corporation ("LFC"), 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, payable in installments, and the assumption of
certain indebtedness secured by the acquired loan portfolio (the "LMUSA 1995
Purchase").

                                            Page 6

<PAGE>



     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
payable in installments (the "LMUSA 1996 Purchase" and together with the LMUSA
1995 Purchase, the "LMUSA Purchases").

     During the first six months of 1996, First Nationwide 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. Deposits subject to the
Branch Sales were replaced primarily with FHLB advances. First Nationwide
recorded a pre-tax gain of $363.3 million in connection with the Branch Sales.

     On February 1, 1996, First Nationwide 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, First Nationwide 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.

     The 1996 Acquisitions and the Branch Sales contributed to the
restructuring of the Bank's retail branch network consistent with its strategy
of strengthening its West Coast presence. In addition, by consolidating many of
the operating functions of First Nationwide and San Francisco Federal,
management achieved economies of scale and cost savings.

     On July 27, 1996, FN Holdings entered into an Agreement and Plan of Merger
(the "Merger Agreement"), among FN Holdings, Cal Fed and California Federal,
pursuant to which on January 3, 1997, FN Holdings acquired 100% of the
outstanding stock of Cal Fed and California Federal and First Nationwide
merged with and into California Federal. Concurrent with the consummation
of the merger, 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. Cal Fed, a savings and loan holding company,
owned 100% of the common stock of California Federal. California Federal,
headquartered in Los Angeles, was a federal stock savings bank chartered under
HOLA, which 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, the Bank's name changed to California
Federal Bank, A Federal Savings Bank.

     FN Holdings financed the Cal Fed Acquisition with (i) the net proceeds of
approximately $555 million from the issuance of $575 million aggregate
principal amount of 10-5/8% Senior Subordinated Notes due 2003 (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.


                                            Page 7

<PAGE>


     In November 1996, First Nationwide formed First Nationwide 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 will service
Preferred Capital Corp.'s mortgage assets. Effective on January 6, 1997,
Preferred Capital Corp. changed its name to California Federal Preferred
Capital Corporation. On January 31, 1997, Preferred Capital Corp. issued $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. Such proceeds were then used by the
Bank to reduce certain borrowings.



                                            Page 8

<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")
              (formerly "First Gibraltar (Parent) Holdings Inc.")
               ==================================================
                                      100%
                        First Gibraltar Guarantor Corp.
               ==================================================
                                      100%

                         First Gibraltar Holdings Inc.
                          ("First Gibraltar Holdings")
               ==================================================
                                      100%

                    First Nationwide (Parent) Holdings Inc.
                              ("Parent Holdings")
               ==================================================
Hunter's Glen/Ford Ltd.                80%*               Holder of FN Holdings
   (Hunter's Glen)                                           Preferred Stock
==============================                        =========================
        20%*                                           100% of preferred stock
    
               ==================================================
                         FIRST NATIONWIDE HOLDINGS INC.
                                ("FN HOLDINGS")
               ==================================================
                                                                    
Holders of the Preferred Stock       100%
==============================                      
  100% of preferred stock



               ==================================================
                            California Federal Bank,
                      A Federal Savings Bank ("the Bank")
                as successor by merger to First Nationwide Bank,
                             A Federal Savings 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 9

<PAGE>



LENDING ACTIVITIES

     During the period between the BAC Sale and the FN Acquisition, First
Nationwide's lending activity was limited. Loan originations focused on second
lien home improvement lending, with a limited number of residential mortgage
loans made. In addition, First Nationwide made loans to address special
community housing needs through its Community Reinvestment Act ("CRA") program.

     Since the FN Acquisition, First Nationwide's principal lending activity
has been the origination of adjustable and fixed rate mortgage loans secured by
residential properties. To a lesser extent, First Nationwide also originates
consumer loans consisting principally of adjustable rate home equity lines of
credit. The current commercial lending activity of First Nationwide is limited
to restructuring and refinancing of existing portfolio loans, and multi-family
loans originated under its affordable housing program. First Nationwide also
participates in a number of other affordable housing programs and initiatives.

     The Bank's residential loans are originated by FNMC. Throughout this
document, references to the Bank and its residential loan origination or
servicing activities relate to functions performed by FNMC. In April 1995, FNMC
concluded that the costs of operating retail offices outweighed the benefits
and, accordingly, closed substantially all of its retail mortgage production
offices. Residential loans continue to be originated through FNMC's wholesale
origination offices (wherein loans are acquired from independent loan brokers)
and the Bank's retail branches. FNMC originates adjustable rate mortgage
("ARM") loans on single-family residential properties which in the case of ARMs
originated prior to September 30, 1995, have generally been held for
investment, and fixed rate loans, which are generally held for sale to the
secondary mortgage market. Subsequent to September 30, 1995 and through
December 31, 1996, however, 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, FNMC acquired the
correspondent loan purchase operation of LMUSA as well as contracts to
administer various housing bond and other private mortgage lending programs.

     The Bank generates consumer loan applications at its retail branches. In
addition, the Bank 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 are centralized at a facility in Oak Brook, Illinois. This function
is expected to be relocated to Sacramento, California during the third quarter
of 1997.


                                            Page 10

<PAGE>




     The following table reflects, for the periods indicated, the net change in
the total principal balances of loans receivable outstanding, excluding loans
held for sale, for the Company and its subsidiaries:

<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                                  --------------------------------------
                                                                      1996       1995          1994
                                                                      ----       ----          ----
                                                                             (in millions)
<S>                                                              <C>         <C>           <C>   
Real estate loans originated:
   Loans to purchase existing property                              $   220     $    959      $     419
   Loans for construction, including loans in process                    10           --             --
                                                                  ---------  -----------   ------------
        Total real estate loans originated                              230          959            419
Other loans originated                                                  184          224             61
Loans purchased                                                       3,930          751         11,753
                                                                    -------    ---------        -------
        Total loans originated and purchased                          4,344        1,934         12,233
Loans sold, securitized, repaid and foreclosed:
   Loans sold (1)                                                      (121)        (380)          (155)
   Loans securitized                                                     --         (376)        (1,339)
   Loan repayments and payoffs                                       (2,117)      (1,922)          (387)
   Loan foreclosures                                                   (147)         (93)           (25)
                                                                   --------     ---------     ----------
        Total loans sold, securitized, repaid and foreclosed         (2,385)      (2,771)        (1,906)
Other changes in loans receivable                                      (520)        (308)           (40)
                                                                   --------     ---------     ----------

   Net increase/(decrease) in loans receivable (2)                   $1,439     $ (1,145)       $10,287
                                                                     ======     ========        =======

</TABLE>
------------------

(1)  Includes loans sold pursuant to the Put Agreement (as defined herein)
     totalling $112.4 million, $199.5 million and $188.1 million in 1996, 1995
     and 1994, respectively.

(2)  Excludes allowance for loan losses, purchase accounting adjustments,
     unearned discounts and loan fees, and loans in process.

     Interest Rates, Terms and Fees

     The Bank offers a variety of ARM products with the objectives of (i)
matching, as closely as possible, the interest rate sensitivity of its 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 Bank'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 an
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.

     The Bank attempts to mitigate the credit risks associated with mortgage
lending activities by the use of strict underwriting standards. Substantially
all residential loans originated are underwritten to conform with standards
adopted by the Federal National Mortgage Association ("FNMA"), the Federal Home
Loan Mortgage Corporation ("FHLMC"), the Government National Mortgage
Association ("GNMA"), or other secondary market investors. Accordingly, the
Bank'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
compensating factors are required. With respect to ARMs, the Bank 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 Bank 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

                                            Page 11

<PAGE>



competitive factors affecting the mortgage market.

     Generally, late charges are assessed when payments are delinquent. On
loans secured by residential properties, 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,
                                       ----------------------------------------------------------
                                       1996           1995        1994       1993         1992
                                       ----           ----        ----       ----         ----
                                                              (in millions)
<S>                                   <C>          <C>        <C>         <C>          <C>   
Real estate loans:
    1-4 unit residential               $  6,118    $  5,423    $  5,612   $     19      $     40     
    5+ unit residential                   2,164       1,854       2,178       --            --       
    Commercial real estate                1,978       1,716       2,015         10           138     
    Land                                     11           9          15       --            --       
    Construction                              6        --             8       --            --       
                                       --------    --------    --------   --------      --------     
         Total real estate loans         10,277       9,002       9,828         29           178     
                                       --------    --------    --------   --------      --------     
Equity-line and consumer loans              308         171         492          5           631     
Commercial loans                             29           2           1       --              90     
                                       --------    --------    --------   --------      --------     
         Total loans receivable          10,614       9,175      10,321         34           899     
                                       --------    --------    --------   --------      --------     
Less:                                                                                                
    Unearned discounts and loan fees         (5)        (19)       --            3            55     
    Loans in process                       --          --          --         --              52     
    Allowance for loan losses               247         210         203          2            14     
    Purchase accounting                                                                              
      adjustments, net                      150         153         151       --               1     
                                       --------    --------    --------   --------      --------     
         Loans receivable, net         $ 10,222    $  8,831    $  9,967   $     29      $    777     
                                       ========    ========    ========   ========      ========     
</TABLE>
                              
                                     
                                            Page 12

<PAGE>



     The following table presents the Company's real estate loan portfolio
(excluding loans held for sale), by collateral type, by interest rate type and
by state concentration at December 31, 1996:
<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               $3,712       $459     $1,301       $106     $1,490      $123    $  7,191      69.97%
New York                    350         63        202         78         44        36         773       7.53
Illinois                     96         61         36          5         35        17         250       2.43
Florida                      86         33         34         18         23         7         201       1.95
Ohio                         74         65         23          5         30         1         198       1.92
New Jersey                   99         23         49          4          8         3         186       1.81
Hawaii                      168         18         --         --         --        --         186       1.80
Washington                   55          7         47          1         24        --         134       1.30
Colorado                     69         31         --         --         --        --         100       0.98
Texas                        55         33         --         --         --        --          88       0.86
Other states (1)            412        149        202         53        125        29         970       9.45
                       --------      -----   --------     ------   --------    ------  ----------   --------
   Total                 $5,176       $942     $1,894       $270     $1,779      $216     $10,277     100.00%
                         ======       ====     ======       ====     ======      ====     =======     ======
</TABLE>

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

(1)  Real estate loans involving property located in 40 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, 1996, 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                        $  13          $     98          $   831         $     942
              Variable rate                         3                34            5,139             5,176
         5+ unit residential
              Fixed rate                           22                72              176               270
              Variable rate                       156               511            1,227             1,894
         Commercial real estate and other
              Fixed rate                           28                70              118               216
              Variable rate                       230               579              970             1,779
                                                -----          --------         --------         ---------
                  Total                           452             1,364            8,461            10,277
     Commercial and consumer loans:
              Fixed rate                           26                14               14                54
              Variable rate                        44                17              222               283
                                               ------         ---------         --------        ----------
                  Total                            70                31              236               337
                                               ------         ---------         --------        ----------

                  Total loans receivable         $522            $1,395           $8,697           $10,614
                                                 ====            ======           ======           =======

</TABLE>

                                            Page 13

<PAGE>



     Residential Lending

     The Bank currently offers three primary residential ARM programs and a
variety of 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 not allowed to exceed 110% of the
original loan amount as a result of negative amortization. If the loan reaches
110% of the original loan 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, 1996, First Nationwide's capitalized interest
relative to such residential loans was approximately $4.0 million. This amount
represents approximately .69% of the approximately $.6 billion of residential
ARMs that have the potential to experience negative amortization. The Bank also
originates 15 and 30 year fully amortizing fixed rate residential loans under a
variety of fixed rate programs, primarily for resale in the secondary mortgage
market. When 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 Bank currently originates multi-family, commercial and other
real estate loans only as they relate to affordable housing programs, the
Bank's loan portfolio includes loans secured by multi-family residential,
commercial, industrial and unimproved real property. Such loans were
principally acquired through acquisitions. The Bank'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 fifteen
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, 1996, First Nationwide's
capitalized interest relative to such loans was approximately $.8 million,
which represents approximately .05% of the $1.7 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 Bank's portfolio. Management
periodically reviews the multi-family and commercial real estate loan
portfolio. At December 31, 1996 and 1995, the multi-family and commercial real
estate loan portfolio totalled $4.1 billion and $3.6 billion, respectively.
Included in the multi-family and commercial real estate loan portfolio at
December 31, 1996 are $26.4 million of loans with credit enhancement wherein
the lead participant subordinated its minority interest in a pool of loans to
First Nationwide's interest in the corresponding pool of loans. No loans are
subject to repurchase by the seller in the event such loans become 90 days
delinquent.

     The Company's potential for loss on the multi-family and commercial loan
portfolio acquired from Old FNB and, to a lesser extent, the residential
mortgage loan portfolio acquired from Old FNB, was mitigated to the extent of
the remaining

                                            Page 14

<PAGE>



balance under the Non-Performing Asset Sale Agreement (the "Put Agreement")
entered into by First Nationwide with a subsidiary of Ford Motor Company, the
owner of Old FNB, in connection with the FN Acquisition. The Put Agreement
expired on November 30, 1996 and was fully utilized by First Nationwide. The
aggregate purchase price of assets which have been put to Granite, representing
the outstanding principal balance, accrued interest and certain other expenses,
equals $500 million, including assets put to Granite by Old FNB from January 1
through October 1, 1994.

     In addition to managing its own asset portfolio, at December 31, 1996 and
1995, First Nationwide and its wholly owned subsidiary, FGB Realty Advisors,
Inc. ("FGB Realty"), managed non-performing loan (principally multi-family and
commercial real estate) and asset portfolios totalling $1.0 billion and $1.3
billion, respectively, for investors. Revenues related to such activities are
reflected as management fees in the accompanying statements of operations.
Certain of this servicing was acquired from Old FNB, which had sold loans with
certain recourse provisions. The recourse liability was assumed by First
Nationwide in the FN Acquisition and at December 31, 1996, the balance of
multi-family and commercial real estate loans sold with recourse totalled
$160.7 million.

     Consumer Lending

     The Bank's consumer loan originations are primarily concentrated in home
equity lending. The portfolio is geographically dispersed and correlates
closely to retail deposit branch distribution. At December 31, 1996, the home
equity portfolio totalled $243 million, or 78.9%, of the total consumer loan
portfolio of $308 million. At December 31, 1996, there were no consumer loans
held for sale. At December 31, 1995, the home equity portfolio totalled $399
million, or 80.3% of the total consumer loan portfolio of $497 million.

     The Bank 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 Bank'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 the Bank's loans secured by
certificates of deposit.

     Loans Held for Sale

     The carrying value of First Nationwide's loans held for sale portfolio
consisted of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                               1996     1995
                                               ----     ----
                                              (in millions)
<S>                                           <C>      <C>   
Single-family residential mortgage loans      $  825   $  877
Consumer loans, primarily home equity loans     --        326
                                              ------   ------
                                              $  825   $1,203
                                              ======   ======
</TABLE>

     Loans held for sale are carried at the lower of cost or market value.
Substantially all ARMs originated subsequent to September 30, 1995 were sold or
held for sale in the secondary market in anticipation of the 1996 Acquisitions,
the Branch Sales and the Cal Fed Acquisition. Prior to that time, most ARMs
originated were held by First Nationwide for investment. The consumer loans
held for sale generally represent loans in states where First Nationwide has
sold the retail deposits.


                                            Page 15

<PAGE>




     Origination of Residential Loans

     The Bank originates residential loans principally through the efforts of
wholesale origination offices where 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 Bank 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
residential loan agents are compensated principally on a commission basis.
Closed mortgage loans are also acquired by FNMC through a correspondent lending
organization acquired from LMUSA in October 1995.

     The majority of real estate loans originated by the Bank had LTV ratios of
80% or less at the time of origination. The Bank has originated 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 loans subject to such
exceptions is not significant in terms of the Bank's total loan originations.
The value of the property offered as security for a mortgage loan is determined
by a professionally qualified appraiser approved by the Bank, who may or may
not be an employee of the Bank. As further security for its loan, the Bank
requires title insurance and fire and casualty insurance on all loans secured
by liens on real property. The Bank 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.

     Mortgage Banking Operations

     Mortgage banking operations have been an integral part of the business
activities of First Nationwide since the FN Acquisition. FNMC was incorporated
in June 1994 as a wholly owned operating subsidiary of the Bank. In the FN
Acquisition, First Nationwide acquired certain of Old FNB's residential
mortgage operations, which were transferred to FNMC in exchange for a
combination of debt and equity held by the Bank.

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

     At the time of origination, management identifies residential loans that
are expected to be sold in the foreseeable future. At December 31, 1996,
management had identified $825.3 million of single-family residential real
estate loans as held for sale. These loans have been classified as assets held
for sale in the consolidated statement of financial condition at December 31,
1996 and are recorded at the lower of aggregate amortized cost or market value.
At December 31, 1996, First Nationwide had forward commitments to sell loans
totalling $707.9 million. In addition, $284.2 million of the loans held for
sale were funded under pre-existing purchase commitments.

     The servicing portfolio of FNMC (excluding loans serviced for First
Nationwide) approximates $43.1 billion and 722,895 loans as of December 31,
1996. Substantially all of FNMC's loans are serviced in a 220,000 square-foot
facility in Frederick, Maryland.

     Since the FN Acquisition, First Nationwide has sold fixed rate and
adjustable rate loans secured by residential properties to FNMA, FHLMC, and
private investors. Mortgage loan sales totalled $5.0 billion and $1.4 billion
in 1996 and 1995, respectively.

     Old FNB occasionally sold loans under recourse provisions; such liability
was assumed by the Bank in the FN

                                            Page 16

<PAGE>



Acquisition. As of December 31, 1996, the balance of single-family residential
loans sold with certain recourse provisions was $330.2 million.

     The Bank, 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 First Nationwide's book value
of the loans; (ii) the "excess servicing," if any; less (iii) provisions for
estimated losses to be incurred from limited recourse obligations, if any.
Excess servicing results in a capitalized asset that 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 depends significantly upon three factors
upon which estimates or assumptions must be employed: (i) the estimated life of
the loans, (ii) the discount rate used in calculating discounted present value,
and (iii) the "normal servicing fee."

     The excess servicing asset is amortized in proportion to and over the
period of estimated net servicing income. The Bank 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 Bank's assumptions relative to prepayment speed,
discount and servicing fee rates are revised periodically to reflect current
market conditions and regulatory requirements.

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

     At December 31, 1996, FNMC owned rights to service approximately $39.7
billion of whole loans, participation interests and mortgage-backed securities
for others. These loans had an average balance of $54,732, a weighted average
coupon rate of 8.33%, a weighted average maturity of 269 months and a service
fee spread of .477%. The greater than 30 day delinquency rate on these loans at
December 31, 1996 was 3.74%. First Nationwide subserviced for others
approximately $3.4 billion of whole loans, participation interests and
mortgage-backed securities. These loans had an average balance of $74,513, a
weighted average coupon rate of 8.19% and a weighted average remaining maturity
of 281 months. The servicing fee collected on these loans is passed through to
the primary servicer with First Nationwide retaining a flat subservice fee that
is netted out of the monthly remittance. Although First Nationwide has no risk
for loans subserviced, the greater than 30 day delinquency rate on these loans
is 9.25%. For the year ended December 31, 1996, gross revenue for such
servicing activities totalled $155.4 million.

     A decline in long-term interest rates generally results in an acceleration
in mortgage loan prepayments. Higher than anticipated levels of prepayments
generally cause the accelerated amortization of mortgage servicing rights and
generally will result in the reduction of the market value of mortgage
servicing rights and in the Bank's servicing fee income. In order to reduce the
sensitivity of its earnings to interest rate and market value fluctuations,
First Nationwide initiated a program to hedge the change in value of its
servicing rights based on changes in interest rates. At December 31, 1996,
First Nationwide through FNMC, was a party to several interest rate floor
contracts maturing on October 15, 2001 and November 15, 2001. First Nationwide
paid counterparties a premium in exchange for cash payments in the event that
the 10-year Constant Maturity Treasury rate falls below the strike price. At
December 31, 1996, the notional amount of the interest rate floors was $500
million and the strike prices were 5.0% and 6.5%. In addition, First
Nationwide, through FNMC, entered into principal-only swap agreements with a
notional amount of $69 million. The estimated market value of the interest rate
floor contracts and swaps designated as hedges against mortgage servicing
rights at December 31, 1996 were $3.3 million and $.1 million, respectively.


                                            Page 17

<PAGE>



     On October 2, 1995, FNMC purchased the stock of Lomas Mortgage Services
Inc., (now known as FNMC Mortgage Services, Inc.), in the LMUSA 1995 Purchase,
which is a 33% owner of Lomas Mortgage Partnership LP ("LMP" now known as First
Nationwide Mortgage Partnership LP) and its managing general partner. LMP owns
the mortgage servicing rights to approximately $3.1 billion of loans serviced
for FNMA, GNMA, FHLMC and private investors. LMP's investment in such servicing
rights and its other assets are partially funded by independent bank lines of
credit totalling approximately $27 million. LMP has no employees or physical
operations but discharges its obligations under its servicing contracts under a
subservicing contract with FNMC. See "--General."

NON-PERFORMING ASSETS

     The Bank'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 that First Nationwide was able to
put such loans to Granite under the Put Agreement. See "-- Other Activities --
the Put Agreement."

     Classification of Assets

     Savings institutions 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 institution 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 institutions 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 and actual performance problems. The
objective of the review process is to identify significant trends and determine
the levels of loss exposure to the Bank 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 Bank 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 accrued but not received is reversed and the
loan is considered non-performing. The Bank 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 18

<PAGE>



     The following table indicates the carrying value of First Nationwide's
loans, excluding Covered Assets , which have been placed on nonaccrual status,
as well as the carrying value of foreclosed real estate, at the dates
indicated:
<TABLE>
<CAPTION>
                                                                                   December 31
                                                   -------------------------------------------------------------
                                                   1996          1995          1994          1993          1992
                                                   ----          ----          ----          ----          ----
                                                                          (dollars in millions)
<S>                                              <C>            <C>            <C>           <C>          <C>
Non-performing loans:
    Real estate:
         1-4 unit residential                      $146            $136          $133          $  2          $  7
         5+ unit residential                         13              23            24             9           --
         Commercial and other                         9               9            11           --            --
         Land                                       --              --              7           --            --
         Construction                                 1             --              2           --            --
                                                   ----            ----          ----          ----          ----
             Total real estate                      169             168           177            11             7
    Equity-line and consumer                          3               3             4           --              4
                                                   ----            ----          ----          ----          ----
         Total non-performing loans                 172             171           181            11            11
Foreclosed real estate, net                          52              49            37           --            --
                                                   ----            ----          ----          ----          ----
         Total non-performing assets               $224(a)         $220          $218          $ 11          $ 11
                                                   ====            ====          ====          ====          ====

Non-performing loans as a percentage
    of First Nationwide's total loans              1.69%           1.94%         1.81%        37.61%(b)      1.42%
                                                   ====            ====          ====          ====          ====

Non-performing assets as a percentage
    of First Nationwide's total assets             1.37%           1.50%         1.49%          .98%          .12%
                                                   ====            ====          ====          ====          ====
</TABLE>
------------------

(a)  Includes $75 million of non-performing assets acquired in the SFFed and
     Home Federal Acquisitions and in the LMUSA 1996 Purchase.

(b)  The significant increase in the percentage of non-performing loans to
     total loans at December 31, 1993 from December 31, 1992 reflects the
     decrease in loans receivable from $899 million at December 31, 1992 to $34
     million at December 31, 1993. The level of the total non-performing assets
     over that time period remained relatively constant.

     Interest income of $4.9 million was received and recognized for nonaccrual
loans during the year ended December 31, 1996, instead of $13.7 million which
would have been recognized had the loans performed in accordance with their
original terms. First Nationwide has had no loans contractually past due 90
days or more on accrual status in the past five years.



                                            Page 19

<PAGE>



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

                                             At December 31,
                                    -------------------------------
                                    1996   1995   1994  1993   1992
                                    ----   ----   ----  ----   ----
                                             (in millions)
Real estate:
     1-4 unit residential           $  3   $  8   $ 19   $--    $--
     5+ unit residential              68    147    204    --     --
     Commercial and other             54     79    110    --     --
                                    ----   ----   ----   ----   ---

         Total restructured loans   $125   $234   $333   $--    $-
                                    ====   ====   ====   ====   ===

     For the year ended December 31, 1996, interest income of $13.0 million was
recognized on restructured loans instead of the $13.4 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.

     Allowance for Loan Losses

     The Bank 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 First Nationwide's allowance
for loan losses during the periods indicated:
<TABLE>
<CAPTION>

                                                     Year ended December 31,
                                          -----------------------------------------
                                          1996     1995      1994    1993      1992
                                          ----     ----      ----    ----      ----
                                                        (in millions)
<S>                                       <C>      <C>      <C>      <C>      <C>  
Balance at beginning of period            $ 210    $ 203    $   2    $  15    $  24
    Purchases, net                           39     --        202     --       --
    Provision for loan losses                40       37        6        1       16
    Charge-offs:
         1-4 unit residential               (35)     (28)      (4)    --        (11)
         5+ unit residential and
             commercial real estate (a)      (4)    --         (4)    --       --
         Consumer and other                  (6)      (5)      (1)      (1)      (7)
         Non-real estate commercial        --       --       --         (1)      (1)
                                          -----    -----    -----    -----    -----
             Total charge offs              (45)     (33)      (9)      (2)     (19)
                                          -----    -----    -----    -----    -----
    Recoveries                                3        3        2        1        2
                                          -----    -----    -----    -----    -----
         Net charge-offs                    (42)     (30)      (7)      (1)     (17)
                                          -----    -----    -----    -----    -----
    Allowance for losses assigned
         to loans sold                     --       --       --        (13)      (8)
                                          -----    -----    -----    -----    -----
Balance at end of period                  $ 247    $ 210    $ 203    $   2    $  15
                                          =====    =====    =====    =====    =====
</TABLE>
--------------

(a)  Lack of activity for the years ended December 31, 1996 and 1995 is
     principally due to the existence of the Put Agreement.



                                            Page 20

<PAGE>



     The following table sets forth the allocation of First Nationwide's
allowance for loan losses at the dates indicated:
                                           Year ended December 31,
                                     -------------------------------
                                     1996   1995   1994   1993  1992
                                     ----   ----   ----   ----  ----
                                              (in millions)
Specific reserves:
    Real estate loans:
    1-4 unit residential             $--    $  1   $  4    $--   $  2
    5+ unit residential and
      commercial real estate            6    --     --     --     --
                                     ----   ----   ----   ----   ----
         Total specific reserves        6      1      4    --       2
                                     ----   ----   ----   ----   ----
General reserves:
    Real estate loans:
    1-4 unit residential              123    115    105      2     13
    5+ unit residential and
      commercial real estate          109     85     85    --     --
                                     ----   ----   ----   ----   ----
         Total real estate loans      232    200    190      2     13
    Equity-line and consumer loans      9      9      9    --     --
                                     ----   ----   ----   ----   ----
         Total general reserves       241    209    199      2     13
                                     ----   ----   ----   ----   ----
Total allowance for loan losses      $247   $210   $203   $  2   $ 15
                                     ====   ====   ====   ====   ====

     The table below provides First Nationwide'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,
                                     ------------------------------------
                                     1996    1995    1994    1993    1992
                                     ----    ----    ----    ----    ----
Real estate:
    1-4 unit residential             0.55%   0.47%   0.06%   1.26%   1.13%
    5+ unit residential and
         commercial real estate      0.09      --    0.10    0.19    0.01
Consumer and other                   1.86    1.00    0.23    0.24    0.94
Non-real estate commercial             --      --      --    1.29    1.06

Impaired Loans

     See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--FN Holdings --General--Accounting Changes" for a
discussion of SFAS No. 114 (as defined therein) and First Nationwide's impaired
loans as of December 31, 1996 and 1995.

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
appropriate to assure future flexibility in meeting anticipated funding needs
including deposit withdrawal requests, loan funding commitments, and other
investment or restructuring requirements.

     During 1993 to 1996 the OTS required members of the Federal Home Loan Bank
System to maintain on a monthly basis eligible liquid assets as defined by
federal regulations in an amount equal to or greater than 5% of average
deposits and

                                            Page 21

<PAGE>



borrowings due within one year. Under applicable law, this liquidity
requirement may be changed from time to time by the OTS to any amount within
the range of 4% to 10%, and the OTS has the authority to prescribe liquidity
requirements for different classes of savings institutions, which classes may
be determined in accordance with criteria selected by the OTS.
First Nationwide was in compliance with this regulation throughout 1996.

     Cash Equivalents

     The Bank 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 liquidity requirements and as temporary holdings
until the funds can be otherwise deployed or invested.

     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 (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations--FN
Holdings--General--Accounting Changes"). 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.

                                            Page 22

<PAGE>



     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, 1996
                                         -------------------------------------------------------------
                                                        Gross        Gross         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
                                         -------------------------------------------------------------
                                                        Gross        Gross         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>

<TABLE>
<CAPTION>

                                                              December 31, 1994
                                         -------------------------------------------------------------
                                                        Gross        Gross         Net
                                         Amortized   Unrealized   Unrealized   Unrealized     Carrying
                                            Cost         Gains      Losses        Gain         Value
                                         ---------    ---------   ----------   ----------    ---------
<S>                                      <C>          <C>         <C>          <C>          <C>      
Marketable equity securities            $  34,000     $11,000      $ --         $ 11,000       $45,000
                                        =========     =======      ====         ========       =======
</TABLE>

     Marketable equity securities available for sale at December 31, 1996
represents 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. Pursuant to the terms of a settlement agreement dated June 17,
1991, between First Nationwide, 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, First Nationwide sold 2,000,000 shares of
ACS stock 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 net unrealized gain on the ACS stock, net of income taxes, reported as a
separate component of stockholders' equity at December 31, 1996 is $31.5
million. At December 31, 1996, ACS stock closed at $29.75 per share on the
Nasdaq Stock Market, resulting in a total value of $62 million for the ACS
shares held by First Nationwide. The ACS stock represents the only marketable
equity security classified as available for sale at December 31, 1996 and 1995.


                                            Page 23

<PAGE>


     Securities Held to Maturity

     Substantially all of the Company's securities classified as held to
maturity were reclassified to available for sale at December 29, 1995.

     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,
                                   --------------------------------------------------------------------------
                                             1996                    1995                      1994
                                   -----------------------     ---------------------   ----------------------
                                                 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         $--          $--          $410         $407
Municipal and other securities          --           --             1            1            2            2
                                       ----         ----         ----         ----         ----         ----
    Total                              $  4         $  4         $  1         $  1         $412         $409
                                       ====         ====         ====         ====         ====         ====
</TABLE>


     The weighted average stated interest rate on the Company's securities
held to maturity was 6.85%, 8.25% and 5.79% at December 31, 1996, 1995 and
1994, respectively.

      Mortgage-Backed Securities Available for Sale

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

                                                                       December 31, 1996
                                           ------------------------------------------------------------------------------
                                                               Gross           Gross           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>





                                            Page 24

<PAGE>

<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 stockholder's equity of
$20.1 million.

     At December 31, 1996 and 1995, mortgage-backed securities available for
sale included securities totalling $53.0 million and $63.4 million,
respectively, which resulted from the securitization of certain qualifying
mortgage loans from First Nationwide's loan portfolio. There were no
mortgage-backed securities classified as available for sale at December 31,
1994.

     Mortgage-backed securities available for sale included $1.1 billion and
$979.0 million of variable-rate securities as of December 31, 1996 and 1995,
respectively. No variable-rate securities were classified as available for sale
at December 31, 1994.

     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 FNMA or FHLMC
(except interest-only securities or the residual interests in collateralized
mortgage obligations ("CMOs")) are weighted at no more than 20% for risk-based
capital purposes, compared to a weight of 50% to 100% for residential loans.
See "--Regulation--Regulation of the Bank."

     The following represents the largest privately issued CMOs held by the
Company at December 31, 1996 (in millions):

                              Aggregate      Aggregate
                           Carrying Value   Market Value
                           --------------   ------------
Salomon Brothers                $31             $31
                                ===             ===



                                            Page 25

<PAGE>



     The Company held privately issued CMOs with an aggregate carrying value of
$233.1 million at December 31, 1996.

     At December 31, 1996, all of the mortgage-backed securities held by FN
Holdings have the highest credit rating from one or more of the national
securities rating agencies. 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

     Substantially all of the Company's mortgage-backed securities, except for
mortgage-backed securities resulting from the securitization of certain of
First Nationwide's loans, were reclassified from the held-to-maturity portfolio
to the available- for-sale portfolio on December 29, 1995.

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

                                                                 December 31,
                            ---------------------------------------------------------------------------------------
                                       1996                          1995                             1994
                            --------------------------     ---------------------------     ------------------------
                                             Estimated                      Estimated                     Estimated
                            Amortized         Fair          Amortized         Fair         Amortized          Fair
                               Cost           Value            Cost           Value           Cost            Value
                               ----           -----            ----           -----           ----            -----
                                                                  (in millions)
<S>                           <C>             <C>             <C>             <C>             <C>             <C>   
GNMA                          $ --            $ --            $ --            $ --            $   16          $   16
FNMA                           1,214           1,232             533             548           1,078           1,060
FHLMC                            406             420             988           1,016           1,660           1,647
CMOs                            --              --              --              --               397             370
Other                              2               2               3               3               3               3
                              ------          ------          ------          ------          ------          ------
    Total                     $1,622          $1,654          $1,524          $1,567          $3,154          $3,096
                              ======          ======          ======          ======          ======          ======
</TABLE>

     The weighted average stated interest rate on the Company's mortgage-backed
securities held to maturity was 7.27%, 7.46% and 6.30% at December 31, 1996,
1995 and 1994, respectively. At December 31, 1996, 1995 and 1994,
mortgage-backed securities held to maturity included securities totalling $1.6
billion, $1.5 billion and $1.4 billion, respectively, which resulted from the
securitization with FNMA and FHLMC of certain qualifying mortgage loans from
First Nationwide's or San Francisco Federal's loan portfolios with full
recourse to First Nationwide. At December 31, 1996, 1995 and 1994, the Company
had $1.6 billion, $1.5 billion and $2.5 billion of variable rate
mortgage-backed securities held to maturity.

     For the years ended December 31, 1996, 1995 and 1994, FN Holdings 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. Anything other than temporary 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 effective interest method, with the amortization or
accretion effect of prepayment being adjusted based on revised estimates of
future repayments.


                                            Page 26

<PAGE>



     The following table summarizes the Company's mortgage-backed securities
held-to-maturity portfolio and the related weighted average coupon rate at
December 31, 1996, based upon contractual scheduled maturities allocated to the
appropriate maturity categories. This table does not reflect the scheduled
amortization or any anticipated prepayment of the underlying loans
collateralizing such securities in the portfolio.


            Over Ten
           But Within           WAC      Over               WAC
          Fifteen Years         (1)   Fifteen Years         (1)     Total (2)
          -------------       -----   -------------        ------   --------
FNMA          $--             --%           $1,214         7.02%    $1,214
FHLMC          --             --%              406         8.06%       406
Other           1             10.00%             1         7.80%         2
              ---                       ----------               ---------
               $1                           $1,621                  $1,622
              ===                           ======                  ======

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

(1)  Weighted average coupon rate.
 
(2)  There are no material contractual scheduled maturities over zero but
     within ten years.



                                            Page 27

<PAGE>



SOURCES OF FUNDS

     General

     Deposits, sales of securities under agreements to repurchase, advances
from the FHLBs of Dallas and San Francisco, and sales, maturities and principal
repayments on loans and mortgage-backed securities have been the major sources
of funds for use in the Bank's lending and investment activities and other
general business purposes. Management of the Bank 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--FN Holdings" 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 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 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 of First Nationwide by type of account at the dates indicated.
<TABLE>
<CAPTION>

                                                                               At December 31,
                                           ------------------------------------------------------------------------
                                                   1996                     1995                     1994
                                           ------------------------  ----------------------    --------------------
                                                          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                        $   841           10.0%   $   664         6.5%     $   685        7.5%
  Demand deposits:
    Interest-bearing                           510            6.0        684         6.7          667        7.3
    Noninterest-bearing                        729            8.6        697         6.8          352        3.8
  Money market deposit accounts                881           10.4      1,443        14.2        1,927       21.1
                                           -------         ------    -------      ---------   -------      --------
    Total transaction accounts               2,961           35.0      3,488        34.2        3,631       39.7
Term accounts                                5,503           65.0      6,696        65.8        5,519       60.3
                                           -------         ------    -------      ---------   -------      --------
                                             8,464          100.0%    10,184       100.0%       9,150      100.0%
                                                           =======                =========                ========
Accrued interest payable                        32                        51                       26
Purchase accounting adjustments, net             6                         7                       21
                                           -------                   -------                  -------
    Total                                  $ 8,502                   $10,242                 $  9,197
                                           =======                   =======                 ========
</TABLE>

     Deposit balances, excluding purchase accounting adjustments, averaged $9.2
billion, $9.9 billion and $2.6 billion during 1996, 1995 and 1994,
respectively, with average interest rates of 4.66%, 4.67% and 3.86%,
respectively. The weighted average stated interest rates on deposits at
December 31, 1996, 1995 and 1994 were 4.53%, 4.67% and 4.19%, respectively.



                                            Page 28

<PAGE>



     The following table presents the average balance and weighted average rate
paid on each deposit type of First Nationwide for the periods indicated.
<TABLE>
<CAPTION>

                                                             Years ended December 31,
                                     ----------------------------------------------------------------------
                                                1996                    1995                    1994
                                     ------------------------   --------------------     ------------------
                                      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                  $1,154           2.72%        $666       2.20%         $179     2.14%     
   Demand deposits:                                                                                      
     Interest-bearing                    289           1.87          699       1.00           184      .97      
     Noninterest-bearing                 825          --             583         --            93      --         
   Money market deposit accounts         946           3.39        1,581       3.22           547     2.98      
Term accounts                          6,032           6.00        6,398       6.10         1,611     4.91      
                                     -------           ----      -------      -----       -------     ----      
                                                                                                         
   Total                              $9,246           4.66%      $9,927       4.67%       $2,614     3.86%     
                                      ======           ====       ======       ====        ======     =====      
</TABLE>
                                                                 
     The following table sets forth the scheduled maturities of First
Nationwide's term accounts by stated interest rate at December 31, 1996.
<TABLE>
<CAPTION>
                                                                                          2000 and
                                 1997          1998           1999       thereafter         Total
                                 ----           ----          ----      -----------       --------
                                                         (in millions)

<C>                             <C>            <C>            <C>            <C>            <C> 
3.00% or less                   $ --           $ --           $ --           $ --           $ --
3.01 -  4.00%                        3           --             --             --                3
4.01 -  5.00%                      294             15              5           --              314
5.01 -  6.00%                    3,301            600             67            128          4,096
6.01 -  7.00%                      489             54             47             91            681
7.01 -  8.00%                      244             42             15             59            360
8.01 -  9.00%                       41              3              3           --               47
9.01 - 10.00%                     --                2           --             --                2
Over 10%                          --             --             --             --             --
                                ------         ------         ------         ------         ------
Total term accounts             $4,372         $  716         $  137         $  278         $5,503
                                ======         ======         ======         ======         ======
</TABLE>

     The following table sets forth remaining maturities for First Nationwide's
term deposits in amounts of $100,000 or more at December 31, 1996 (in
millions):

         3 months or less                                     $232
         Over 3 months but within 6 months                     203
         Over 6 months but within 12 months                    239
         Over 12 months                                        194
                                                             -----
                                                              $868
                                                             =====

     At December 31, 1996, the aggregate amount outstanding of certificates of
deposit of $100,000 or larger at First Nationwide was $868 million, compared
with $690 million and $523 million at December 31, 1995 and 1994, respectively.
Deposits held by foreign investors totalled $58 million, $63 million and $58
million at December 31, 1996, 1995 and 1994, respectively.

     The Bank's deposit accounts are held primarily by individuals residing in
the vicinity of its retail branch offices located throughout the country. The
Bank has emphasized, and will continue to emphasize, a retail branch network
for attracting

                                            Page 29

<PAGE>



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.

     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, 1996, First
Nationwide had $674 million of Brokered Deposits outstanding, representing
7.96% of total deposits.

     The following table presents the scheduled maturity of First Nationwide's
Brokered Deposits and all other retail term deposits at December 31, 1996.
<TABLE>
<CAPTION>
                                                                                2000
                                         1997         1998          1999   and thereafter     Total
                                      -------       -------      --------  --------------     -----
                                                              (in millions)
<S>                                   <C>            <C>           <C>         <C>          <C>         
     Brokered Deposits                $   391        $  10         $  38       $  31        $   470(i)
     Retail term deposits               3,981          706           100         246          5,033
                                      -------        -----         -----       -----        -------
         Total term deposits           $4,372         $716          $138        $277         $5,503
                                       ======         ====          ====        ====         ======

</TABLE>

(i)  Excludes $204 million of brokered money market accounts at December 31,
     1996.

     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 and subordinated debentures.
First Nationwide relied primarily on FHLB advances and securities sold under
agreements to repurchase to replace funding from deposits sold in the Branch
Sales.

                                            Page 30

<PAGE>



     Short-term Borrowings

     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.
<TABLE>
<CAPTION>
                                                                          At or for the year ended December 31,
                                                                          -------------------------------------
                                                                           1996          1995         1994
                                                                          ------         -----       -----
                                                                                  (dollars in millions)
<S>                                                                     <C>           <C>          <C> 
     FHLB advances:
         Average balance outstanding                                      $2,455         $862         $434
         Maximum amount outstanding at any
              month end during the period                                  3,141        1,487        1,909
         Balance outstanding at end of period                              2,741        1,487        1,049
         Average interest rate during the period                            5.83%        7.19%        6.56%
         Average interest rate at end of period                             5.78%        6.12%        7.34%

     Securities sold under agreements to repurchase:
         Average balance outstanding                                       1,931        1,351          499
         Maximum amount outstanding at any
              month end during the period                                  2,424        1,965        1,880
         Balance outstanding at end of period                              1,510          698        1,880
         Average interest rate during the period                            5.70%        6.53%        3.78%
         Average interest rate at end of period                             5.88%        6.06%        6.51%
</TABLE>


     At December 31, 1996, First Nationwide had an estimated additional secured
borrowing capacity of $2.5 billion with the FHLB and other sources. These
collateralized funding sources may also be used to satisfy other funding
requirements.

     Securities Sold Under Agreements to Repurchase

     The Bank 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
statement of financial condition. 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 Bank 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.

     During 1996, First Nationwide increased the level of funds borrowed under
reverse repurchase agreements from $1.0 billion at December 31, 1995 to $1.6
billion at December 31, 1996 primarily to offset the effect of the Branch
Sales.

     FHLB Advances

     The FHLB functions in a credit capacity for savings institutions and
certain other home financing institutions. A thrift institution 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 thrift 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

                                            Page 31

<PAGE>



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.

     During 1995, First Nationwide prepaid $250 million in FHLB advances,
resulting in a $2 million extraordinary gain on the early extinguishment of
debt, net of tax. During 1994, First Nationwide prepaid $95.2 million in FHLB
advances resulting in an extraordinary gain on the early extinguishment of
debt, net of tax, of approximately $1.4 million.

     Interest Rate Swap Agreements

     The Bank has used interest rate swap agreements to adjust its interest
rate risk exposure on fixed rate FHLB advances. First Nationwide had interest
rate swap agreements with a notional principal amount of $400 million
outstanding at December 31, 1996. The notional amount does not represent
amounts exchanged by the parties and thus, is not a measure of the Bank's
exposure. The Bank 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 Bank has
entered into interest rate swap agreements only with national investment
banking firms and the FHLB of San Francisco.

     Senior Notes

     In connection with the FN Acquisition, the Company issued $200 million of
Senior Notes, including $5.5 million to certain directors and officers of the
Bank. Deferred issuance costs of $9.9 million associated with the issuance of
the Senior Notes were recorded in other assets in the Company's consolidated
statement of financial condition and are being amortized over the term of the
Senior Notes.

     The Senior 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 and unpaid interest to the date of redemption,
and thereafter at 100% plus accrued and unpaid interest to the date of
redemption. Because the Company is a holding company, the notes are effectively
subordinated to all existing and future liabilities, including deposits and
other borrowings of the Bank, and to the Preferred Stock. The terms and
conditions of the indenture for the Senior Notes (the "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--FN Holdings--Liquidity."

     Senior Subordinated Notes

     On January 31, 1996, FN Holdings issued $140 million of 9-1/8% senior
subordinated notes due in 2003 ("Senior Sub Notes"). The net proceeds of this
debt issuance, totalling $133 million, were contributed to First Nationwide on
February 1, 1996. Deferred issuance costs associated with the Senior Sub Notes
totalling $7.0 million were recorded in other assets and are being amortized
over the term of the Senior Sub Notes.

     The Senior Sub Notes are redeemable at the option of FN Holdings, in whole
or in part, during the 12-month period beginning January 1, 2001, at a
redemption price of 104.5625%, plus accrued interest to the date of redemption,
and thereafter at 100% plus accrued interest. The Senior Sub Notes are
subordinated to all existing and future liabilities, including the Senior
Notes, and are effectively subordinated to deposits and other borrowings of the
Bank, and to the Preferred Stock, the Cal Fed Preferred Stock and the REIT
Preferred Stock. The terms and conditions of the indenture agreement for the
Senior Sub Notes (the "Senior Sub 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

                                            Page 32

<PAGE>



investments.

     Subordinated Debentures

     As part of the FN Acquisition, First Nationwide assumed subordinated
debentures, which bear interest at 10% per annum and mature on October 1, 2006
(the "Old FNB Debentures"). At December 31, 1996, the aggregate principal
amount of the Old FNB Debentures outstanding was $92.1 million.

     Events of Default under the indenture governing the Old FNB Debentures
(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 Old FNB Debentures
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 Old FNB Debentures to the Bank and the trustee.

     SFFed Notes

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

     10-5/8% Notes

     As a result of the Cal Fed Acquisition, on January 3, 1997, FN Holdings
assumed $575 million of the 10-5/8% Notes which bear interest at 10-5/8% and
mature on October 1, 2003. Deferred issuance costs of $20 million associated
with the issuance of the 10-5/8% Notes were recorded in other assets in the
Company's consolidated statement of financial condition and are being amortized
over the term of the 10-5/8% Notes.

     The 10-5/8% Notes are redeemable at the option of FN Holdings, in whole or
in part, during the 12-month period

                                            Page 33

<PAGE>



beginning January 1, 2001, at the redemption price of 105.313% for the year
beginning January 1, 2001, at 102.656% for the year beginning January 1, 2002,
and at 100% thereafter. The 10-5/8% Notes are subordinated to all existing and
future senior indebtedness of FN Holdings and are effectively subordinated to
deposits and other borrowings of the Bank and to the Preferred Stock, the Cal
Fed Preferred Stock and the REIT Preferred Stock. The terms and conditions of
the indenture governing the 10-5/8% Notes (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.

     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 will be cumulative and will accrue and be
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 will be cumulative and will accrue and
be 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 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. 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 will rank 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 will not be 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 FN
Holdings, a pro rata portion of the outstanding Additional FN Holdings
Preferred Stock will be contributed to the capital of FN Holdings, 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 FN Holdings, without any payment
therefor, and such shares will be retired and canceled.

     Minority Interest - Preferred Stock of the Bank

     In connection with the FN Acquisition, First Nationwide issued 3,007,300
shares of Preferred Stock. The 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 34

<PAGE>



     The 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 Preferred Stock as to dividends and liquidating distributions. The $172.5
million of 10-5/8% preferred stock acquired in connection with the Cal Fed
Acquisition (the "Cal Fed Preferred Stock") ranks on a parity with the
Preferred Stock as to dividend and liquidating distribution.

     The terms of the 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 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 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 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 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 Preferred Stock is not
redeemable prior to September 1, 1999. The 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 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 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.

     Preferred Capital Corp. Preferred Stock

     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.


                                            Page 35

<PAGE>



     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 is March 31, 1997.

     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 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 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 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, such preferred stock of the
Bank will rank on a parity with the 11-1/2% Bank Preferred Stock and the Cal
Fed Preferred Stock (as defined herein).


                                            Page 36

<PAGE>



OTHER ACTIVITIES

     Cal Fed Contingent Litigation Recovery Participation Interests. In July
1995, 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 California Federal in prosecuting the California Federal Litigation
and obtaining such Cash Payment, (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 California Federal from making the
Recovery Payment, and disregarding for purposes of this clause (ii) the effect
of any net operating net 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 certificate agent.

     In the California Federal Litigation, California Federal alleges, among
other things, that the United States breached certain contractual commitments
regarding the computation of its regulatory capital for which California
Federal seeks damages and restitution. California Federal'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
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, California Federal filed a motion for partial summary
judgment as to the Federal government's liability to California Federal 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. The Bank's reply brief in support of its motion
for partial summary judgment and an opposition to the federal government's
cross motion for partial summary judgment is due to be filed on or before March
31, 1997. Although the decision of the Supreme Court has been rendered, a court
may still determine that California Federal's claims involve sufficiently
different facts and/or legal issues as to render the Winstar Cases inapplicable
to the California Federal Litigation and thereby compel a different conclusion
from that of the Winstar Cases. The trial of California Federal's case is
expected to begin at the end of 1997.

     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 California Federal
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, (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

                                            Page 37

<PAGE>



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 carry- forwards 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.

     The Put Agreement

     In connection with the FN Acquisition, Granite and First Nationwide
entered into the Put Agreement. Pursuant to the Put Agreement, First Nationwide
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 residential mortgage loans with an original principal
balance greater than $250,000, and to take certain actions to protect First
Nationwide from losses with respect to certain Letters of Credit ("LOC")
transactions, in each case, only if such asset was purchased by First
Nationwide from Old FNB pursuant to the Asset Purchase Agreement. The Put
Option expired on November 30, 1996 when the sum of (x) the total amount paid
by Granite to First Nationwide in connection with all purchases or other
payments made by Granite pursuant to the Put Agreement and (y) the aggregate
purchase price paid by Granite to Old FNB in connection with purchases made
prior to the closing date ("Closing Date") pursuant to the Mortgage Loan Sale
Agreement dated as of November 30, 1993 (the "Mortgage Loan Sale Agreement"),
between Granite and Old FNB, less the total amount paid by First Nationwide to
Granite in connection with purchases made by First Nationwide through exercise
of certain buyback rights, equalled $500 million (the "Maximum Amount"). First
Nationwide could not require Granite to purchase more than $100 million of
residential mortgage loans. Granite's obligations under the Put Agreement were
guaranteed by Ford Motor.

     The Put Option was generally triggered in the event that any of the assets
subject to the Put Agreement became non-performing assets (i.e., payments of
interest or principal became 90 days or more contractually past due) at any
time prior to the expiration of the Put Option.

     The purchase price paid by Granite for each mortgage loan purchased
pursuant to the Put Agreement was the sum of: (i) the outstanding principal
balance of the loan, (ii) any accrued but unpaid interest on the loan shown on
First Nationwide's books (not to exceed 90 days accrued but unpaid interest),
(iii) amounts owed to First Nationwide for real property taxes, insurance
premiums and similar charges and (iv) reasonable amounts (including reasonable
attorneys' fees and protective advances) expended by First Nationwide in
protecting its security interest or enforcing its rights with respect to such
loan. The amount paid by Granite to First Nationwide with respect to each
non-performing LOC for which First Nationwide required such payment was the
amount of any protective advances (the "Protective Advances") made by First
Nationwide in connection with such LOC (but in no event did the Protective
Advances include an amount greater than 90 days accrued but unpaid interest).
In addition, with respect to any such LOC which had been included in the FNMA
Pool (as defined in the Put Agreement), Granite was required, if so requested
by First Nationwide, take all necessary or appropriate steps to cause such LOC
to be removed from the FNMA Pool and thereafter Granite would bear all economic
risk associated with such LOC (or, if all required consents for such removal
could not be obtained, Granite was required to take such actions as are
necessary to place First Nationwide in the same economic position as it would
have been in had the LOC been so removed). With respect to certain other
non-performing LOCs (including LOCs that were originally part of the FNMA Pool
but were required by FNMA to be removed from such pool prior to the time such
LOCs became non-performing), Granite was required, when requested by First
Nationwide, to post substitute collateral for the benefit of First Nationwide,
in the form of cash or cash equivalents with a value not less than the face
amount of the LOC, or in any other form deemed reasonably acceptable by First
Nationwide, in the place of any existing LOC collateral. The total amount
charged against the Maximum Amount with respect to any LOC was the amount of
Protective Advances reimbursed by Granite, together with (x) in the case of
LOCs removed from the FNMA Pool, to the extent not included as part of the
reimbursed Protective Advances, the amounts set forth in clauses (i)-(iv) of
the first sentence of this paragraph with respect to the mortgage loan
underlying the

                                            Page 38

<PAGE>



LOC, or (y) in the case of LOCs for which a substitution of collateral must be
made, the face amount of the LOC.

     If First Nationwide declined on any quarterly put date to sell an eligible
non-performing mortgage loan or to demand the removal or substitution of
collateral, as appropriate, in connection with an eligible LOC, its right to
put such asset or demand such removal or substitution, as the case may be, were
extinguished, except that put rights with respect to: (i) jumbo residential
loans, First Nationwide's interest in certain commercial mortgage loans
serviced by others and certain other loans formerly owned by FNMA were extended
for one additional quarter, and (ii) loans which had matured as of the Closing
Date for which monthly principal and interest payments were made as of the
Closing Date were extended until the end of the second quarter following the
Closing Date. In the event that, as of November 30, 1996, Granite had not been
required to purchase $500 million of non-performing assets, First Nationwide
had the right to require Granite to purchase any Putable Assets of First
Nationwide, other than assets which previously became non-performing and which
First Nationwide did not require Granite to purchase, up to the Maximum Amount.
The balance available under the Put Agreement was fully utilized by First
Nationwide on December 5, 1996.

     The Assistance Agreement

     On August 19, 1996, First Nationwide 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 First Nationwide the Covered Asset
balance of $39 million and, among other things, assumed the responsibility for
the disposition of several litigation matters involving Covered Assets which
had been retained by First Nationwide following the FDIC Purchase. First
Nationwide recorded a gain of $25.6 million as a result of this settlement.

     Under the terms of the Assistance Agreement, the FSLIC's successor, the
FSLIC/RF, provided capital loss coverage and a guaranteed yield on the Covered
Assets, as well as indemnification in connection with certain claims.

     In 1995, the FSLIC/RF purchased substantially all of the remaining Covered
Assets at the fair market value of such assets in the FDIC Purchase. Under the
terms of the Capital Loss Coverage (as defined herein) provisions of the
Assistance Agreement, losses sustained by First Nationwide from the FDIC
Purchase were reimbursed by the FSLIC/RF. There was no material impact on the
consolidated financial statements of First Nationwide as a result of the FDIC
Purchase.

     The tax exempt assistance received by First Nationwide from the FSLIC/RF
included the following provisions:

     Guaranteed Yield. The guaranteed yield for a Covered Asset for any quarter
represented the product of the Covered Asset's average book value for such
quarter and a yield based on the Texas Cost of Funds ("TCOF"), the annualized
quarterly average cost of funds for Texas-based, SAIF-insured savings
institutions as reported by the OTS plus a specified basis point spread
("Guaranteed Yield").

     Capital Loss Coverage. The FSLIC/RF mitigated First Nationwide's exposure
to capital losses on Covered Assets by providing for the reimbursement of
capital losses resulting from the liquidation of Covered Assets at less than
their book value ("Capital Loss Coverage").

     Covered Asset Recovery. When the liquidation of a Covered Asset resulted
in a recovery in excess of the asset's original book value, the Assistance
Agreement required that 90% of such recovery be remitted to the FSLIC/RF, or
offset against payments due to First Nationwide from the FSLIC/RF ("Covered
Asset Recovery").

     Shared Gain. First Nationwide was entitled to a disposition fee ("Shared
Gain") on any Covered Asset liquidated prior to the termination of coverage for
net proceeds in excess of 50% of its original book value.

     Indemnification. The Assistance Agreement provided for indemnification of
losses suffered on specific assets acquired by First Nationwide that were not
Covered Assets under the Assistance Agreement. Items payable to First
Nationwide consisted primarily of indemnification of amounts paid in settlement
of certain litigation and reimbursement of specific types of legal costs and
expenses.

                                            Page 39

<PAGE>



     FSLIC/RF Reimbursement. First Nationwide agreed to make a payment to the
FSLIC/RF over the ten-year term of the Assistance Agreement in lieu of a
tax-sharing agreement. Such tax benefit payment was implemented on a current
basis, without regard to the actual amount or timing of any such tax benefits
received, through a credit to the FSLIC/RF of 10% of the gross assistance the
FSLIC/RF paid to First Nationwide. This amount, net of 10% of all Covered Asset
Recoveries and Shared Gains, was known as the "FSLIC/RF Reimbursement." In
addition, the FSLIC/RF was entitled to a 10% share of tax benefits attributable
to the use of net operating loss carryovers of the Texas Closed Banks in
reducing the regular tax liability of the affiliated group of which the Bank is
a member. The sharing of tax benefits attributable to the use of these net
operating loss carryovers, however, occurred only when the net operating loss
carryovers were actually used.

     In connection with a modification to the Assistance Agreement in January
1992, First Nationwide was paid $45 million. Of such $45 million payment, $41
million, the amount net of certain claims, was included in First Nationwide's
income. Also, in connection with the modification, First Nationwide accrued the
present value of the estimated liability at December 31, 1992 to the FSLIC/RF
for the FSLIC/RF Reimbursement over the life of the Assistance Agreement,
resulting in a $60 million charge to operations in 1992.

     FNMA Letters of Credit

     On September 28, 1994, First Nationwide 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, 1996, First
Nationwide had pledged as collateral certain securities available for sale with
a carrying value of $91.6 million.

     FGB Realty Advisors, Inc.

     FGB Realty, a wholly owned subsidiary of the Bank, provides asset
management, disposition and advisory services to institutional owners of real
estate. FGB Realty has performed asset management and disposition services for
a variety of properties which range in product type from single family homes to
complex mixed use developments. Fee revenues from unaffiliated parties were
$10.1 million, $14.0 million and $14.1 million for the years ended December 31,
1996, 1995 and 1994, respectively. These revenues are included in management
fees in First Nationwide's respective consolidated statements of operations. At
December 31, 1996, FGB Realty was responsible for the asset management and
disposition of 2,642 assets, representing approximately $199 million in
commercial and residential real estate loans and properties located in markets
throughout the nation. FGB Realty has full service offices in Dallas, New York,
Tulsa, Phoenix, San Francisco, and Los Angeles.

     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 $10.0 million and
$8.5 million for the years ended December 31, 1996 and 1995, respectively, are
included in fees and service charges in the Company's consolidated statements
of operations 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

                                            Page 40

<PAGE>



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

     At December 31, 1996, First Nationwide and its subsidiaries had 3,547
employees, compared to 3,619 employees at December 31, 1995. None of First
Nationwide'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.

     FN Holdings has no employees.

COMPETITION

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

     The Bank competes with other thrift institutions, commercial banks,
insurance companies, credit unions, thrift 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 thrift institutions and many large 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 Bank'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.
See "--Regulation of the Bank--Capital Distribution Regulation."


                                            Page 41

<PAGE>



REGULATION OF FN HOLDINGS

     Holding Company Acquisitions

     FN Holdings is a registered savings and loan holding company. The HOLA and
OTS regulations 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, the activities of FN Holdings and its non-savings association
subsidiaries would thereafter be subject to substantial restrictions.

     The HOLA requires every savings association subsidiary of a savings and
loan holding company to give the OTS at least 30 days' advance notice of any
proposed dividends to be made on its guarantee, permanent or other
non-withdrawable stock, or else such dividend will be 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 companies that
are under common control with the savings association.

     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; a purchase of assets from an
affiliate, with certain exceptions; 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.


                                            Page 42

<PAGE>



     In addition, under the OTS regulations, 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.

     The OTS regulation generally excludes all non-bank and non-savings
association subsidiaries of savings associations from treatment as affiliates,
except to the extent that the OTS or the Board of Governors of the Federal
Reserve System (the "FRB") decides to treat such subsidiaries as affiliates.
The regulation also requires savings associations to make and retain records
that reflect affiliate transactions in reasonable detail, and provides that
certain classes of savings associations may be required to give the OTS prior
notice of affiliate transactions.

REGULATION OF THE BANK

     Regulatory System

     As a federally insured savings bank, lending activities and other
investments of the Bank must comply with various statutory and regulatory
requirements. The Bank 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

     The Bank is a member of the FHLBS. Among other benefits, FHLB membership
provides the Bank with a central credit facility. The Bank is required to own
capital stock in the FHLB in an amount equal to the greater of: (i) 1% 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) .3% of total assets, or (iii) 5% of its FHLB advances (borrowings).

     Liquid Assets

     Under OTS regulations, for each calendar month, 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 is currently at 5.0%, may be changed from time to
time by the OTS to any amount between 4.0% to 10.0%, depending upon certain
factors. OTS regulations also require each savings association to maintain an
average daily balance of short-term liquid assets equal to not less than 1.0%
of the average daily balance of its net withdrawable accounts and short-term
borrowings during the preceding calendar month. The Bank maintains liquid
assets in compliance with these regulations.

     Regulatory Capital Requirements

     OTS capital regulations require savings banks to satisfy minimum capital
standards: risk-based capital requirements, a leverage (core) capital
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. See "--REIT Subsidiary
Preferred Stock."


                                            Page 43

<PAGE>



     All savings banks 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 bank is required to maintain
core capital equal to a minimum of 3% of adjusted total assets. (In addition,
under the prompt corrective action provisions of the OTS regulations, all but
the most highly-rated institutions must maintain a minimum leverage ratio of 4%
in order to be adequately capitalized. See "--Prompt Corrective Action."). A
savings bank 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 bank 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. Based on internal measures of interest
rate risk at December 31, 1996, 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
an individual savings association 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 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.

     First Nationwide's total capital to risk-based assets ratio was 13.62%,
its core capital to risk-based assets ratio was 11.50%, its leverage capital
ratio was 7.17% and its tangible capital ratio was 7.17% at December 31, 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--FN Holdings--Capital Resources."

     Certain Consequences of Failure to Comply with Regulatory Capital 
Requirements

     A savings bank'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 bank to enforcement actions and other proceedings. Any
savings bank not in compliance with all of its capital requirements is required
to submit a capital plan that addresses the bank's need for additional capital
and meets certain additional requirements. While the capital plan is being
reviewed by the OTS, the savings bank 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 bank's
capital plan is not approved, the bank 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 bank not in compliance with
the capital requirements to pay dividends and compensation, and may require
such a bank 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

                                            Page 44

<PAGE>



specified investments, and (vi) limiting operational expenditures to specified 
levels.

     The HOLA permits savings banks 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 bank 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 bank 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 ratio are used to determine an
institution's capital classification. At December 31, 1996, First Nationwide
met the capital requirements of a "well capitalized" institution under
applicable OTS regulations.

     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.

     Institutions that are classified as undercapitalized are subject to
certain mandatory supervisory actions, including: (i) increased monitoring by
the appropriate federal banking agency for the institution and periodic review
of the institution's efforts to restore its capital, (ii) a requirement that
the institution submit a capital restoration plan acceptable to the appropriate
federal banking agency and implement that plan, and that each company having
control of the institution guarantee compliance with the capital restoration
plan in an amount not exceeding the lesser of 5% of the institution's total
assets at the time it received notice of being undercapitalized, or the amount
necessary to bring the institution into compliance with applicable capital
standards at the time it fails to comply with the plan, and (iii) a limitation
on the institution'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.

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

     Institutions 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
institutions. Significantly undercapitalized institutions are subject to the
mandatory provisions applicable to undercapitalized institutions. The
regulation also makes mandatory for significantly undercapitalized institutions
certain of the supervisory actions that are

                                            Page 45

<PAGE>



discretionary for institutions classified as undercapitalized, creates a
presumption in favor of certain discretionary supervisory actions, and subjects
significantly undercapitalized institutions 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 institutions may
be subjected to certain of the restrictions applicable to critically
undercapitalized institutions.

     The regulation requires that an institution be placed into conservatorship
or receivership within 90 days after it becomes critically undercapitalized,
unless the OTS, with 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 depository
institution also must be placed into receivership if the institution continues
to be critically undercapitalized on average during the fourth quarter after
the institution initially became critically undercapitalized, unless the
institution's federal bank regulatory agency, with the concurrence of the FDIC,
makes certain positive determinations with respect to the institution.

     Critically undercapitalized institutions are also subject to the
restrictions generally applicable to significantly undercapitalized
institutions and to a number of other severe restrictions. For example,
beginning 60 days after becoming critically undercapitalized, such institutions
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 institutions 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 institution is in an unsafe or unsound
condition, or if the institution is deemed to be engaging in an unsafe and
unsound practice, the OTS may, if the institution is well-capitalized,
reclassify it as adequately capitalized; if the institution is adequately
capitalized but not well capitalized, require it to comply with restrictions
applicable to undercapitalized institutions; and, if the institution is
undercapitalized, require it to comply with certain restrictions applicable to
significantly undercapitalized institutions.

     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
institution'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 institution's books, papers, records or assets or
refusal to submit such items for inspection to any examiner or lawful agent of
the appropriate federal banking agency or state bank or savings association
supervisor, (vi) the institution is likely to be unable to pay its obligations
or meet its depositors' demands in the normal course of business, (vii) the
institution 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
the institution 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
institution's condition, or otherwise seriously prejudice the interests of the
institution's depositors or the federal deposit insurance fund, (ix) the
institution is undercapitalized and the institution 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,
(x) the institution is critically undercapitalized or otherwise has
substantially insufficient capital, or (xi) the institution 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

                                            Page 46

<PAGE>



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" where 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 institution-affiliated 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, OTS regulations limit certain "capital distributions" by
OTS-regulated 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 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, 1996, First Nationwide 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

                                            Page 47

<PAGE>



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 institution 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" (defined as total assets minus goodwill, intangibles,
property used to conduct business, and liquid assets up to 20% of 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.

     Recent legislation permits a savings association to qualify as a qualified
thrift lender not only by maintaining 65% of portfolio assets in qualified
thrift investments (the "QTL test") but also, in the alternative, by qualifying
under the Internal Revenue Code as a "domestic building and loan association."
The Bank is a domestic building and loan association as defined in the Internal
Revenue Code.

     Recent legislation 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, 1996 under the
expanded QTL test, approximately 89.05% of First Nationwide'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-assessable deposits are now
subject to premiums of between 0 to 27 cents per $100 of deposits, depending
upon the institution's capital position and other supervisory factors.

     Under recent legislation, SAIF-assessable deposits held as of March 31,
1995 were subject to a tax-deductible one-time special assessment at a rate
sufficient to achieve the 1.25% designated reserve ratio of the SAIF as of
October 1, 1996 (the "Special SAIF Assessment"). This Special SAIF Assessment
generally was payable no later than November 29, 1996. The special assessment
was 65.7 cents per $100 of SAIF-assessable deposits and was collected on
November 27, 1996. At the 65.7 basis point rate, the cost of the special
assessment to First Nationwide was approximately $60.1 million on a pre-tax
basis and $54.1 million on an after-tax basis.

     Under the new legislation, beginning in January 1997 institutions with
Bank Insurance Fund ("BIF") deposits are 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, 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 are expected
to equal approximately 6.48 basis points for SAIF deposits and 1.3 basis points
for BIF deposits from January 1, 1997 through December 31, 1999, and
approximately 2.4 basis points for both BIF and SAIF deposits thereafter. From
January 1, 1997, FICO payments are to be paid directly by SAIF and BIF
institutions in addition to deposit insurance

                                            Page 48

<PAGE>



assessments.

     On December 24, 1996, the FDIC issued a final rule lowering the rates on
SAIF-assessable deposits. The rule established SAIF rates ranging from 0 to 27
basis points as of October 1, 1996. However, a special interim schedule of
rates ranging from 18 to 27 basis points applied from October 1, 1996 through
December 31, 1996 for those institutions, such as First Nationwide, that
continued to be subject to FICO assessments until the new FICO funding mechanism
went into effect on January 1, 1997. Following the special assessment and the
new FICO funding mechanism effective January 1, 1997, future SAIF assessment
rates are expected to depend primarily on the rate of any new losses from the
SAIF insurance fund. Under the recent legislation, however, the FDIC is not
permitted to establish SAIF assessment rates that are lower than comparable BIF
assessment rates. Leaving aside the special assessment, First Nationwide paid
the minimum SAIF assessment rate of 18 basis points from October 1, 1996 to
December 31, 1996, and the Bank has been assessed a rate of 0 basis points from
January 1, 1997.

     Thrift Charter

     Congress has been considering legislation in various forms that would
require federal thrifts, such as the Bank, to convert their charters to
national or state bank charters. Recent legislation requires the Treasury
Department to prepare for Congress by March 31, 1997 a comprehensive study on
development of a common charter for federal savings associations and commercial
banks; and in the event that the thrift charter was eliminated by January 1,
1999, would require the merger of the BIF and the SAIF into a single Deposit
Insurance Fund on that date. In the absence of appropriate "grandfather"
provisions, legislation eliminating the thrift 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 thrifts 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 acquiring
or retaining 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 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 institution's failure to comply
with the provisions of the CRA could, at 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.

     New Safety and Soundness Guidelines

     The OTS and the other federal banking agencies have established guidelines
for safety and soundness, addressing operational and managerial, as well as
compensation matters for insured financial institutions. Institutions failing
to meet these standards are required to submit compliance plans to their
appropriate federal regulators. The OTS and the other agencies have also
established guidelines regarding asset quality and earnings standards for
insured institutions.

     Change of Control

     Subject to certain limited exceptions, no company can acquire control of a
savings association without the prior approval

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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 a savings association or savings
and loan holding company's voting stock (or 25% of any class of stock) and, in
either case, any of certain additional control factors exist.

     Under recent 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 a savings
association, although the OTS has a consultative role with the FRB in
examination enforcement and acquisition matters.

     Reduction Act

     On September 30, 1996, President Clinton signed into law the Reduction
Act. The Reduction Act's principal provisions relate to recapitalization of the
SAIF, but it also contains numerous regulatory relief measures, some of which
are directly applicable to the Bank. Specific provisions of the Reduction Act
are discussed above in "--Qualified Thrift Lender Test," "--FDIC Assessments,"
"--Thrift Charter," and "--Change of Control." The Reduction Act also contains
other provisions to reduce regulatory burdens associated with compliance with
various consumer and other laws applicable to the Bank, including, for example,
provisions designed to coordinate the disclosure and other requirements under
the Truth-in-Lending Act and the Real Estate Settlement Procedures Act, modify
certain insider lending restrictions, permit the OTS to allow exemptions to
anti-tying prohibitions and exempt certain transactions and simplify certain
disclosures under the Truth-in- Lending Act.

     REIT Subsidiary Preferred Stock

     The Bank filed a 30-day notice on November 29, 1996 with the OTS regarding
the establishment of the Preferred Capital Corp., a real estate investment
trust ("REIT"), as an operating subsidiary of the Bank. The OTS issued a letter
expressing that it did not object to such establishment.

     In conjunction with the operating subsidiary notice, the OTS reviewed
among other things the appropriateness of including the minority interest
represented by the REIT Preferred Stock in the regulatory capital of the Bank.
See "--Regulatory Capital Requirements." In general, as a minority interest in
a consolidated subsidiary, the REIT Preferred Stock is eligible to be treated
as core capital of the Bank, but the OTS may have the authority to exclude such
REIT Preferred Stock from core capital. The OTS has indicated that it will not
exclude REIT Preferred Stock from the core capital of the parent savings
association if the following prudential standards are met: (i) the REIT
Preferred Stock meets all of the same terms and conditions that preferred stock
issued by the parent savings association must meet in order to be included in
core capital; (ii) the REIT Preferred Stock cannot be redeemed without the
prior written consent of the OTS; (iii) the REIT Preferred Stock must be
converted into or exchanged for a core capital instrument of the parent savings
association if the OTS directs, in writing, that such a conversion or exchange
should occur because (a) the parent savings association becomes
undercapitalized under prompt corrective action regulations, (b) the parent
savings association is placed in bankruptcy, reorganization, conservatorship,
or receivership, or (c) the OTS, in its sole discretion, directs in writing
such conversion or exchange in anticipation of the parent savings association
becoming undercapitalized in the near term; (iv) the amount of the parent
savings association's core capital that is composed of REIT Preferred Stock
does not exceed 25% of core capital including such REIT Preferred Stock
(33-1/3% of core capital excluding REIT Preferred Stock); and (v) the OTS may
exclude REIT Preferred Stock from core capital if it ceases to provide
meaningful capital support and a realistic ability to absorb losses or
otherwise raises supervisory concerns, including OTS concerns about the capital
mix or asset structure of the REIT subsidiary or the parent savings
association. It is expected that a significant portion of the REIT Preferred
Stock will be included in the core capital of the Bank.


                                            Page 50

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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.

     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
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 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 losses
that it would have been entitled to utilize if it had filed separate returns
for each year since the formation of First Nationwide. 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 First Nationwide for each year since the formation of First Nationwide.
Accordingly, pursuant to the Tax Sharing Agreement, the benefits of any net
operating losses generated by First Nationwide since its formation are retained
by First Nationwide and FN Holdings.

     First Nationwide 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, the financial
assistance received by First Nationwide pursuant to the Assistance Agreement
was excluded from the taxable income of First Nationwide. In addition to such
tax-free financial assistance, First Nationwide had been entitled to its normal
operating deductions, including interest expense and certain losses relating to
its loan portfolio. As a result, First Nationwide generated significant net
operating losses for federal income tax purposes even though its operations
were profitable. Furthermore, under the reorganization provisions of the Code,
First Nationwide succeeded to certain net operating loss carryovers of the
Texas Closed Banks.

     At December 31, 1996, if FN Holdings had filed a consolidated tax return
on behalf of itself and its subsidiaries for each year since the formation of
First Nationwide, it would have had approximately $2.1 billion of regular net
operating losses and approximately $750 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 thereafter and would
fully expire in 2010. It is expected that under the Tax Sharing Agreement, the
Company will be able to eliminate a significant portion of the amounts that it
otherwise would be required to pay to Mafco Holdings in respect of federal
income tax. Likewise, it is not expected that the Company will record
significant amounts of federal income tax expense as a member of the Mafco
Group. Payments made by FN Holdings under the Tax Sharing Agreement with the
Mafco Group during the years ended December 31, 1996 and 1995 totalled $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 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.

     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 the Bank to take

                                            Page 51

<PAGE>



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. Consequently, the Company may be required to make
payments to Mafco Holdings under the Tax Sharing Agreement if the Company has
insufficient expenses and losses to offset such income. As of December 31,
1995, First Nationwide had tax bad debt reserves totalling $232 million, all of
which had been provided for in deferred tax liabilities. The Company does not
expect to generate substantial amounts of federal taxable income (after taking
into account its net operating loss carryovers) from any recapture of the
Bank's bad debt reserves. Accordingly, the enactment of this legislation is not
expected to have a material adverse impact on the Company's operations or
financial position.

     FN Holdings 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.

                                            Page 52

<PAGE>



CAL FED AND CALIFORNIA FEDERAL

     Prior to the Cal Fed Acquisition, Cal Fed was a holding company whose only
significant asset was all of the common stock of California Federal. As such,
Cal Fed's principal business operations were conducted by California Federal
and its subsidiaries.

GENERAL

     California Federal and subsidiaries maintained 119 full service branches
in California and Nevada at December 31, 1996, offering a broad range of
consumer financial services including demand and term deposits and mortgage and
consumer loans. Subsidiaries of California Federal sold insurance and
investment products to California Federal's customers, and had previously
engaged in the real estate investment and development business.

     During 1995, California Federal obtained regulatory and shareholder
approval to reorganize into a holding company structure. The reorganization was
designed to provide greater flexibility for meeting financial and competitive
needs. As a result of the reorganization, which occurred on January 1, 1996,
each share of California Federal's common stock was converted into one share of
Cal Fed common stock. Consequently, California Federal became a wholly owned
subsidiary of Cal Fed.

     California Federal's principal operating activity consisted of originating
or purchasing loans secured by residential property of one to four units
("residential 1-4 loans"). California Federal's primary funding source was
savings deposits, which were insured by the Federal Deposit Insurance
Corporation ("FDIC") through the Savings Association Insurance Fund ("SAIF").
California Federal's net earnings were principally generated by the excess of
interest earned on loans and interest-earning securities ("interest-earning
assets") over the interest paid on savings deposits and borrowings
("interest-bearing liabilities"), less general and administrative expenses.
California Federal's lending and savings operations were concentrated in
California and Nevada. California Federal previously had operations in Florida
and Georgia.

     In July 1995, California Federal made a nontaxable distribution of
Lititgation Interests to its common shareholders. The Litigation Interests
(traded on the Nasdaq under the symbol "CALGZ") represent a right to receive a
portion of the net cash proceeds, if any, resulting from California Federal's
pending goodwill lawsuit against the Federal government. See "Business--FN
Holdings--Other Activities--Cal Fed Contingent Litigation Recovery
Participation Interests."

     During 1996, California Federal registered Secondary Litigation Interests
to be issued to the common shareholders of Cal Fed in connection with the Cal
Fed Acquisition. In January 1997, the Secondary Litigation Interests were
distributed and began trading on the Nasdaq under the symbol "CALGL." See
"Business--FN Holdings--Other Activities--Cal Fed Contingent Litigation
Recovery Participation Interests."

     California Federal recorded net earnings of $116.4 million during 1996.
California Federal recorded net earnings of $93.6 million during 1995 and
incurred losses of $423.1 million in 1994.

     California Federal's return to profitability for the year ended December
31, 1995 reflects the results of its restructuring in prior years to meet the
new capital requirements of FIRREA and to respond to the collapse of the real
estate markets during the early 1990's.

     In early 1994, California Federal adopted a plan designed to improve its
capital position, improve its profitability and maximize shareholder value (the
"Strategic Plan"). The primary components of the Strategic Plan included: (i)
the raising of additional equity capital by means of common and preferred stock
offerings, (ii) the accelerated disposition of $1.3 billion of high-risk and
non-performing assets (the "1994 Bulk Sales") and (iii) the sale of 44
depository branches located in Florida and Georgia (the "Southeast Division").
California Federal successfully completed all aspects of the Strategic Plan
during 1994.


                                            Page 53

<PAGE>



     During 1994, California Federal, (i) raised $164.2 million, net of
issuance costs, in new capital from the issuance of 1.7 million shares of
California Federal's preferred stock, Series B, (ii) raised $183.3 million, net
of issuance costs, in new capital from the issuance of 21.6 million shares of
common stock through a rights offering, and (iii) completed the sale of the
Southeast Division. In addition, California Federal completed the 1994 Bulk
Sales, which included $1.3 billion of high-risk performing loans, NPLs and real
estate held for sale acquired in settlement of loans ("REO"). The sale of these
assets resulted in a substantial reduction in NPAs. A $274.8 million loss was
recorded on the 1994 Bulk Sales.

     California Federal completed the sale of the Southeast Division during the
third quarter of 1994. The sale of the Southeast Division resulted in a $3.9
billion reduction in deposits. However, California Federal received a 4.10%
deposit premium which contributed to California Federal recording a $135.0
million net gain from the sale. See "Management's Discussion and Analysis of
Results of Operating and Financial Condition--California Federal."

INTEREST RATE RISK MANAGEMENT

     California Federal's earnings were primarily determined by its net
interest income. Net interest income was affected by the interest rate spread,
which was the difference between the rates earned on its interest-earning
assets and rates paid on its interest-bearing liabilities, as well as the
relative amounts of its interest-earning assets and interest-bearing
liabilities. When interest-earning assets exceeded interest-bearing
liabilities, any positive interest rate spread would generate net interest
income. California Federal's average interest rate spread for the years ended
December 31, 1996, 1995 and 1994 was 2.21%, 2.00% and 2.23%, respectively.
During 1996, average performing interest-earning assets exceeded average
interest-bearing liabilities by $612.6 million, or 4.43% of average performing
interest-earning assets and $457.7 million or 3.32% during 1995, and $19.4
million or 0.14% during 1994.

     California Federal was subject to interest rate risk to the degree that
its interest-bearing liabilities matured or repriced more rapidly, or on a
different basis, than its interest-earning assets. While having liabilities
that matured or repriced more frequently than assets may be beneficial in times
of declining interest rates, such an asset and liability structure may have
been detrimental to operations during periods of rising interest rates. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--California Federal" for further information.

     In order to reduce interest rate risk, California Federal emphasized the
origination of adjustable rate mortgage loans that repriced more closely with
its interest-bearing liabilities. California Federal originated fixed rate
loans primarily for resale. At December 31, 1996, 86.5% of California Federal's
portfolio of loans and mortgage-backed securities consisted of adjustable rate
instruments as compared to 88.1% at December 31, 1995 and 88.9% at December 31,
1994. During 1996, 85.1% of real estate loans originated bore adjustable rates
compared to 79.1% in 1995 and 91.4% in 1994.


                                            Page 54

<PAGE>



LENDING ACTIVITIES

     Since 1990, California Federal focused its lending operations primarily on
the origination of residential 1-4 loans. During the last several years,
California Federal generally originated fixed rate residential 1-4 loans that
conformed to the underwriting criteria of FNMA and FHLMC. Fixed rate
residential loans were originated primarily for sale, and adjustable rate
residential 1-4 loans were primarily held in California Federal's portfolio of
interest-earning assets. Prior to 1990, California Federal was active in
originating loans secured by income producing property ("income property
loans") but this activity was significantly curtailed. During 1993, California
Federal discontinued its origination of income property loans including
multi-family loans, except in conjunction with sales of real estate held for
sale. Prior to 1994, California Federal originated loans secured by automobiles
as well as secured and unsecured personal loans ("consumer loans") through
California Thrift and Loan ("CTL"), a former subsidiary of California Federal.
During 1995, California Federal originated consumer loans primarily on an
agency basis, and received a fee for originating the loan from a third party.
Prior to 1991, California Federal was active in originating secured and
unsecured loans to corporate customers ("commercial banking loans"). During
1995, California Federal initiated a new lending program designed to provide
credit to small businesses located in California ("Business Banking Loans").
The Business Banking Loan program consisted of several products, which include
an unsecured line of credit for a term of up to twelve months, and a loan
secured by a certificate of deposit for a term of no greater than five years.
The maximum amount of the line of credit that California Federal offered during
1996 was $100,000 and these loans bore an interest rate based upon the prime
rate plus 3%. The maximum loan amount for a loan secured by a certificate of
deposit was $250,000. At December 31, 1996, California Federal's outstanding
Business Banking Loan commitments totalled $21.2 million.

     California Federal conducted its loan origination functions through its
  offices in California and Nevada. Although California Federal had nationwide
  lending authority, a substantial portion of California Federal's mortgage
  loans were secured by real estate located in California. At December 31,
  1996, $8.8 billion, or 87.7%, of California Federal's portfolio of real
  estate loans was secured by real estate located in California. California
  Federal did not originate any loans outside of the United States.

     California Federal offered a variety of residential 1-4 fixed rate and
  adjustable rate loan programs, including loan programs which began with a
  three year or five year fixed rate period, converting to an adjustable rate
  for the remaining term of the loan. The adjustable rate residential loan
  programs offered by California Federal provided for interest rates that
  adjust periodically, commencing within three to six months from the loan's
  inception, based on changes in the FHLB 11th District Cost of Funds or
  indices that fluctuate with U.S. Treasury rates. Adjustments to the monthly
  payment of principal and interest occurred either semi-annually or annually
  depending on the loan program selected by the borrower. However, to protect
  borrowers from unlimited interest rate and payment increases, the majority of
  California Federal's adjustable rate loans had a maximum interest rate change
  ("interest rate cap") from the initial reduced interest rate period and/or
  over the life of the loan. Additionally, the interest rate may increase or
  decrease within a two to six percentage point range in any given period. In
  certain loan programs, these protections for borrowers could have resulted in
  monthly payments which were greater or less than the amount required to
  amortize the loan by its maturity at the interest rate in effect in any
  particular month. In the event that the monthly payment was not sufficient to
  pay the interest accruing during the month, the deficiency was added to the
  loan's principal balance ("negative amortization"). In the event that a loan
  incurred significant negative amortization, there was an increased risk that
  the market value of the underlying collateral on the loan would be
  insufficient to fully satisfy the outstanding principal and interest. In the
  event that the monthly payment exceeded the amount necessary to pay the
  interest accruing during the month, the excess was applied to reduce the
  loan's principal balance, which would result in an earlier payoff of the
  loan.

     Negative amortization could have resulted in an increased risk that the
  value of the collateral securing the loan could have been insufficient to
  fully satisfy the outstanding principal and interest in the case of a default
  by the borrower. However, negative amortization also served to reduce the
  amount of payment increase during periods of rising rates. In periods of
  rapidly rising interest rates, monthly payments on adjustable rate loans may
  have increased sharply, resulting in a hardship for borrowers. Negative
  amortization reduced the increase in the payments for borrowers. While the
  outstanding balance of the loan may have increased because of negative
  amortization, the risk of default may have decreased as borrowers had a lower
  debt service burden or a debt service requirement that increased more slowly
  than fully amortizing loans. At

                                            Page 55

<PAGE>



  December 31, 1996, $4.8 billion, or 48%, of California Federal's loans had
  the potential to experience negative amortization, while $0.9 billion, or 9%,
  of its loans were actually experiencing negative amortization.

     California Federal originated certain 15 and 30 year fully amortizing
  fixed rate residential 1-4 loans that conformed to the underwriting
  requirements of FNMA, primarily for resale in the secondary market. When
  loans were sold, California Federal normally retained the right to service
  the loan. Substantially all fixed rate loans in California Federal's loan
  portfolio contained a due-on-sale clause which provided that California
  Federal could, subject to certain regulatory restrictions, declare the unpaid
  principal amount due and payable upon the resale of the mortgaged property.
  Although adjustable rate loans in California Federal's loan portfolio
  contained a due-on-sale clause, by their terms they are transferable to a
  purchaser of the property if the purchaser met California Federal's credit
  standards.

     California Federal originated or purchased loans through several
  distribution channels, including: (i) through its lending offices located in
  California and Nevada ("retail loan production"), (ii) through a network of
  brokers who directed their clients to California Federal ("wholesale loan
  production"), (iii) through correspondent mortgage banking organizations,
  which originated loans, using California Federal's underwriting requirements,
  and then sold such loans to California Federal and (iv) purchases of loan
  pools.

     California Federal utilized several distribution channels for loan
  production in order to maximize its production efforts in a cost effective
  manner and to mitigate its dependence upon a single origination source.
  Wholesale loan production became a significantly greater source of loan
  production during 1995 and 1994 as compared to retail sources. During 1996,
  wholesale production of loans totalled $1.2 billion compared to $1.0 billion
  during 1995. Retail loan production totalled $587.5 million and $621.6
  million during 1996 and 1995, respectively. Additionally, during 1995 and
  1996 California Federal purchased a greater percentage of its loan production
  than in prior years. During 1996, California Federal purchased $805.9 million
  of loans; $306.8 million of this total were purchased with servicing rights.


                                            Page 56

<PAGE>



     The table below shows California Federal's total loan originations and
purchases for the periods indicated:
<TABLE>
<CAPTION>
                                                                 At December 31,
                               -------------------------------------------------------------------------------
                                  1996             1995               1994           1993             1992
                                  ----             ----               ----           ----             ----
                                                                 (in millions)
<S>                             <C>             <C>              <C>             <C>             <C>   
  Real estate
  Residential 1-4:
     Fixed rate (a)             $    820.0       $    456.1       $    186.2       $    824.3       $  1,211.5
     Adjustable rate               1,755.7          1,674.6          2,235.5          1,404.7          1,178.4
  Multi-Family:
     Fixed rate                        5.6              0.8              3.0              5.7             18.1
     Adjustable rate                  12.8             41.9            112.4            285.1            185.5
  Commercial Real Estate:
     Fixed rate                        0.5              1.2             16.3             35.5             47.7
     Adjustable rate                   3.3             62.2             79.5             45.6             69.3
  Equity                              10.4             10.5             22.5            210.5            259.2
                               -----------       ----------      -----------     ------------     ------------
Total real estate                  2,608.3          2,247.3          2,655.4          2,811.4          2,969.7
   Business banking                   23.1           --                  0.5              1.9             56.5
   Consumer                           96.5             99.3            118.6            129.2            332.2
                                ----------       ----------       ----------     ------------      -----------
Total loans originated and
  purchased (b)                    2,727.9          2,346.6          2,774.5          2,942.5          3,358.4
Loans refinanced                    (127.9)          (100.5)          (155.2)          (204.5)          (298.8)
                                ----------       -----------      ----------      -----------       ----------
Net loans originated
   for sale and investment
                                $  2,600.0       $  2,246.1       $  2,619.3       $  2,738.0       $  3,059.6
                                ==========       ==========       ==========       ==========       ==========
</TABLE>


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

(a)  Includes certain loans that will convert to an adjustable rate after an
     initial fixed rate period of three or five years.

(b)  Includes purchases of $805.9 million, $578.2 million, $229.2 million,
     $115.0 million, and $99.7 million for 1996, 1995, 1994, 1993, and 1992,
     respectively.



                                            Page 57

<PAGE>



     The table below shows the number and dollar amount of loans originated and
  purchased by California Federal. Adjustable rate loan originations and
  purchases are presented by rate adjustment index.

<TABLE>
<CAPTION>

                                           Year ended December 31, 1996                 Year ended December 31, 1995
                                   ------------------------------------------   --------------------------------------------
                                     Number of                  Average Loan    Number of                    Average Loan
                                       Loans        Amount          Amount       Loans           Amount          Amount
                                       -----        ------          ------       ------          ------          -------   
                                                (in millions) (in thousands)                  (in millions)  (in thousands)
<S>                                <C>            <C>             <C>           <C>          <C>               <C>
  Loans Originated:
        Residential 1-4
  Residential 1-4-- Wholesale          4,221        $  1,214.2      $  287.7       3,548        $  1,025.1      $  288.9
       Residential 1-4-- Retail        3,733             587.5         157.4       3,886             621.6         160.0
                                      ------        ----------      --------      ------        ----------        ------
       Total Residential               7,954           1,801.7         226.5       7,434           1,646.7         221.5
                                      ------        ----------      --------      ------        ----------        ------
        Multi-family                      44              13.1         297.7          57              20.6         361.4
        Commercial real estate             3               0.7         233.3           5               1.8         360.0
        Business banking                 207              16.8          81.2        --              --            --   
        Consumer                       2,580              89.7          34.8       3,038              99.3          32.7
                                                                                                ----------        ------
         Total loans originated       10,788           1,922.0         178.2      10,534           1,768.4         167.9
                                      ------        ----------      --------      ------        ----------        ------
Loans Purchased:
          Residential 1-4              3,325             784.4         235.9       1,898             494.5         260.5
  Multi-family                            19               5.3         278.9          87              22.1         254.0
  Commercial real estate                  11               3.1         281.8         130              61.6         473.8
  Business banking                        98               6.3          64.3        --              --            --   
  Consumer                               153               6.8          44.4        --              --            --   
                                      ------        ----------      --------      ------        ----------        ------
     Total loans purchased             3,606             805.9         223.5       2,115             578.2         273.4
                                      ------        ----------      --------      ------        ----------        ------
     Total loans originated and
        purchased                     14,394        $  2,727.9      $  189.5      12,649        $  2,346.6      $  185.5
                                      ======        ==========      ========      ======        ==========      ========
</TABLE>


                                            Page 58

<PAGE>




     The composition of California Federal's loan portfolio is set forth in the
following table at the dates indicated:
<TABLE>
<CAPTION>
                                                                      At December 31,
                                      --------------------------------------------------------------------------------
                                          1996             1995            1994             1993              1992
                                      -----------       ----------       ----------       -----------      -----------
                                                                       (in millions)
<S>                                  <C>               <C>              <C>              <C>             <C>  
Real estate:
  Residential 1-4:
      Fixed rate                      $   1,481.9       $    965.4       $    686.5       $     871.1      $   1,242.5
      Adjustable rate                     6,771.2          6,312.2          5,856.8           5,189.9          5,416.2
                                      -----------       ----------       ----------       -----------      -----------
                                          8,253.1          7,277.6          6,543.3           6,061.0          6,658.7
  Multi-Family:
     Fixed rate                              53.6             67.7             97.5             246.0            321.6
     Adjustable rate                      1,195.8          1,278.5          1,360.6           2,019.6          2,099.1
                                      -----------       ----------       ----------       -----------      -----------
                                          1,249.4          1,346.2          1,458.1           2,265.6          2,420.7
  Commercial Real Estate:
     Fixed rate                              37.7             53.6             74.8             216.4            224.8
     Adjustable rate                        449.5            488.4            490.3             740.3            877.8
                                      -----------       ----------       ----------       -----------      -----------
                                            487.2            542.0            565.1             956.7          1,102.6
  Equity                                     57.4             64.1             79.3              84.5            186.7
                                      -----------       ----------       ----------       -----------      -----------
     Total real estate                   10,047.1          9,229.9          8,645.8           9,367.8         10,368.7
Business banking                             16.9           --               --                  85.2            280.9
Consumer                                    194.7            249.6            322.6             433.7            925.5
                                      -----------       ----------       ----------       -----------      -----------
                                         10,258.7          9,479.5          8,968.4           9,886.7         11,575.1
Less:
  Undisbursed loan funds                     (0.3)             0.1           --                   1.3              4.9
  Deferred loan (costs) fees                (26.2)           (13.9)            (4.3)             23.8             42.0
  Allowance for loan losses                 173.1            181.0            211.6             254.3            324.0
  Unearned interest on
     equity/consumer loans                 --                  1.3              4.1              10.6             56.9
  Discount on acquired loans                  4.0              7.4              9.7              13.4             18.0
  Other deferrals                          --               --               --                  11.4             27.2
                                      -----------       ----------       ----------       -----------      -----------
Total loans receivable                   10,108.1          9,303.6          8,747.3           9,571.9         11,102.1
Less: Loans held for sale (a)                 8.7             13.6              1.3              44.3            497.7
                                      -----------       ----------       ----------       -----------      -----------
Loans receivable held for
  investment                          $  10,099.4       $  9,290.0       $  8,746.0       $   9,527.6      $  10,604.4
                                      ===========       ==========       ==========       ===========      ===========
</TABLE>

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

(a)  See the Notes to California Federal's consolidated financial statements
     for further details.

     The reduction in California Federal's loan portfolio since 1992 was due
primarily to (i) California Federal's need to comply with the capital
requirements of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989 ("FIRREA"), (ii) reduced levels of originations, (iii) a high level of
loan repayments, (iv) the sale of CTL, a subsidiary that specialized in the
origination of consumer loans, (v) the sale or securitization of loans, and
(vi) bulk sale transactions. During 1994, California Federal sold $1.3 billion
of loans through a series of bulk sale transactions. The bulk sale transactions
were designed to reduce California Federal's credit risk and concentrations of
non-performing and income property loans.

                                            Page 59

<PAGE>




     The table below shows the geographic distribution of California Federal's
gross real estate loan portfolio at December 31, 1996, 1995, and 1994,
respectively:
<TABLE>
<CAPTION>
                                                    Years ended December 31,
                         ------------------------------------------------------------------------------
                                   1996                       1995                      1994
                                  ------                     ------                    -----
                                                     (dollars in millions)
<S>                            <C>             <C>       <C>              <C>     <C>               <C>  
California                     $ 8,814.6       87.7%     $8,085.7         87.6%   $7,467.9          86.4%
Florida                            433.5        4.3         514.0          5.6       630.3           7.3
Nevada                             244.2        2.4         234.3          2.5       240.8           2.8
Georgia                             77.1        0.8          89.6          1.0       103.6           1.2
Texas                               47.9        0.5          27.9          0.3        25.0           0.3
Arizona                             46.9        0.5          33.1          0.4        24.2           0.3
Washington                          37.4        0.4          18.4          0.2         9.5           0.1
Colorado                            36.7        0.4          18.0          0.2         5.7           0.1
New Jersey                          33.9        0.3          32.5          0.3        27.9           0.3
New York                            32.3        0.3          34.5          0.4        30.5           0.3
Connecticut                         30.1        0.3          21.0          0.2        23.0           0.3
Illinois                            24.4        0.2          12.5          0.1         2.6           --
Other                              188.1        1.9         108.4          1.2        54.8           0.6
                               ---------      -----      --------        -----    --------         -----
                               $10,047.1      100.0%     $9,229.9        100.0%   $8,645.8         100.0%
                               =========      =====      ========        =====    ========         =====
</TABLE>

     The following table presents the composition of California Federal's gross
real estate loan portfolio by state and property type at December 31, 1996:
<TABLE>
<CAPTION>
                                                                              Commercial     Other
                       1-4 Unit       Multi-        Shopping       Office        and         Income                   % of
                     Residential      family         Centers     Buildings    Industrial    Property     Total        Total
                     -----------      -------       --------     ---------    ----------    --------     -----        ------
                                                            (dollars in millions)
<S>                    <C>           <C>              <C>         <C>          <C>           <C>     <C>               <C>  
 California            $7,192.6      $1,155.0         $63.3       $138.3       $249.8        $15.6   $  8,814.6        87.7%
  Florida                 397.9          26.0           3.0          1.5          3.6          1.5        433.5         4.3
  Nevada                  203.4          36.0           2.6          1.7          --           0.5        244.2         2.4
  Georgia                  67.6           7.6           0.2          1.2          --           0.5         77.1         0.8
  Texas                    46.3           1.6           --           --           --           --          47.9         0.5
  Arizona                  31.4          14.8           --           0.4          --           0.3         46.9         0.5
  Washington               32.6           4.8           --           --           --           --          37.4         0.4
  Colorado                 35.3           --            --           1.4          --           --          36.7         0.4
  New Jersey               33.9           --            --           --           --           --          33.9         0.3
  New York                 32.2           0.1           --           --           --           --          32.3         0.3
  Connecticut              30.1           --            --           --           --           --          30.1         0.3
  Illinois                 23.5           0.9           --           --           --           --          24.4         0.2
  Other (a)               183.7           2.6           --           1.1          --           0.7        188.1         1.9
                       --------      --------         -----       ------       ------        -----    ---------       -----
     Total             $8,310.5      $1,249.4         $69.1       $145.6       $253.4        $19.1    $10,047.1       100.0%
                       ========      ========         =====       ======       ======        =====    =========       =====
% of Total                 82.7%         12.4%          0.7%         1.5%         2.5%         0.2%       100.0%
                           ====          ====           ===          ===          ===          ===        =====
</TABLE>
------------------

(a)  Includes states with aggregate gross real estate loans that are less than
     $23 million.

     California Federal's delinquencies and resulting 1996 residential 1-4
charge-offs primarily resulted from loans originated between 1988 and 1991.
Additionally, larger balance loans (those in excess of $300,000) comprised a
substantial amount of loans in which charge-offs were recorded. California
Federal's residential 1-4 delinquencies at December 31, 1996 decreased
approximately 36% from delinquencies at December 31, 1995.

     California Federal's multi-family portfolio at December 31, 1996 was
primarily composed of loans originated during

                                            Page 60

<PAGE>



the period 1985 through 1988 (58.8%) and loans less than $750,000 (68.8%).
Correspondingly, 98.0% of California Federal's multi-family loans had an
original loan to value ratio of 80% or less. California Federal's delinquent
multi-family loans at December 31, 1996 primarily consisted of loans with
balances less than $1.0 million, originated between 1984 through 1990 (81.9%).

     California Federal's commercial real estate portfolio at December 31, 1996
was primarily composed of loans originated during 1985 through 1988 (74.9%)
with LTV ratios of 80% or less (74.0%). California Federal's delinquent
commercial real estate loans at December 31, 1996 primarily consisted of loans
with balances less than $3.0 million, originated between 1986 through 1988
(80.6%).

     Since 1990, California Federal has not been active in the origination of
commercial real estate loans, except to finance the sale of real estate owned.
At December 31, 1996, $365.1 million, or 75.0% of California Federal's
commercial real estate loan portfolio was comprised of loans originated between
1985 through 1988. The 1994 Bulk Sales included a substantial amount of
delinquent commercial real estate loans and large performing loans. At December
31, 1996, 55.9% of California Federal's commercial real estate loan portfolio
was concentrated in commercial warehouses and industrial buildings. Many of
these loans were occupied by owner users with balances that are typically $1.0
million or lower.

     The composition of California Federal's gross consumer loan portfolio is
set forth in the following table at the dates indicated:

                                                December 31,
                                       ----------------------------
                                        1996        1995       1994
                                        ----        ----       ----
                                               (in millions)
Consumer loans:
  Mobile homes                         $  53.0    $  66.3    $  79.6
  Vehicles                                 2.1       21.5       49.4
  Equity credit line                     117.4      137.8      168.7
  Unsecured                               14.1       14.6       16.1
  Loans secured by deposits                8.1        9.4        8.8
                                        ------     ------     ------
          Total consumer loans          $194.7     $249.6     $322.6
                                        ======     ======     ======

     Since 1993, California Federal had ceased actively originating consumer
loans for its own portfolio. California Federal continued to originate consumer
loans on an agency basis for other financial institutions. Additionally, in
1993, California Federal sold CTL, a subsidiary of California Federal that had
specialized in the origination of automobile loans, further reducing the level
of California Federal's consumer loan portfolio.


                                            Page 61

<PAGE>




     At December 31, 1996, $1.6 billion of fixed rate loans and approximately
$8.6 billion of adjustable rate loans were contractually due after one year.
The following table presents the remaining contractual maturities of California
Federal's gross loan portfolio at December 31, 1996:
<TABLE>
<CAPTION>
                                        Over One      Over Three      Over Five      Over Ten
                           Within      But Within     But Within     But Within     But Within      Over
                          One Year     Three Years    Five Years      Ten Years      15 Years     15 Years      Total
                          --------     -----------    ----------      ---------      --------     --------      -----
                                                                  (in millions)
<S>                      <C>          <C>            <C>           <C>              <C>           <C>           <C>
Real Estate:
  Residential 1-4:
    Fixed rate             $ 5.6      $    8.6        $  32.6         $  62.1       $  49.1   $1,323.9    $  1,481.9
    Adjustable rate          1.0           1.5            4.5            18.5          43.0    6,702.7       6,771.2
  Income property:
    Fixed rate              11.5          11.7           27.1            28.9           9.8        2.3          91.3
    Adjustable rate         12.5          75.1          175.8           231.3          65.3    1,085.3       1,645.3
  Equity                     1.2           1.4            1.5            17.2          28.8        7.3          57.4
                           -----        ------        -------         -------       -------   --------    ---------- 
Total real estate           31.8          98.3          241.5           358.0         196.0    9,121.5      10,047.1
Business banking            11.2           2.8            2.4             0.5           --         --           16.9
Consumer                    38.8          32.2           33.0            52.2          27.0       11.5         194.7
                           -----        ------        -------         -------       -------   --------    ---------- 
                           $81.8        $133.3         $276.9          $410.7        $223.0   $9,133.0     $10,258.7
                           =====        ======        =======         =======       =======   ========    ==========
</TABLE>

     Sales of Loans and Loan Servicing Activities. From time to time,
California Federal sold loans in order to manage the growth of its loan
portfolio, to aid in managing its capital position, to provide additional
sources of cash flow, to enable California Federal to refine the composition
and interest rate sensitivity of its loan portfolio and for other reasons.
California Federal's loans held for sale were $8.7 million and $13.6 million at
December 31, 1996 and 1995, respectively. California Federal continually
reviewed the composition and level of its loan origination activity in order to
determine the level of loans originated for sale. Fixed rate residential 1-4
loans that conformed to the underwriting criteria of FHLMC and FNMA were
generally originated for sale, while originations of adjustable rate mortgage
loans and non-conforming fixed rate loans were primarily originated for
investment. California Federal established desired ranges for portfolio and
asset growth based upon numerous factors, including origination volume and mix,
portfolio repayments and payoffs, desired servicing portfolio levels and
regulatory capital requirements. These factors collectively entered into the
determination of the amount of fixed rate loans originated for sale. California
Federal typically did not hold such loans in its long-term portfolio because of
asset/liability management considerations.

     California Federal recorded gains or losses from the sale of loans that it
continueed to service for others by computing the present value of the
difference between the yield on the loans sold and the yield to be paid to the
buyer, reduced by normal servicing fees ("excess servicing"), over the
estimated remaining life of the loans. The present value gain or loss was based
upon market prepayment, default and discount rate assumptions. An asset (i.e.,
the present value of excess servicing) equal to the present value gain was
recorded at the time a loan was sold and was amortized over the estimated
remaining life of the loan. California Federal monitored actual prepayments on
the related loans and reduced the balance of the recorded amount of excess
servicing by a charge to earnings if actual prepayments exceeded California
Federal's estimate. At December 31, 1996, the amount of capitalized excess
servicing recorded by California Federal was $4.8 million. California Federal
did not experience a material impact to its results of operations or financial
condition from the adoption of SFAS No. 122 in the first quarter of 1996.


                                            Page 62

<PAGE>




     In most cases, when loans are sold, California Federal retained the
servicing of the loans for the purchaser. California Federal received an annual
servicing fee, in the range of 25 to 40 basis points, for servicing loans for
others. California Federal received $10.9 million, $12.4 million, and $14.6
million in loan servicing fees for the years ended December 31, 1996, 1995, and
1994, respectively. Fees generated from servicing loans for others were
included in fee income in the consolidated financial statements. The following
table summarizes loans serviced for others at the dates indicated:


                                     December 31,
             -----------------------------------------------------------------
Investor       1996         1995           1994           1993         1992
--------       ----         ----           ----           ----         ----
                                     (in millions)
FNMA          $2,221.7     $2,323.2         $2,379.0     $2,720.4      $2,764.8
FHLMC            151.2        117.7            137.0        168.8         225.0
Other          1,092.5      1,341.4          1,943.3      2,446.1       3,261.2
             ---------     --------         --------     --------      --------
              $3,465.4     $3,782.3         $4,459.3     $5,335.3      $6,251.0
              ========     ========         ========     ========      ========

LOAN PORTFOLIO RISK ELEMENTS

     In order to reduce credit risk, California Federal maintained underwriting
criteria for each of its loan programs. As is the case with all other lenders,
however, certain of California Federal's borrowers became unable or unwilling
to pay interest or principal when due. Among the reasons for such defaults were
adverse conditions in the regional or national economy, unemployment, an
oversupply of space for lease and an increase in vacancies, a decline in real
estate values, and other factors. In such cases, following efforts to encourage
borrowers to cure their defaults, California Federal normally commenced
proceedings to foreclose upon the property securing the loan. Such proceedings
may have been delayed by litigation or bankruptcy initiated by the borrower.
California Federal's risk of loss related both to the frequency of such
defaults and to the severity of loss. The loss was primarily composed of the
excess, if any, of the outstanding principal balance of the loan plus accrued
interest and escrow advances over the value of the collateral at the time of
foreclosure. In some instances, California Federal may have been able to
recover any loss it incurred from other assets of the borrower but, generally,
this was not possible.

    Loans on which California Federal had ceased the accrual of interest
("non-accrual loans") and loans on which various concessions had been made due
to the inability of the borrower to service the obligation under the original
terms of the agreement ("restructured loans") constituted the primary
components of the portfolio of non-performing loans. Under certain limited
circumstances, prior to 1993, California Federal continued to accrue interest
on loans that were delinquent 90 days or more ("past due loans"). At December
31, 1996, all loans more than 90 days delinquent were on non-accrual status.
California Federal may have placed a performing loan on non-accrual status,
and/or designated a loan as impaired if California Federal believed that a
default was probable or the full collection of principal and interest was
doubtful.


                                            Page 63

<PAGE>




     Non-accrual loans. California Federal generally placed a loan on
non-accrual status whenever the payment of interest was 90 days or more
delinquent, or earlier if the timely collection of interest and/or principal
appeared doubtful. Loans on non-accrual status were resolved by: (i) the
borrower bringing the loan current, (ii) California Federal and the borrower
agreeing to modify the terms of the loan, or (iii) foreclosure upon the
collateral securing the loan. The following table presents California Federal's
gross non-accrual loans by state at the dates indicated:


                                        December 31,
                     -----------------------------------------------------
                      1996       1995       1994        1993       1992
                      ----       ----       ----        ----       ----
                                        (in millions)
California          $117.5     $188.7      $162.8     $414.0     $575.9
Florida                6.4        8.5         9.7       33.8       70.9
Alabama                --         --          --         --        20.8
North Carolina         --         --          --         --        13.2
Nevada                 2.1        3.5         1.5        6.2       11.7
Georgia                0.4        1.2         0.9       14.3        8.0
Other                  3.2        4.4         3.3       47.1       24.6
                    ------     ------      ------     ------     ------
                    $129.6     $206.3      $178.2     $515.4     $725.1
                    ======     ======      ======     ======     ======


    The following table shows California Federal's portfolio of gross
non-accrual loans by state and type at December 31, 1996:

<TABLE>
<CAPTION>
                         1-4 Unit     Multi-                                                      % of
                       Residential    Family       Commercial       Consumer        Total         Total
                       -----------   --------      -----------     ---------    ---------       -------
                                                    (dollars in millions)
<S>                      <C>          <C>             <C>             <C>         <C>             <C>  
California               $52.4        $49.6           $14.1           $1.4        $117.5          90.7%
Florida                    4.8          0.3            1.0             0.3           6.4           4.9
Nevada                     1.4          0.6             --             0.1           2.1           1.6
New Jersey                 1.7          --              --             --            1.7           1.3
Other                      1.8          --              --             0.1           1.9           1.5
                         -----        -----           -----           ----        ------         -----
Total                    $62.1        $50.5           $15.1           $1.9        $129.6         100.0%
                         =====        =====           =====           ====        ======         =====
% of Total                47.9 %       39.0%           11.6%           1.5%        100.0%
                         =====        =====           =====           ====        ======
</TABLE>

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

(a)  Includes states with totals less than $1 million.

                                            Page 64

<PAGE>





     Restructured Loans. California Federal, in an effort to maximize the value
of its loans that were not performing under their contractual terms, may have
modified such loans at terms that are less favorable than the current market.
Restructured loans had interest rates that may have been less than current
market rates or may have contained other concessions. Since 1990, California
Federal generally declined to restructure loans except in special situations
where recovery seemed likely.

The following table presents gross restructured loans by state at the dates
indicated:


                                      December 31,
                     -------------------------------------------------
                     1996       1995      1994       1993      1992
                     ----       ----      ----       ----      ----
                                      (in millions)
California           $3.2       $3.1      $5.8       $14.5     $52.8
Texas                  --         --        --         --        0.8
Florida                --         --        --         --        5.9
North Carolina         --         --        --         --        2.5
Other                  --        0.2        --         2.3       2.2
                     ----       ----      ----       -----     -----
                     $3.2       $3.3      $5.8       $16.8     $64.2
                     ====       ====      ====       =====     =====

     Please refer to "Management's Discussion and Analysis of Results of
Operations and Financial Condition--California Federal" for further information
on the change in the composition of non-performing loans during 1996 and 1995.

CREDIT LOSS EXPERIENCE

     California Federal, in an effort to mitigate the risk of credit losses in
a timely manner, performed periodic reviews of any asset that was identified as
having potential excess credit risk. California Federal maintained special
departments with responsibility for resolving problem loans and selling real
estate acquired through foreclosure in order to facilitate this process.
Valuation allowances for estimated potential future losses were established on
a specific and general basis. Specific allowances for real estate secured loans
were determined by the excess of the recorded investment in the loan over the
fair market value of the collateral. General valuation allowances were provided
for losses inherent in the loan portfolio which were specifically identified.
The general valuation allowance was based upon a number of factors, including:
(i) historical loss experience, (ii) composition of the loan portfolio, (iii)
loan classifications, (iv) prevailing and forecast economic conditions and (v)
management's judgment. A more detailed discussion of California Federal's
policies for determining valuation allowances is presented in "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--California Federal--Provision for Loan Losses" and Notes to
California Federal's consolidated financial statements.


                                            Page 65

<PAGE>



     The table below shows California Federal's specific and general allowances
for loan losses by loan type at the dates indicated:
<TABLE>
<CAPTION>

                                                               December 31,
                               -----------------------------------------------------------------------------
                                  1996            1995            1994              1993           1992
                                  ----            ----            ----              ----           ----
                                                    (in millions)
<S>                             <C>              <C>             <C>             <C>             <C>   
Specific Allowance:
  Real Estate:
     Residential 1-4              $ --            $ --            $    4.1        $    3.5        $ --
     Income property                  11.7            24.3            30.4            54.4            55.5
                                  --------        --------        --------        --------        --------
  Total real estate                   11.7            24.3            34.5            57.9            55.5
  Commercial banking                --              --              --                 0.2            16.3
                                  --------        --------        --------        --------        --------
Total specific allowance              11.7            24.3            34.5            58.1            71.8
                                  --------        --------        --------        --------        --------
General Allowance:
  Real Estate:
     Residential 1-4                  45.0            45.0            44.0            49.0            20.0
     Income property                  96.4            90.0           112.0           121.1           141.9
                                  --------        --------        --------        --------        --------
          Total real estate          141.4           135.0           156.0           170.1           161.9
  Commercial banking                --              --              --                 5.0            55.0
  Consumer                            10.0            11.7            11.1            11.1            25.3
  Unallocated                         10.0            10.0            10.0            10.0            10.0
                                  --------        --------        --------        --------        --------
Total general allowance              161.4           156.7           177.1           196.2           252.2
                                  --------        --------        --------        --------        --------
Total allowance for loan losses   $  173.1        $  181.0        $  211.6        $  254.3        $  324.0
                                  ========        ========        ========        ========        ========
</TABLE>


     The table below shows the activity in the allowance for loan losses for
the years indicated:
<TABLE>
<CAPTION>
                                                                      December 31,
                                             ---------------------------------------------------------------
                                                 1996         1995         1994         1993        1992
                                                 ----         ----         ----         ----        ----
                                                                      (in millions)
<S>                                             <C>         <C>          <C>          <C>         <C>   
Balance, January 1                              $181.0      $211.6       $254.3       $324.0      $332.4
Provision for loan losses                         41.3        31.8         74.9 (b)    163.5       126.4
Allocations from general allowances                0.6         --           --           --          --
Charge-offs (a)                                  (57.4)      (72.4)      (123.3)      (240.5)     (141.6)
Recoveries                                         7.6        10.0          5.7         14.4         6.8
                                                ------      ------      -------      -------     -------
Net charge-offs                                  (49.8)      (62.4)      (117.6)      (226.1)     (134.8)
Allowances of sold subsidiary (CTL)                --          --           --          (7.1)        --
                                                ------      ------      -------      -------     -------
Balance, December 31                            $173.1      $181.0       $211.6       $254.3      $324.0
                                                ======      ======      =======      =======     =======
Ratio of net charge-offs during the period
  to average loans outstanding during the
  period                                         0.51%       0.69%        1.35%        2.21%       1.13%
                                                 ====        ====         ====         ====        ====
</TABLE>
---------------

(a)  Includes 1994 net charge-offs of $60.4 million that were established prior
     to designating the associated assets for inclusion in the 1994 Bulk Sales
     and 1993 net charge-offs of $80.0 million related to the 1993 bulk sale.
     Exclusive of the 1994 and 1993 bulk sale charge-offs, the ratio of net
     charge-offs to average loans outstanding was 0.66% and 1.46%,
     respectively.

(b)  The $274.8 million loss on assets held for accelerated disposition is
     reported as a separate line item on California Federal's Consolidated
     Statements of Operations and is excluded from provision for loan losses.


                                            Page 66

<PAGE>



     The table below presents the components of charge-offs and recoveries by
category for the years indicated:

<TABLE>
<CAPTION>
                                                     December 31,
                                  ---------------------------------------------------
                                   1996       1995       1994        1993        1992
                                   ----       ----       ----        ----        ----
                                                   (in millions)
<S>                             <C>         <C>        <C>         <C>        <C>
Charge-offs:
  Real estate loans:
     Residential 1-4              $(28.1)    $(24.8)   $  (19.5)   $  (44.1)  $    (9.3)
     Income property
       Multi-family                (18.4)     (30.2)      (56.1)      (64.9)      (39.9)
       Commercial Real Estate       (2.9)     (12.0)      (33.9)      (57.8)      (57.9)
                                  ------    -------    --------    --------   ---------
     Total income property         (21.3)     (42.2)      (90.0)     (122.7)      (97.8)
                                  ------    -------    --------    --------   ---------
  Total real estate loans          (49.4)     (67.0)     (109.5)     (166.8)     (107.1)
  Commercial banking                 --         --         (6.8)      (61.0)      (20.2)
  Consumer                          (8.0)    (5.4)         (7.0)      (12.7)      (14.3)
                                  ------    -------    --------    --------   ---------
          Total charge-offs        (57.4)     (72.4)     (123.3)     (240.5)     (141.6)
                                  ------    -------    --------    --------   ---------
Recoveries:
  Real estate loans:
     Residential 1-4                 4.2        3.1         0.9         1.2         0.1
     Income property
       Multi-family                  1.7        5.2         0.9         4.7         3.3
       Commercial Real Estate        0.2        0.5         0.7         6.5         0.5
                                  ------    -------    --------    --------   ---------
     Total income property           1.9        5.7         1.6        11.2         3.8
                                  ------    -------    --------    --------   ---------
  Total real estate loan             6.1        8.8         2.5        12.4         3.9
  Commercial banking                 --         --          2.1         0.3         0.1
  Consumer                           1.5        1.2         1.1         1.7         2.8
                                  ------    -------    --------    --------   ---------
          Total recoveries           7.6       10.0         5.7        14.4         6.8
                                  ------    -------    --------    --------   ---------
          Total net charge-offs   $(49.8)    $(62.4)    $(117.6)    $(226.1)    $(134.8)
                                  ======    =======    ========    ========   =========
</TABLE>


REAL ESTATE HELD FOR SALE

     Real estate owned ("REO") results when property collateralizing a loan is
foreclosed upon, or otherwise acquired in satisfaction of the loan. California
Federal recorded its investment in REO at the lower of (i) appraised value less
expected disposition cost or (ii) the historical cost basis of the REO.

     At December 31, 1995, California Federal's principal real estate
investment was a 97 unit, luxury high-rise condominium project in Los Angeles.
The condominium project had 31 unsold units at December 31, 1995 and a net book
value of $27.3 million. During 1996, California Federal sold the condominium
project. No profit or loss resulted from the sale.


                                            Page 67

<PAGE>




     The following table presents the composition of real estate held for sale,
net of allowances, at the dates indicated:
<TABLE>
<CAPTION>


                                                             Year end December 31,
                                               ------------------------------------------------
                Property Type                        1996            1995            1994
                -------------                        ----            ----            ----
                                                                 (in millions)
<S>                                                 <C>             <C>              <C>  
Residential 1-4                                     $11.3           $47.3            $58.6
Multi-family                                          1.2             1.5              5.1
Office buildings                                      0.1             0.3              5.6
Hotels                                                --              --               6.1
Other                                                 0.3             0.4              2.5
                                                    -----           -----            -----
                                                    $12.9           $49.5            $77.9
                                                    =====           =====            =====

REO                                                 $11.4           $22.2            $39.1
Real estate held for investment                       1.5            27.3             38.8
                                                    -----           -----            -----
                                                    $12.9           $49.5            $77.9
                                                    =====           =====            =====
</TABLE>


     The following table shows the detail of California Federal's net real
estate held for sale by state at the dates indicated:

<TABLE>
<CAPTION>
                                                              December 31,
                                                  -------------------------------------
                                                   1996          1995            1994
                                                   ----          ----            ----
                                                             (in millions)
<S>                                                <C>           <C>             <C>  
California                                         $12.4         $47.7           $70.9
Florida                                              0.3           1.2             0.7
Alabama                                              --            0.1             6.1
Other                                                0.2           0.5             0.2
                                                   -----         -----           -----
                                                   $12.9         $49.5           $77.9
                                                   =====         =====           =====
</TABLE>

     The decline in the level of real estate held for sale during 1996 resulted
primarily from the sale of the condominium project. The decline since 1994 also
reflects the effect of the 1994 Bulk Sales which eliminated $419.2 million of
non-performing loans and $822.1 million of performing loans with high risk
characteristics. The sale of these loans in 1994 resulted in a decline in
delinquencies and foreclosures and consequently a lower level of REO. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--California Federal--Other Expenses--Operations of Real Estate Held
for Sale" for additional information on real estate held for sale.

  INVESTMENT ACTIVITIES

     Securities

     California Federal's securities were comprised of: (i) short-term liquid
investments, which principally consisted of federal funds sold and certificates
of deposit, (ii) securities purchased under agreements to resell ("repurchase
agreements"), (iii) securities available for sale, which consisted primarily of
U.S. Treasury securities, and (iv) securities held to maturity, which
principally consisted of mortgage-backed securities. These securities provided
flexibility and risk diversification beyond real estate secured assets.
Additionally, California Federal was required by federal regulations to
maintain a specified minimum amount of liquid assets. California Federal
maintained liquidity at a level to assure adequate funds, taking into account
anticipated cash flows and available sources of credit, to afford future
flexibility to meet deposit withdrawal requests and loan commitments or to make
other investments. California Federal consistently maintained its liquidity
ratio above that required by federal regulations.


                                            Page 68

<PAGE>



     Short-Term Liquid Investments

     Federal Funds Sold. Federal funds sold were invested with various members
of the Federal Reserve System to maintain short-term liquidity needs. The
amount of short-term liquid assets held by California Federal at any point in
time was a function of many factors, including liquidity requirements,
projected cash requirements and actual cash flows.

     The following table presents California Federal's investment in short-term
liquid investments at the dates indicated:
<TABLE>
<CAPTION>
                                                                   December 31,
                                          --------------------------------------------------------------------
                                                   1996                    1995                     1994
                                           -------------------     -------------------     -------------------
                                           Amount        Yield     Amount        Yield     Amount        Yield
                                           ------        -----     ------        -----     ------        -----
                                                                   (dollars in millions)
<S>                                         <C>           <C>       <C>           <C>      <C>             <C>  
  Fed funds sold and commercial paper       $69.0         6.08%     $70.0         5.80%    $330.0          6.28%
  Certificates of deposit                     --          --          4.1         5.19        3.8          3.18
                                            -----         ----      -----         ----     ------          ----
                                            $69.0         6.08%     $74.1         5.77%    $333.8          6.25%
                                            =====         ====     ======         ====    ======           ====
</TABLE>

    Please see the Notes to California Federal's Consolidated Financial
Statements for further information on short-term liquid investments.

     Securities Purchased Under Agreements to Resell

     California Federal invested in repurchase agreements to maximize its yield
on liquid assets. California Federal obtained collateral for repurchase
agreements, which normally consisted of U.S. Treasury securities or
mortgage-backed securities guaranteed by agencies of the U.S. government. The
duration of repurchase agreements was typically 30 days or less during which
the collateral consisting of U.S. Treasury securities or mortgage-backed
securities was held by a third party trustee for California Federal. At
December 31, 1996, California Federal held $1.3 billion of repurchase
agreements as compared to $1.7 billion and $48.2 million at December 31, 1995
and 1994, respectively. The yield on such securities was 6.72%, 6.01% and 5.70%
at December 31, 1996, 1995 and 1994, respectively.

     The following table presents California Federal's repurchase agreements at
the dates indicated:

<TABLE>
<CAPTION>
                                                                   December 31,
                                          --------------------------------------------------------------------
                                                   1996                    1995                     1994
                                           -------------------     -------------------     -------------------
                                           Amount        Yield     Amount        Yield     Amount        Yield
                                           ------        -----     ------        -----     ------        -----
                                                                   (dollars in millions)
<S>                                         <C>         <C>       <C>           <C>      <C>             <C>  
Investment period:
  7 days or less                          $1,310.1       6.72%   $1,097.5        6.04%     $48.2        5.70%
  8-30 days                                     --         --       577.1        5.95        --           --
                                          --------       ----    --------        ----      -----        ----
                                          $1,310.1       6.72%   $1,674.6        6.01%     $48.2        5.70%
                                          ========       ====    ========        ====      =====        ====
</TABLE>

     The following table presents California Federal's recorded investment in
assets pledged as collateral for repurchase agreements at the dates indicated:

<TABLE>
<CAPTION>
                                                  December 31,
                             -------------------------------------------------------
                                1996                  1995                   1994
                                ----                  ----                   ----
                                                  (in millions)
<S>                           <C>                  <C>                      <C>  
  U.S. Treasury securities    $     51.6           $         --             $48.3
  Mortgage-backed securities     1,289.6                1,704.4                --
                               ---------              ---------             -----
                                $1,341.2               $1,704.4             $48.3
                                ========               ========             =====
</TABLE>

     Please see the Notes to California Federal's Consolidated Financial
Statements for further information on repurchase agreements.


                                            Page 69

<PAGE>



     Securities Available for Sale

     California Federal's securities available for sale consisted of U.S.
Treasury securities.

     The carrying values and market values of securities available for sale at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
                                                                                    Weighted
                                            Historical     Carrying      Market      Average
                                                Cost         Value        Value       Rate
                                            ----------     --------      ------      --------
                                                    (dollars in millions)
<S>                                         <C>            <C>         <C>         <C>
U.S. Treasury securities:
  Maturing after 1 year but within 5 years       $6.0         $6.0        $6.0          6.13%
                                                 ====         ====        ====          ====
</TABLE>

     The carrying values and market values of securities available for sale at
December 31, 1995 were as follows:
<TABLE>
<CAPTION>
                                                                                    Weighted
                                            Historical     Carrying      Market      Average
                                                Cost         Value        Value       Rate
                                            ----------     --------      ------      --------
                                                     (dollars in millions)
<S>                                         <C>            <C>         <C>         <C>
U.S. Treasury securities:
  Maturing within 1 year                       $150.0       $149.9      $149.9          4.00%
  Maturing after 1 year but within 5 years       50.3         50.4        50.4          7.46
                                               ------       ------      ------          ----
                                               $200.3       $200.3      $200.3          4.87%
                                               ======       ======      ======          ====
</TABLE>

     The carrying values and market values of securities available for sale at
December 31, 1994 were as follows:

<TABLE>
<CAPTION>
                                                                                    Weighted
                                            Historical     Carrying      Market      Average
                                                Cost         Value        Value       Rate
                                            ----------     --------      ------      --------
                                                     (dollars in millions)
<S>                                         <C>            <C>         <C>         <C>
U.S. Treasury securities:
  Maturing within 1 year                     $1,001.2    $  997.5   $   997.5          4.64%
  Maturing after 1 year but within 5 years      749.5       734.0       734.0          6.19
                                             --------    --------   ---------          ----
                                             $1,750.7    $1,731.5   $ 1,731.5          5.30%
                                             ========    ========   =========          ====
</TABLE>


     California Federal did not hold marketable equity securities at December
31, 1996, 1995 or 1994. See the Notes to California Federal's Consolidated
Financial Statements for further information on California Federal's portfolio
of debt and equity securities.

     Securities Held to Maturity

     California Federal invested only in mortgage-backed securities and
corporate debt securities which were rated in one of the highest four grades by
nationally recognized rating organizations. These securities may have been used
as collateral for California Federal's borrowing requirements.

                                            Page 70

<PAGE>



     The following table presents California Federal's portfolio of securities
held to maturity at the dates indicated:
<TABLE>
<CAPTION>
                                                                December 31,
                                    ----------------------------------------------------------------------
                                           1996                     1995                     1994
                                    -----------------       -------------------    -----------------------
                                     Amount     Yield       Amount        Yield     Amount           Yield
                                    --------    -----       ------        -----    -------           ------
                                                    (dollars in millions)
<S>                                 <C>          <C>       <C>             <C>      <C>               <C>  
Mortgage-backed securities          $1,963.9     6.82%     $2,366.7        6.93%    $2,513.7          6.08%
Corporate obligations                     --       --            --          --         11.4          9.37
                                    --------               --------                 --------     
                                    $1,963.9     6.82%     $2,366.7        6.93%    $2,525.1          6.09%
                                    ========               ========                 ========
</TABLE>

     California Federal invested primarily in mortgage-backed securities issued
by agencies of the United States. These investments were made by either
purchasing such securities or obtaining them by exchanging pools of mortgage
loans originated or purchased by California Federal for the securities
("securitized loans"). California Federal invested in mortgage-backed
securities primarily to provide a source of collateral in support of California
Federal's funding activities and to strengthen California Federal's regulatory
capital position.

     Summarized below are the carrying values of mortgage-backed securities,
net of discounts, at the dates indicated:
<TABLE>
<CAPTION>
                                                               December 31,
                                                   -------------------------------------
                                                         1996         1995        1994
                                                         ----         ----        ----
                                                                (in millions)
<S>                                                     <C>          <C>         <C>     
FNMA                                                    $1,038.2     $1,192.7    $1,359.5
California Federal AA-rated mortgage pass-through
  securities                                               623.9        802.3       787.1
Other                                                      301.8        371.7       367.1
                                                        --------     --------    --------
Total mortgage-backed securities                        $1,963.9     $2,366.7    $2,513.7
                                                        ========     ========    ========
</TABLE>

     See "Management's Discussion and Analysis of Results of Operations and
Financial Condition--California Federal" and Note 1 to California Federal's
Consolidated Financial Statements for further information.

SOURCES OF FUNDS

     In addition to funds generated from loan payments and payoffs and from the
sale of loans and securities available for sale, California Federal derived
funds from deposits, Federal Home Loan Bank of San Francisco ("FHLB") advances,
securities sold under agreements to repurchase, and other short-term and
long-term borrowings. Please refer to "Management's Discussion and Analysis of
Results of Operations and Financial Condition--California Federal" for further
information.


                                            Page 71

<PAGE>



     Deposits

     The largest source of funds for California Federal was retail deposits.
California Federal primarily obtained its deposits through a network of its
full service branches located in California and Nevada. Deposits were a cost
effective source of funds and provided a customer base for other products and
services offered by California Federal. California Federal had several types of
deposit accounts designed to attract both short-term and long-term deposits.
The following table sets forth the weighted average interest rates and the
amounts of deposits for California Federal at the dates indicated:
<TABLE>
<CAPTION>
                                                 Weighted Average Rate
                                                    at December 31,                    Balance at December 31,
                                             ----------------------------        -------------------------------
                                              1996       1995        1994        1996         1995          1994
                                              ----       ----        ----        ----         ----          ----
                                                                                         (in millions)
<S>                                        <C>         <C>         <C>         <C>         <C>             <C>
No minimum term-checking:
  Money market                                1.18%       1.24%       1.24%    $ 677.2      $   764.2     $   850.1      
Noninterest-bearing commercial                --          --          --         324.7          216.9         184.9      
No minimum term-savings:                                                                                                 
  Passbook Accounts                           2.21        2.22        2.22       424.1          509.7         578.2      
  Money market savings                        3.77        3.52        3.15     1,395.1        1,244.2       1,271.0      
Certificate Accounts                                                                                                     
  Original term:                                                                                                         
     Less than 3 months                       4.42        4.18        3.10        98.5          150.0         108.3      
     3 months to 6 months                     5.09        5.23        4.03       433.7          812.4         562.7      
     7 months to 12 months                    5.44        5.70        4.97     3,116.5        1,882.9       2,559.6      
     13 months to 24 months                   5.91        6.22        4.67     1,934.8        3,263.6       1,550.6      
     25 months to 36 months                   5.89        5.52        5.37        61.8           72.3          76.4      
     37 months to 48 months                   5.61        6.16        6.60        21.1           51.5          82.1      
     49 months to 60 months                   6.14        6.37        6.78       162.2          197.6         221.5      
     Over 60 months                           7.08        7.24        7.33       269.0          311.4         315.5      
                                              ----        ----        ----    --------       --------      --------                 
                                              4.64%       4.87%       4.02%   $8,918.7       $9,476.7      $8,360.9      
                                              ====        ====        ====    ========       ========      ========
</TABLE>

     The following table provides additional deposit information at December
31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>


                                                                  At December 31,
                                                     ------------------------------------------
                                                         1996          1995           1994
                                                         ----          ----           ----
                                                                   (in millions)
<S>                                                      <C>             <C>           <C>      
Passbook Accounts                                        $   424.1       $   509.7     $   578.2
Money Market Accounts                                      2,072.3         2,008.4       2,121.1
Noninterest-bearing Commercial Accounts                      324.7           216.9         184.9
                                                        ----------      ----------    ----------
                                                           2,821.1         2,735.0       2,884.2
                                                         ---------       ---------    ----------
Certificate Accounts:
  2.00% to 2.99%                                              10.6            16.5          28.9
  3.00% to 3.99%                                               3.9            22.5         861.0
  4.00% to 4.99%                                             146.0           208.2       2,352.4
  5.00% to 5.99%                                           5,123.1         2,545.3       1,605.3
  6.00% to 6.99%                                             538.3         3,630.4         296.9
  7.00% to 7.99%                                             274.6           293.0         322.9
  8.00% to 8.99%                                               1.1            23.3           3.4
  9.00% to 9.99%                                               --              2.5           4.6
  10.00% to 11.99%                                             --            --              1.3
                                                         ---------        --------     ---------
     Total Certificate Accounts                            6,097.6         6,741.7       5,476.7
                                                         ---------        --------      --------
                                                          $8,918.7        $9,476.7      $8,360.9
                                                          ========        ========      ========
</TABLE>
                                            Page 72

<PAGE>


     At December 31, 1996, deposits of California Federal had the following
remaining contractual maturities:
<TABLE>
<CAPTION>
                                                   Over 3      Over 6      Over 12      Over 24                 
                                                   Months      Months      Months       Months
                                                     But         But         But          But
                                       3 Months   Within 6    Within 12   Within 24    Within 36   Over 36
                                       or Less     Months      Months      Months       Months      Months      Total
                                       --------   --------    ---------   ---------    ---------   -------      -----
                                                                      (in millions)
<S>                                 <C>          <C>          <C>          <C>          <C>        <C>       <C>       
Passbook Accounts                   $    424.1   $   --       $   --       $   --       $ --       $   --    $    424.1
Money Market and Noninterest-
  bearing Commercial Accounts          2,397.0       --           --           --         --           --       2,397.0
Certificate Accounts:
  2.00% to 2.99%                          10.6       --           --           --         --           --          10.6
  3.00% to 3.99%                           3.9       --           --           --         --           --           3.9
  4.00% to 4.99%                          65.6         62.5          7.6          5.1        3.0       2.2        146.0
  5.00% to 5.99%                       1,659.7      1,089.0        146.5      1,759.0      346.5     122.4      5,123.1
  6.00% to 6.99%                         114.0         96.0        224.2         83.6        6.8      13.7        538.3
  7.00% to 7.99%                          58.2         49.0        114.3         42.6        3.5       7.0        274.6
  8.00% to 8.99%                           0.2          0.2          0.1          0.3        0.3       --           1.1
                                    ----------   ----------   ----------   ----------   --------   -------   ----------
    Total Certificate Accounts         1,912.2      1,296.7        492.7      1,890.6      360.1     145.3      6,097.6
                                    ----------   ----------   ----------   ----------   --------   -------   ----------
                                    $  4,733.3   $  1,296.7   $    492.7   $  1,890.6   $  360.1   $ 145.3   $  8,918.7
                                    ==========   ==========   ==========   ==========   ========   =======   ==========

</TABLE>

     Jumbo certificates and other deposit accounts with balances of $100,000 or
greater included in the above table had the following remaining contractual
maturities:
<TABLE>
<CAPTION>
                                                       December 31,
                                         --------------------------------------------
                                              1996             1995           1994
                                              ----             ----           -----
                                                         (in millions)
<S>                                       <C>              <C>             <C>      
3 months or less                          $   862.3        $   789.5       $   681.1
Over 3 months but within 6 months             255.1            247.2           132.6
Over 6 months but within 12 months            458.9            369.9           249.3
Over 12 months                                 67.4            112.2            70.1
                                           --------         --------        --------
                                           $1,643.7         $1,518.8        $1,133.1
                                           ========         ========        ========
</TABLE>

     The decline in California Federal's deposits from December 31, 1995 to
1996 was due primarily to the sale of six branches located in San Diego County
during the second quarter of 1996 with deposits totaling approximately $380
million. The sale of the branches resulted in a net gain of $12.0 million. The
increase in deposits during 1995 was due to (i) an increase in term deposits
offered through California Federal's retail branches, (ii) the acquisition of
three branches and $138.6 million of deposits from Pacific Heritage Bank and
six branches and $359.4 million of deposits from Continental Savings of America
and (iii) the use of brokers to obtain deposits. Subject to certain regulatory
limitations, deposits can be gathered through brokers, generally the nation's
largest investment banking firms. California Federal had $254.8 million of
Brokered Deposits at December 31, 1996. At December 31, 1996, all Brokered
Deposits were from individual investors. Total Brokered Deposits constituted
2.86% of total deposits at December 31, 1996. California Federal had $273.8
million of Brokered Deposits at December 31, 1995 and none at December 31,
1994.

     Borrowings

     California Federal utilized a variety of borrowing sources as an
alternative source of funds. These sources included FHLB advances, securities
sold under agreements to repurchase ("reverse repurchase agreements"), federal
funds purchased, convertible subordinated debentures and various other sources.

     Federal Home Loan Bank Advances. California Federal borrowed funds from
the FHLB from time to time, pledging mortgage-backed securities, the capital
stock of the FHLB and certain of its mortgage loans and treasury notes. Such

                                            Page 73

<PAGE>



borrowings may have been obtained pursuant to several different credit
programs, and each credit program had its own rate and range of maturities up
to a maximum of 10 years for both fixed and variable rate advances. Prepayment
fees were charged on advances if paid prior to maturity. During 1994, FHLB
advances were utilized as a primary source of funds for the sale of branches in
the Southeast Division.

    The following table presents California Federal's FHLB advances at the
dates indicated:

<TABLE>
<CAPTION>
                                                         December 31,
                         ----------------------------------------------------------------------------
                                   1996                      1995                      1994
                         -----------------------   ------------------------   -----------------------       
                            Amount       Rate        Amount         Rate        Amount        Rate
                            ------       ----        ------         ----        ------        ----
                                                    (dollars in millions)
<S>                           <C>           <C>     <C>                <C>      <C>             <C>  
Maturing in one year          $3,100.0      5.00%   $   880.0          6.16%    $2,015.0        6.21%
Maturing in two years              --         --      1,780.0          5.98        500.0        6.36
Maturing in three years           11.0      9.71           --            --           --         --
Maturing in four years              --        --         11.0          9.71           --         --
Maturing in five years              --        --           --            --         11.0        9.71
                              --------               --------                   -------- 
                              $3,111.0      5.67%    $2,671.0          6.06%    $2,526.0        6.25%
                              ========               ========                   ========
</TABLE>


    California Federal's FHLB advances were collateralized by loans and
mortgage-backed securities totalling $4.3 billion, $3.6 billion, and $3.7
billion at December 31, 1996, 1995, and 1994, respectively.

     Securities Sold under Agreements to Repurchase. California Federal entered
into reverse repurchase agreements whereby it sold marketable U.S. government
securities, federal agency securities, or mortgage-backed securities with a
simultaneous commitment to repurchase the same securities at a specified price
at a specified later date. Reverse repurchase agreements were typically
short-term (1 day to 30 days) at a fixed-rate and long-term (up to 3 years) at
a variable rate. Securities sold under agreements to repurchase were subject to
risks relating to the financial strength of the counterparty to the
transaction, the nature of the lien against the securities subject to the
transaction and the disparity between the book value of the securities sold and
the amount of funds obtained. California Federal dealt only with national
investment banking firms and major commercial banks which were primary dealers
in U.S. government securities and had set limits on the amounts and terms of
borrowings from any single institution.

     The following table presents California Federal's reverse repurchase
agreements at the dates indicated:


<TABLE>
<CAPTION>
                                                         December 31,
                         ----------------------------------------------------------------------------
                                   1996                      1995                      1994
                         -----------------------   ------------------------   -----------------------       
                            Amount       Rate        Amount         Rate        Amount        Rate
                            ------       ----        ------         ----        ------        ----
                                              (dollars in millions)
<S>                       <C>           <C>     <C>                <C>      <C>             <C>  
1 day to 30 days              $678.4     7.18%       $   --            --%     $1,026.2         5.67%
Over 30 days to one year       300.0     6.02         857.3          5.56         724.8         6.15
                              ------                 ------                    --------
                              $978.4     6.83%       $857.3          5.56%     $1,751.0         5.87%
                              ======                 ======                    ========
</TABLE>
                                          Page 74

<PAGE>



     The following table presents the recorded amount of the collateral pledged
to secure California Federal's reverse repurchase agreements at the dates
indicated:
<TABLE>
<CAPTION>
                                                                 December 31,
                                                  -------------------------------------------
                                                      1996           1995           1994
                                                      ----           ----           ----
                                                                 (in millions)
<S>                                                  <C>             <C>         <C>     
Securities                                           $   --          $   --      $  692.6
Mortgage-backed securities                            975.7           908.9       1,080.3
                                                     ------          ------      --------        
                                                     $975.7          $908.9      $1,772.9
                                                     ======          ======      ========
Market value of the collateral                       $977.8          $907.5      $1,783.5
                                                     ======          ======      ========
</TABLE>

     Student Loan Marketing Association ("SLMA") Advances. California Federal
had a SLMA advance outstanding for a total of $200.0 million at December 31,
1995 which matured on September 18, 1996. The SLMA advance bore interest based
upon the three month LIBOR and repriced quarterly. The advance was secured by
mortgage-backed securities and government securities.

     Senior Subordinated Note. California Federal has outstanding a $50.0
million, 10.668% unsecured senior subordinated note which matures on December
22, 1998. Events of Default under the indenture governing the 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 10 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 California
Federal; (iv) 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
California Federal and cause such indebtedness with an aggregate principal
amount exceeding $15 million to accelerate; and (v) certain events of
bankruptcy, insolvency or reorganization of California Federal.

     Subordinated Debentures. On December 16, 1992, California Federal issued
$13.6 million of 10.0% unsecured subordinated debentures due 2003. During 1996
and 1995, California Federal repurchased $0.6 million and $8.7 million,
respectively, of such subordinated debentures, leaving $4.3 million outstanding
at December 31, 1996. Events of Default under the indenture governing the 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 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 California Federal; (v) certain
events of bankruptcy, insolvency or reorganizations of California Federal; 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 California
Federal and cause such indebtedness with an aggregate principal amount
exceeding $15 million to accelerate.

     Convertible Subordinated Debentures. In 1986, CalFed Inc., California
Federal's former parent company, issued $125 million of 6.5% convertible
subordinated debentures due February 20, 2001 (the "Debentures"). As a result
of a corporate restructuring in December 1992, CalFed Inc. was merged with and
into XCF Acceptance Corporation ("XCF"), a subsidiary of California Federal.
The Debentures are unsecured obligations of XCF and, effective January 1, 1996,
were convertible into the common stock of Cal Fed Bancorp Inc. at a conversion
price of $143.95. The Debentures are redeemable at the option of the holders on
February 20, 2000, at 123% of their principal amount. At December 31, 1996,
$2.7 million of the Debentures were outstanding. Due to the purchase of all
Bancorp stock by FN Holdings on January 3, 1997, the common stock conversion
feature has been eliminated. Events of Default under the indenture governing
the notes 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 California Federal; or (iv) certain events of
bankruptcy, insolvency or reorganization of California Federal or its
subsidiaries.

     Cal Fed Preferred Stock. The Bank has outstanding 1,725,000 shares of
10-5/8% Cal Fed Preferred Stock. The Cal Fed Preferred Stock has a stated
liquidation value of $100 per share, plus declared and unpaid dividends, if
any, without

                                            Page 75

<PAGE>



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 Cal Fed Preferred Stock will rank prior to the Bank's Common Stock,
and to all other classes and series of equity securities subsequently issued,
other than any class or series expressly designated as being in a parity with
or senior to the Cal Fed Preferred Stock as to dividends and liquidating
distributions. The Cal Fed Preferred Stock ranks on a parity with the Preferred
Stock as to dividends and liquidating distributions.

     The terms of the Cal Fed Preferred Stock provide that the Bank may not
declare or pay any full dividends with respect to any parity stock, such as the
Preferred stock, unless and until the Bank has paid full dividends on the Cal
Fed Preferred Stock for the most recent dividend period.

     The terms of the Cal Fed 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 (as defined therein)) with
respect to any Junior Stock (as defined therein) or repurchase, redeem or
otherwise acquire, or set apart funds for the repurchase, redemption or other
acquisition of, any Junior Stock (as defined therein) through a sinking fund or
otherwise, unless and until: (i) the Bank has paid full dividends on the Cal
Fed 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 Cal Fed
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.

     Holders of the Cal Fed 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 Cal Fed Preferred Stock is
not redeemable prior to April 1, 1999. The Cal Fed 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. As a result of the change of
control in the Cal Fed Acquisition, the Cal Fed 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.

     Other Borrowings. Other borrowings include medium-term notes and other
miscellaneous borrowings, some of which are collaterized by mortgage-backed
securities, mortgage loans and real estate held for investment.


                                            Page 76

<PAGE>



     The following table provides additional information on all significant
borrowed funds. Please refer to the consolidated financial statements for
additional information on California Federal's borrowings.
<TABLE>
<CAPTION>
                                                                     1996                1995                 1994
                                                                     ----                ----                 ----
                                                                                (dollars in millions)
<S>                                                             <C>                  <C>                  <C>
FHLB Advances:
  Balance at year end                                            $   3,111.0          $   2,671.0          $   2,526.0
  Average amount outstanding                                         2,908.7              2,452.9              1,654.6
  Maximum amount outstanding at any month end                        3,261.0              2,671.0              2,576.0
  Average interest rate for the year                                    5.69%                6.28%                5.05%
  Average interest rate on year end balance                             5.67%                6.06%                6.25%

Securities Sold under Agreements to Repurchase:
  Balance at year end                                            $     978.4          $     857.3          $   1,751.0
  Average amount outstanding                                         1,042.7              1,098.9              1,493.0
  Maximum amount outstanding at any month end                        1,063.4              1,336.8              1,751.0
  Average interest rate for the year                                    5.40%                5.91%                4.52%
  Average interest rate on year end balance                             6.83%                5.56%                5.87%

SLMA Advances:
  Balance at year end                                            $    --              $     200.0          $     475.0
  Average amount outstanding                                           142.8                462.1                357.8
  Maximum amount outstanding at any month end                          200.0                475.0                475.0
  Average interest rate for the year                                    5.74%                6.27%                4.62%
  Average interest rate on year end balance                           --                     5.86%                6.43%

Subordinated Debentures:
  Balance at year end                                            $      57.0          $      57.6          $      66.5
  Average amount outstanding                                            56.8                 60.0                 66.6
  Maximum amount outstanding at any month end                           57.0                 66.5                 66.6
  Average interest rate for the year                                   10.52%               10.41%               10.36%
  Average interest rate on year end balance                            10.43%               10.43%               10.36%
</TABLE>

COMPETITION

     California Federal experienced intense competition in both attracting and
retaining deposits and in originating real estate and consumer loans. The
competition for deposits came from other savings institutions, commercial
banks, credit unions, thrift and loan associations, issuers of corporate
securities, money market mutual funds and the U.S. Treasury. Competition for
deposits from large savings institutions and commercial banks was particularly
strong. Most of the nation's largest savings institutions and many large
commercial banks were headquartered or had a significant number of offices in
the same areas in which California Federal operated. In addition to offering
competitive interest rates, the principal methods used to attract deposits
included the variety of services offered, the quality of service rendered, the
perceived level of financial strength of the institution, the convenience of
office locations and the hours of service.

     Competition in originating real estate and consumer loans came principally
from other savings institutions, commercial banks, mortgage banking companies,
insurance companies, consumer finance companies and commercial finance
companies. The primary factors in competing for loans were interest rates,
interest rate caps, rate adjustment provisions, loan maturities, loan fees and
the quality and extent of service to borrowers and brokers.


                                            Page 77

<PAGE>



SUBSIDIARIES

     At December 31, 1996, California Federal was permitted by applicable OTS
regulations to invest up to approximately $757 million of its assets in
subsidiary ("service") corporations. As of that date, California Federal had
invested approximately $317 million (primarily equity and loans) in
subsidiaries. The principal business activities of California Federal conducted
through such subsidiaries included real estate and financial activities.

     Real Estate Activities. California Federal, principally through two of its
subsidiaries, Cal Fed Enterprises ("CFE") and California Communities, Inc.
("CCI"), previously had investments in residential developments and commercial
and industrial developments. CCI is an inactive single-family residential
developer which currently does not own any real estate investments. CFE is
involved in completing the sale of its existing single family developments.

     Other Subsidiaries. In addition to subsidiaries engaged in real estate
activities, California Federal also had subsidiaries that engaged in financial
activities. XCF Acceptance Corporation holds loans which it acquired through
the 1992 merger with CalFed Inc. Prior to the first quarter of 1993, Cal Fed
Credit Inc., ("Cal Fed Credit") was actively involved in the purchase of loans
secured by automobiles and other consumer loans. Since the first quarter of
1993, Cal Fed Credit has not been engaged in acquiring or originating new
loans. The loans of Cal Fed Credit are serviced by a former wholly-owned
subsidiary of XCF. California Federal also had a subsidiary, Cal Fed Investment
Services, that offered alternative investment products to California Federal's
customers on behalf of independent third parties and a subsidiary, Cal Fed
Insurance Agency, which functioned as an insurance agency offering a variety of
insurance products.

EMPLOYEES

     At December 31, 1996, California Federal had approximately 2,100
employees. None of its employees was represented by any collective bargaining
group. California Federal maintained a comprehensive employee benefits program
providing, among other benefits, hospitalization and major medical insurance,
long and short-term disability insurance, life insurance and reduced loan rates
for qualifying employees. Additionally, California Federal had a defined
benefit plan ("retirement income plan"). Effective May 31, 1993 the retirement
income plan was frozen and all accrued benefits were automatically 100% vested.
California Federal also offered qualifying employees the opportunity to
participate in a qualified plan under Section 401(k) of the Internal Revenue
Code.

TAXATION

     California Federal and its subsidiaries were included in a consolidated
federal income tax return and a combined California franchise tax report filed
by Bancorp.

     In connection with the 1992 corporate restructuring (the "Restructuring"),
California Federal and its affiliates underwent a change in ownership within
the meaning of Section 382 of the Internal Revenue Code for both federal income
and California franchise tax purposes. As a consequence, the post-Restructuring
use of pre-Restructuring net operating loss and other carryforwards to absorb
taxable income and reduce tax liability may be restricted. In addition, such
restrictions may also apply to certain losses recognized and deductions
incurred during the five year period following the Restructuring that were
economically accrued as of the Restructuring date. California Federal did not
expect that these restrictions, if applicable, would have a material adverse
effect on the financial condition of California Federal and its affiliates.

     Savings institutions are generally subject to federal income taxation in
the same manner as other types of corporations. However, for taxable years
beginning before 1996, a savings institution that met certain definitional and
other tests ("qualifying institution") could, unlike most other corporations,
use the reserve (versus specific charge-off) method to compute its deduction
for bad debt losses.

     Under the reserve method, a qualifying institution was generally allowed
to deduct an amount up to the greater of two alternative computations. Under
the "percentage of taxable income method" computation, a qualifying institution
could claim a bad debt deduction computed as a percentage of taxable income
before such deduction. Alternatively, a qualifying

                                            Page 78

<PAGE>



institution could utilize its bad debt loss experience to compute its annual
addition to its bad debt reserves (the "experience method").

     Prior to the enactment of the Tax Reform Act of 1986 ("1986 Act"), many
qualifying institutions, including California Federal, used the percentage of
taxable income method. However, the 1986 Act reduced the maximum percent that
could be deducted under the percentage of taxable income method from 40% to 8%
for tax years beginning after December 31, 1986; thus, many qualifying
institutions, including California Federal, began to use the experience method
beginning in 1987. The amount by which a qualifying institution's actual tax
bad debt reserves exceeded an allowable offset computed under the experience
method ("excess tax bad debt reserves") was, in certain situations involving
the payment of nontaxable dividends or other distributions (including
distribution in dissolution, liquidation or redemption in stock), subject to
recapture and includable in taxable income.

     On August 20, 1996, the Small Business Job Protection Act ("1996 Act") was
enacted into federal law generally effective for tax years beginning after
1995. One provision of the 1996 Act repealed the reserve method for computing
bad debt deductions for large (over $500 million in assets) savings
institutions for taxable years beginning in 1996. Another provision of the 1996
Act provided that beginning no later than 1998, an institution must recapture
into taxable income over six years the amount of "applicable excess reserves."
An institution's applicable excess reserves is generally the institution's
aggregate tax bad debt reserves at the end of 1995 over the amount of its
"adjusted base year reserves." For taxable years subsequent to 1987, an
institution's adjusted base year reserves are generally the aggregate of its
qualifying, nonqualifying and supplemental tax bad debt reserves at December
31, 1987, the first two of which being proportionately decreased for any
reductions in the institution's loan portfolio since such date to December 31,
1995. The 1996 Act further provided that an institution must recapture its
adjusted base year reserves if the institution no longer qualifies as a "bank"
for federal income tax purposes or if its tax bad debt reserves are used for
the payment of nontaxable dividends or other distribution (including
distributions in dissolution, liquidation or redemption of stock), generally as
such rules existed prior to the 1996 Act other than certain newly adopted
preferred stock exceptions. At December 31, 1996, California Federal had
applicable excess reserves of $71 million and adjusted base year reserves of
$124 million. The enactment of this legislation is not expected to have any
material adverse impact on California Federal's operations or financial
position.

     During 1996 and 1995, California Federal paid taxable dividends of $23.4
million and nontaxable dividends of $25.6 million, respectively, on its Series
A and B preferred stock. In addition, California Federal made a distribution of
its Secondary Litigation Interests of $57.1 million to Bancorp in December 1996
in connection with the merger and during 1995, made a nontaxable distribution
to its common stockholders of the Litigation Interests of $22.4 million.
However, since California Federal did not have 1995 excess tax bad debt
reserves, the 1995 nontaxable distributions did not result in recapture and the
inclusion of any of California Federal's tax bad debt reserves in taxable
income.

     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.

     California Federal was also subject to taxation in certain other states in
which it operated, primarily as a result of California Federal's 1982 and
subsequent acquisitions.

     See the Notes to California Federal's Consolidated Financial Statements
for a further discussion of other income tax matters affecting California
Federal.


                                            Page 79

<PAGE>



ITEM 2.  PROPERTIES

     First Nationwide Holdings

     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 99,000 square feet of space in the building in which its
executive offices are located under a 10 year lease expiring in 2001. In
addition, the Bank leases approximately 288,000 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, Texas which includes approximately 41,000 square feet
of space under a lease expiring 1999. In connection with the move of FNMC's
servicing operation to Maryland, one of these four Sacramento buildings,
containing approximately 72,000 square feet, was vacated. Management executed a
lease buyout on the vacated space during 1996.

     At December 31, 1996, First Nationwide operated a total of 116 retail
branches and maintained one vacant branch facility which was consolidated as a
result of the Sonoma Purchase. Of those, 36 are owned and 80 are leased. Some
of these retail branches are multi-purpose facilities, housing loan production
and administrative facilities as well. In addition to the branch locations, at
December 31, 1996, there were 22 separate loan production offices, all of which
were leased and seven of which were vacant, and 24 separate administrative
facilities (2 owned and 22 leased). The administrative facilities include a
220,000 square foot building owned in Frederick, Maryland, which houses most of
FNMC's operations. A state-by-state breakdown of all retail branches,
administrative offices, and loan production offices at December 31, 1996 is
shown in the following table:
<TABLE>
<CAPTION>

                                                            Administrative             Loan Production
                                     Branches                 Facilities                 Facilities
                                     --------                 ----------                 ----------
                                Owned       Leased         Owned      Leased         Owned        Leased
                                -----       ------         -----      ------         -----        ------
<S>                            <C>          <C>            <C>        <C>          <C>            <C>
     Arizona                      --           --           --            1           --            2
     California                   27           62            1           11           --            8
     Florida                       6           18           --            2           --            2
     Georgia                      --           --           --           --           --            1
     Illinois                     --           --           --            2           --            1
     Maryland                     --           --            1            2           --            1
     Minnesota                    --           --           --           --           --            1
     Montana                      --           --           --            1           --           --
     New York                     --           --           --            1           --           --
     Oklahoma                     --           --           --            1           --           --
     Pennsylvania                 --           --           --           --           --            2
     Texas                         3           --           --            1           --            2
     Washington                   --           --           --           --           --            2
                                 ---          ---           --          ---           --          ---
         Total                    36           80            2           22           --           22
                                  ==           ==            =           ==           ==           ==
</TABLE>

     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
statements of operations. 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. The 22 loan production offices at December 31, 1996 include nine
offices housing operations acquired in the LMUSA Purchases, six offices housing
wholesale lending operations, and seven vacant facilities. Of the seven vacant
loan production offices, two have been subleased and management is currently
screening tenants for two of the remaining five.


                                            Page 80

<PAGE>



     California Federal

     California Federal maintained executive offices and an office building of
approximately 513,000 square feet, which office building was leased by
California Federal and located at 5700 Wilshire Boulevard, Los Angeles,
California 90036. The Bank expects to vacate all but approximately 31,000
square feet of this facility during the first half of 1997. The office lease
expires in 2006. At December 31, 1996, California Federal operated full service
branches at 27 owned locations and at 92 leased locations. In addition,
California Federal had certain operating and administrative departments in a
leased facility containing approximately 225,000 square feet located in
Rosemead, California. The Bank expects to vacate the Rosemead facility during
the first half of 1997. The lease expires in 2008. The net book value of all
facilities at December 31, 1996 was $45.7 million. Expiration dates of
California Federal's leased full service branches ranged from January 1997 to
January 2055. California Federal's full service branches are located
principally in California. The following table shows the location of California
Federal's full service branches by state at December 31, 1996:

    Location                                           Owned           Leased

    California:
        Los Angeles County                              16               41
        Orange County                                    3               15
        San Francisco County                             1                5
        Ventura County                                   1                5
        Other counties                                   5               21
                                                       ---               --
             Total California                           26               87
    Nevada                                               1                5
                                                       ---              ---
                                                        27               92
                                                        ==               ==


                                            Page 81

<PAGE>




ITEM 3.  LEGAL PROCEEDINGS

     First Nationwide is involved in legal proceedings on claims incidental to
the normal conduct of its business. See also "Business--FN Holdings--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 the
financial condition or results of operations of FN Holdings or the Bank.

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

     None.



                                            Page 82

<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 the Company, 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, First Nationwide 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 owns 83% of The Coleman
Company, Inc. ("Coleman"), which is engaged in the manufacture and marketing of
recreational outdoor products, portable generators, power-washing equipment,
spas and hot tubs, and 65% of Meridian Sports Incorporated ("Meridian Sports"),
a manufacturer and marketer of specialized boats and water sports equipment.
Marvel Entertainment Group, Inc. ("Marvel"), a youth entertainment company, is
80% owned by MacAndrews & Forbes. MacAndrews & Forbes also is engaged, through
its 85% ownership of Mafco Consolidated Group Inc. ("Mafco Consolidated"), in
the manufacture and distribution of cigars and pipe tobacco, and through its
36% ownership of Power Control Technologies, Inc. ("PCT"), in the processing of
licorice and other flavors. 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 1996 and 1995, dividends on FN Holdings' common stock totalled
$72.2 million and $29.2 million, respectively. No dividends were paid in 1994
on FN Holdings' common stock. See further discussion of dividend restrictions
in Note 25 of FN Holdings' 1996 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 83

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA

     The data presented below represents selected financial data relative to FN
Holdings for, and as of the end of, each of the years in the five-year period
ended December 31, 1996.
<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                              -----------------------------------------------------------------------------
                                                 1996 (1)         1995              1994 (2)       1993 (3)        1992 (4)
                                                 ----             ----              ----           ----            ----
                                                                            (dollars in thousands)
<S>                                           <C>              <C>             <C>             <C>            <C>   
SELECTED OPERATING DATA
Interest income                               $ 1,233,799      $ 1,075,845      $   293,139     $    95,264     $   659,201
Interest expense                                  807,800          734,815          199,845          74,728         450,240
Net interest income                               425,999          341,030           93,294          20,536         208,961
Provision for loan losses                          39,600           37,000            6,226           1,402          16,193
Noninterest income                                653,378          150,973           41,158         190,876         384,336
Noninterest expense                               490,569          332,553           96,298          63,392         361,549
Income before taxes, extraordinary item
    and minority interest                         549,208          122,450           31,928         146,618         215,555
Income tax (benefit) expense (5)                  (73,131)         (57,185)           2,558           2,500            --
Income before extraordinary item
    and minority interest                         622,339          179,635           29,370         144,118         215,555
Extraordinary item: (loss)/gain on early
    extinguishment of debt, net                    (1,586)           1,967            1,376            --              --
Net income before minority interest               620,753          181,602           30,746         144,118         215,555
Minority interest                                  43,230           34,584             --              --              --
Preferred stock dividends                           4,815             --               --              --              --
Net income available to common
stockholders                                      572,708          147,018           30,746         144,118         215,555

SELECTED PERFORMANCE RATIOS
Return on average assets (6)                         3.62%            1.00%             .69%           7.84%           2.52%
Return on average common equity (7)                 72.71            39.33            16.05           69.41           58.89
Average equity to average assets                     4.84             2.54             3.90           11.31            5.73
Yield on interest-earning assets (8)                 7.75             7.71             6.85            5.42            8.32
Cost of interest-bearing liabilities (9)             5.15             5.35             4.83            4.70            5.73
Net interest margin (10)                             2.67             2.44             2.18            1.14            2.63

RATIO OF EARNINGS TO COMBINED
  FIXED CHARGES, MINORITY INTEREST
  AND PREFERRED STOCK DIVIDENDS (11)
Excluding interest on deposits                       2.13x            1.27x            1.32x           9.59x          10.74x
Including interest on deposits                       1.58             1.11             1.16            3.02            1.46

</TABLE>


<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                              -----------------------------------------------------------------------------
                                                 1996 (1)         1995              1994 (2)       1993 (3)        1992 (4)
                                                 ----             ----              ----           ----            ----
                                                                            (dollars in thousands)
<S>                                           <C>              <C>             <C>             <C>            <C>   
SELECTED FINANCIAL DATA
Securities available for sale (12)             $  542,019       $  348,561       $   45,000       $     --         $     --
Securities held to maturity (12)(13)                4,272            1,455          411,859           15,118        2,034,842
Mortgage-backed securities available
    for sale (12)                               1,598,652        1,477,514             --               --               --
Mortgage-backed securities held
    to maturity                                 1,621,662        1,524,488        3,153,812          341,224           77,622

</TABLE>
                                            Page 84

<PAGE>

<TABLE>
<CAPTION>



<S>                                         <C>              <C>             <C>                <C>            <C>    
Loans receivable, net                       10,222,379       8,831,018       9,966,886          29,244         777,265
Covered assets, net                               --            39,349         311,603         592,593         839,538
Total assets                                16,570,635      14,646,245      14,683,559       1,125,222       8,961,473

Deposits                                     8,501,883      10,241,628       9,196,656         431,788       7,809,478
Securities sold under agreements
    to repurchase                            1,583,387         969,510       1,883,490         119,144          30,647
Borrowings                                   4,902,696       2,392,862       2,808,979         440,792         597,564
Total liabilities                           15,342,042      13,883,099      14,029,957       1,012,328       8,488,697
Minority interest                              309,376         300,730         300,730            --              --
Stockholders' equity                           919,217         462,416         352,872         112,894         472,776

REGULATORY CAPITAL RATIOS OF
    FIRST NATIONWIDE
Tangible capital                                  7.17%           5.84%           5.50%           9.50%           4.59%
Core capital                                      7.17            5.84            5.50            9.50            5.13
Risk-based capital:
    Core capital                                 11.50            9.14            8.86           67.71           15.67
    Total capital                                13.62           11.34           11.01           68.97           16.24

SELECTED OTHER DATA
Number of full service
    customer facilities                            116             160             156               4             162
Loans serviced for others (14)             $44,034,194     $27,900,528     $ 7,475,119     $   327,449     $10,156,020
Approximate number of employees                  3,547           3,619           3,573             317           3,030
Non-performing assets as a
    % of First Nationwide's total assets          1.37%           1.50%           1.49%            .98%           0.12%
</TABLE>



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

(1)  On January 31, 1996, FNMC consummated the LMUSA 1996 Purchase, acquiring a
     $14.1 billion loan servicing portfolio. On February 1, 1996, First
     Nationwide acquired SFFed, with assets at fair value totalling
     approximately $4 billion and liabilities (including deposit liabilities)
     with fair values totalling approximately $3.8 billion. During the year
     ended December 31, 1996, First Nationwide 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.

(2)  On October 3, 1994, effective immediately following the close of business
     on September 30, 1994, First Nationwide 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.

(3)  During the first quarter of 1993, FN Holdings 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 First Gibraltar Texas Sale. A net gain of $141 million
     was recorded in connection with this sale.

(4)  During the last quarter of 1992, FN Holdings sold certain assets,
     liabilities, and branch operations located in Oklahoma, including $3
     million of loans and 27 branches with $809 million in deposits, in the
     First Gibraltar Oklahoma Sale. The increase in noninterest income in 1992
     was primarily attributable to the gain of $203 million on sales of assets
     in anticipation of the First Gibraltar Texas Sale, the gain of $19 million
     on the First Gibraltar Oklahoma Sale and a gain of $41 million as a result
     of the modification of the Assistance Agreement.

(5)  Utilization of net operating loss carryovers resulted in no provisions for
     income taxes until the FN Acquisition. Income tax expense of $2.5 million
     was recorded in the first quarter of 1993 representing AMT expense related
     to the gain recognized on the First Gibraltar Texas Sale (see Footnote 3).
     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
     the years ended December 31,

                                            Page 85

<PAGE>



     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 at an
     assumed rate of 8%.

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

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

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

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

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

(11) 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.

(12) 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 First Nationwide's loans) from held to maturity to
     securities available for sale on December 29, 1995.

(13) Increase in securities to be held to maturity at December 31, 1992
     resulted from the investment of proceeds on sale of certain long-term
     interest-bearing assets, primarily loans and mortgage-backed securities,
     in cash, cash equivalents and securities in anticipation of the First
     Gibraltar Texas Sale.

(14) Includes loans serviced by FNMC, First Nationwide, and FGB Realty,
     excluding loans serviced for First Nationwide by FNMC.



                                            Page 86

<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 First Nationwide. As such, FN Holdings' principal business
operations are conducted by First Nationwide and its subsidiaries.

     The following discussion should be read in conjunction with the
Consolidated Financial Statements of FN Holdings and California Federal and the
notes thereto included elsewhere in this Form 10-K. Except as otherwise
indicated, the following discussion includes information relating to FN
Holdings, First Nationwide and California Federal prior to the consummation of
the Cal Fed Acquisition.

FIRST NATIONWIDE HOLDINGS

GENERAL

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

     The Cal Fed Acquisition

     On July 27, 1996, FN Holdings entered into the Merger Agreement providing
for the acquisition of Cal Fed and its subsidiary, California Federal, which as
of December 31, 1996, had approximately $14.1 billion in assets, $8.9 billion
in deposits and operated 119 branches in California and Nevada.

     Impact of Other Acquisitions and Dispositions

     The FN Acquisition was consummated on October 3, 1994, effective
immediately after the close of business on September 30, 1994, and was recorded
using the purchase method of accounting. Accordingly, the accompanying
financial data includes the results of operations related to the approximately
$14.1 billion in assets and $13.4 billion in liabilities acquired in the FN
Acquisition. Minority interest increased by $301 million due to the issuance of
the Preferred Stock. In connection with the FN Acquisition, common
stockholders' equity increased by $210 million as of a result of the issuance
of FN Holdings' class C common stock to Parent Holdings, which stock has been
fully redeemed.

     On February 28, 1995, FNMC consummated the Maryland Acquisition and
acquired a 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 transaction was accounted for as a purchase,
and the Company's consolidated statement of operations 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 1995, First Nationwide acquired approximately $13 million in
deposits in the Tiburon Purchase. In August 1995, First Nationwide acquired
three retail branches located in Orange County, California with deposit
accounts totalling approximately $356 million in the ITT Purchase. On December
8, 1995, First Nationwide acquired four retail branches with deposit accounts
of approximately $144 million in the Sonoma Purchase. The Branch Purchases were
accounted for as purchases, and the results of operations of the acquired
retail deposit operations are included in the Company's consolidated statement
of operations for the year ended December 31, 1995 from the date each of the
transactions was consummated.


                                            Page 87

<PAGE>



     On October 2, 1995, FNMC consummated the LMUSA 1995 Purchase and acquired
a loan servicing portfolio of approximately $11.1 billion (including a
sub-servicing 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, payable in installments, and the
assumption of certain indebtedness secured by the acquired loan portfolio
totalling approximately $274 million. The LMUSA 1995 Purchase was accounted for
as a purchase and the Company's consolidated statement of operations 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 acquisition of a $14.1 billion
loan servicing portfolio, a master servicing portfolio of $2.7 billion and
other assets in the LMUSA 1996 Purchase. The LMUSA 1996 Purchase was accounted
for as a purchase and the Company's consolidated statement of operations 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, First Nationwide consummated the SFFed Acquisition
involving assets totalling $4.0 billion and retail deposits totalling $2.7
billion. The SFFed Acquisition was accounted for as a purchase, and the
Company's consolidated statement of operations 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, First Nationwide consummated the Home Federal
Acquisition, involving approximately $717 million in assets and $632 million in
deposits. The Home Federal Acquisition was accounted for as a purchase, and the
Company's consolidated statement of operations 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, First Nationwide closed the Branch Sales
with associated deposit accounts totalling $4.6 billion, resulting in pre-tax
gains totalling $363.3 million. The Company's consolidated statement of
operations 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.

     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
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 Reduction Act, First Nationwide recorded a pre-tax charge of
$60.1 million on September 30, 1996. The portion of the assessment related to
deposits sold in Ohio, New York, New Jersey and Michigan was borne, pursuant to
each sales contract, by the respective purchasers and accordingly, such amounts
were not included in the expense recorded by First Nationwide. Management
expects the 1997 SAIF deposit premiums (including a separate assessment to fund
the obligations of the Financial Corporation, which will expire after December
31, 1999) to decline to 6.48 cents per $100 of SAIF-insured deposits per year
from the prior rates of 18 to 23 cents.

     Accounting Changes

     On June 28, 1996, 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 Statement of Financial Accounting
Standards No. 127, "Deferral of the Effective

                                            Page 88

<PAGE>



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 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 the 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.

     On May 12, 1995, the FASB issued SFAS No. 122. This statement provides
guidance for the recognition of mortgage servicing rights as an asset when a
mortgage loan is sold or securitized and servicing rights are retained. The
Company adopted this standard effective April 1, 1995. The result of such
adoption was to capitalize approximately $71 million and $17 million in
mortgage servicing rights related to loans originated by the Company in 1996
and 1995, respectively.

     SFAS No. 122 requires that a portion of the cost of originating a mortgage
loan be allocated to the mortgage servicing right based on its fair market
value. To determine the fair value of the servicing rights created since April
1, 1995, the Company uses market prices under 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.

     Also, SFAS No. 122 requires enterprises to measure the impairment of
servicing rights based on the difference between the carrying amount of the
servicing rights and their current fair value. 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. Further, mortgage-servicing rights capitalized prior to the adoption of
SFAS No. 122 were stratified by acquisition to measure impairment. A valuation
allowance is established for any excess of amortized book value over the
current fair value, by risk stratification, by a charge to income. Based on
this analysis, no allowance for loss on impairment of loan servicing rights was
necessary at December 31, 1996 or 1995.

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

     The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"), as amended
by Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and Disclosures" ("SFAS
No. 118"), effective January 1, 1995. Under SFAS No. 114, 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. 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 loan's observable market
price, or (iii) the fair value of the loan's collateral. SFAS No. 114 does not
apply to large groups of smaller balance homogeneous loans that 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. The adoption of SFAS No. 114, as
amended by SFAS No. 118, had no material impact on the Company's consolidated
financial statements as the Company's existing policy of measuring loan
impairment was consistent with methods prescribed in these standards.

     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.

                                            Page 89

<PAGE>



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 their collateral. The
amount, if any, by which the recorded investment of the loan exceeds the
measure of the impaired loan's value is recognized by recording a valuation
allowance.

     Generally, specific allowances for loan losses relative to impaired
multi-family and commercial real estate loans, which comprised the majority of
impaired loans at December 31, 1996, have not been established. There have been
no significant multi-family or commercial real estate loans originated since
October 1, 1994. At December 31, 1996, the specific allowances for loan losses
reflected on the Company's books represent allowances established by
predecessor institutions and were acquired in the SFFed and Home Federal
Acquisitions.

     At December 31, 1996, the carrying value of loans that are considered to
be impaired under SFAS No. 114 totalled $102.1 million (of which $22.6 million
were on nonaccrual status). The average recorded investment in impaired loans
during the year ended December 31, 1996 was approximately $103.7 million. For
the year ended December 31, 1996, the Company recognized interest income on
these impaired loans of $10.7 million, which included $0.3 million of interest
income recognized using the cash basis method of income recognition.

     Effective January 1, 1994, the Company adopted SFAS No. 115. SFAS No. 115
requires that securities held to maturity be 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 earnings. All other securities held for
investment purposes are classified as available for sale and are carried at
fair value, with unrealized gains and losses excluded from earnings and
reported in a separate component of stockholders' equity, net of tax. There was
no impact on the consolidated financial statements as a result of such
adoption. At December 31, 1994, all U.S. government and agency securities and
mortgage-backed securities were classified in the held-to-maturity portfolio.

     On November 15, 1995, the FASB issued the Special Report, which provided
all entities an opportunity to reconsider 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, resulting in a
net after-tax increase of $22.5 million in stockholders' equity. There was no
impact on First Nationwide's regulatory capital as a result of this
reclassification.


                                            Page 90

<PAGE>




     RESULTS OF OPERATIONS

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

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


                                                                   Year Ended December 31,
                                                                  ------------------------
                                                     1996                     1995                    1994
                                                    ------                   ------                  -----
                                           Average                 Average   Average              Average  Average         Average
                                           Balance     Interest      Rate    Balance    Interest   Rate    Balance Interest  Rate
                                           -------     --------    -------   -------    --------  -------  ------- -------- ------
                                                              (dollars in millions)
<S>                                        <C>       <C>         
ASSETS
Interest-earning assets (1):
    Securities and interest-bearing
      deposits in banks (2)                 $   591     $    35        5.89%  $   435      $ 28      6.42%    $138     $  7   4.95%
    Mortgage-backed securities
      available for sale (3)                  1,697         116        6.83        --        --        --       --       --     --
    Mortgage-backed securities
      held to maturity (3) (4)                1,766         135        7.65     2,985       213      7.14      711       43   6.05
    Loans held for sale                         850          62        7.24       304        24      7.89       11        1   5.22
    Loans receivable, net (4)                10,999         885        8.05    10,058       800      7.95    2,926      212   7.27
    Covered Assets, net (5)                      26           1        5.41       165        11      6.67      491       30   6.11
                                           --------      ------       -----   -------     -----      ----  -------     ----   ----
    Total interest-earning assets            15,929       1,234        7.75%   13,947     1,076      7.71%   4,277      293   6.85%
                                                         ------       -----               -----      ----              ----   ----
Noninterest-earning assets                    1,210                               751                          161
                                           --------                           -------                      -------                

         Total assets                       $17,139                           $14,698                       $4,438
                                           ========                           =======                      =======                

LIABILITIES AND STOCKHOLDERS' EQUITY
     Interest-bearing liabilities:
         Deposits                           $ 9,360        $419        4.48   $ 9,959       447      4.49%  $2,605     101    3.88%
         Securities sold under
           agreements to repurchase           2,109         120        5.70     1,577       105      6.66      351      19    5.37
         Borrowings (6)                       4,220         269        6.38     2,210       183      8.26    1,181      80    6.77
                                           --------      ------       -----   -------     -----      ----  -------     ----   ----
           Total interest-bearing
            liabilities                      15,689         808        5.15%   13,746       735      5.35%   4,137     200    4.83%
                                                         ------       -----               -----      ----              ----   ----
     Noninterest-bearing liabilities            311                               277                           53
     Minority interest                          309                               301                           75
     Stockholders' equity                       830                               374                          173
                                           --------                           -------                      -------                
         Total liabilities and 
           stockholders' equity             $17,139                           $14,698                       $4,438
                                           ========                           =======                      =======                
     Net interest income                                    $426                           $341                        $93
                                                          ======                          =====                        ===
     Interest rate spread                                             2.60%                         2.36%                     2.02%
                                                                     =====                         =====                     ===== 
     Net interest margin                                              2.67%                         2.44%                     2.18%
                                                                     =====                         =====                     ===== 
     Average equity to average assets                                 4.84%                         2.54%                     3.90%
                                                                     =====                         =====                     ===== 

</TABLE>
--------------

(1)  Non-accruing assets are included in the average balances for the periods
     indicated.

(2)  The information presented includes securities held to maturity of $4
     million and related interest income of less than $0.3 million, with the
     remainder representing securities available for sale and interest-bearing
     deposits in other banks.

                                            Page 91

<PAGE>



     (3) Substantially all securities held to maturity (except for
         mortgage-backed securities resulting from the securitization with
         recourse of certain of First Nationwide's loans) were reclassified to
         securities available for sale on December 29, 1995. The average balance
         of such securities for three days in 1995 is not material and is
         therefore not presented. Average balances presented for 1996 represent
         the original amortized cost of the securities without the effect of
         unrealized gains and losses recorded as a result of the available for
         sale classification.
     (4) In late December 1994, $1.3 billion of single-family loans were
         securitized with recourse. The large increase in the average balance of
         mortgage-backed securities held to maturity from 1994 to 1995 is due to
         such securitized loans.
     (5) Includes unconsolidated subsidiaries covered by FSLIC/RF yield 
         maintenance.
     (6) 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,
                                     -------------------------------------------------------------
                                             1996 vs. 1995                           1995 vs. 1994
                                     --------------------------     ------------------------------
                                     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       $   9      $  (2)     $   7      $  18      $   3      $  21         
    deposits in banks                                                                                   
Mortgage-backed securities                                                                              
    available for sale                  116       --          116       --         --         --        
         Mortgage-backed securities                                                                     
    held to maturity                    (94)        16        (78)       160         10        170      
Loans held for sale                      40         (2)        38         23       --           23      
Loans receivable, net                    75         10         85        566         22        588      
Covered assets, net (1)                  (8)        (2)       (10)       (22)         3        (19)     
                                      -----      -----      -----      -----      -----      -----      
    Total                               138         20        158        745         38        783      
                                      -----      -----      -----      -----      -----      -----      
INTEREST EXPENSE:                                                                                       
Deposits                                (27)        (1)       (28)       328         18        346      
Securities sold under                                                                                   
    agreements to repurchase             26        (11)        15         80          6         86      
Borrowings                              115        (29)        86         82         21        103      
                                      -----      -----      -----      -----      -----      -----      
    Total                               114        (41)        73        490         45        535      
                                      -----      -----      -----      -----      -----      -----      
         Change in net interest                                                                         
             income                   $  24      $  61      $  85      $ 255      $  (7)     $ 248      
                                      =====      =====      =====      =====      =====      =====      
</TABLE>
------------------

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

     The volume variances in total interest income and total interest expense
between the year ended December 31, 1995 to the corresponding period in 1996
are largely due to the additional $4.2 billion in interest-earning assets
acquired and $4.4 billion in interest-bearing liabilities assumed in the 1996
Acquisitions. The overall volume change in net interest income is positive
primarily due to the 1996 Acquisitions and Branch Sales. The positive total
rate variance of $61 million is attributed to increasing rates on
adjustable-rate assets as such assets repriced to their fully-indexed yields,
and the decrease in overall market rates on interest-bearing liabilities
between the two periods, offset slightly by the impact of the additional
wholesale borrowings used to finance the Branch Sales. 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

                                            Page 92

<PAGE>



securities sold under agreements to repurchase with a weighted average rate of
5.45%.

     The positive volume variance of $255 million from 1994 to 1995 is largely
due to $13.4 billion in interest-earning assets acquired offset in part by the
$13.3 billion in interest-bearing liabilities assumed in the FN Acquisition on
October 3, 1994, which contributed to net interest income during the last
quarter of 1994 and all of 1995. The negative rate variance of $7 million is
attributed to the interest-bearing liabilities acquired in the FN Acquisition,
which rates reflect the overall increase in market interest rates from the
fourth quarter of 1994 through 1995, and the issuance of the Senior Notes to
finance the FN Acquisition. In an increasing rate environment, the Company's
cost of interest-bearing liabilities reacts more quickly to changes in rates
than the yields on interest-bearing assets, due to the volume of adjustable
rate interest-bearing assets which generally reprice on an annual or
semi-annual basis.

     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 includes $363.3 million in pre-tax
gains on sales of branches, $40.4 million in pre-tax gains from the sale of
stock of ACS, $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 yields on total interest-earning
assets during 1996 increased to 7.75% from the 7.71% 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
7.95% for 1995 due to upward rate adjustments on adjustable rate residential
loans as such loans repriced to their fully indexed rates, without the effect
of teaser rates or annual interest rate adjustment caps.

     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 is the net effect of a higher
average volume of loans held for sale due to increased originations from the
operations acquired in the Maryland Acquisition and the LMUSA Purchases,
partially offset by a decrease in the weighted average rate of such loans. The
average balance of loans held for sale was $850 million for the year ended
December 31, 1996, an increase of $546 million from 1995. The weighted average
yield on loans held for sale decreased to 7.24% for the year ended December 31,
1996 from 7.89% 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

                                            Page 93

<PAGE>



from 7.14% during 1995, primarily due to the upward rate adjustments of
adjustable rate mortgage-backed securities as the loans underlying such
securities repriced to their fully indexed rates.

     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 resulting from the FDIC Purchase in June 1995
and the termination of the Assistance Agreement in August 1996.

     Interest income from all securities, 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 $591
million from $435 million, respectively, primarily due to assets acquired in
the 1996 Acquisitions. The weighted average yield on these assets decreased to
5.89% 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 is the result of additional interest-bearing
liabilities assumed in the 1996 Acquisitions, the issuance of Senior Sub Notes
and incrementally higher rates paid on the additional borrowings incurred to
replace the retail deposits sold in the Branch Sales.

     Interest expense on customer deposits, including Brokered Deposits, was
$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 loan servicing 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 is attributed to $.8 billion of such
liabilities acquired in the 1996 Acquisitions together with $1.5 billion in
additional short-term borrowings to fund the Branch Sales during 1996,
partially offset by maturities and payoffs that were refinanced with deposits
acquired from the Home Federal Acquisition and FHLB advances. The weighted
average interest rate on these instruments decreased to 5.70% in 1996 from
6.66% for 1995, primarily due to the impact of decreases in overall market
interest rates for such borrowings.

     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 is attributed to the net effect of a volume increase for
borrowings assumed in the 1996 Acquisitions, the issuance of the Senior Sub
Notes and 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 instruments 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 2.60% for the year
ended December 31, 1996 from 2.36% for the year ended December 31, 1995.


                                            Page 94

<PAGE>



     Noninterest Income. Total noninterest income, consisting primarily of loan
servicing fees, customer banking fees, management fees and gains on the Branch
Sales and on sales of assets, was $653 million for the year ended December 31,
1996, an increase of $502 million from the year ended December 31, 1995. This
increase includes (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 mortgage servicing rights,
were $124 million for the year ended December 31, 1996, compared to $70 million
for the year ended December 31, 1995. This increase is due to the addition of
the mortgage servicing portfolios acquired in the Maryland Acquisition, the
LMUSA Purchases and the 1996 Acquisitions, as well as servicing rights
originated through the increased origination capacity provided by these
acquisitions. The single-family residential loan servicing portfolio, excluding
loans serviced for the Company, 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 Company sold $4.9 billion in
single-family mortgage 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 is attributed to the impact of decreased revenues associated with the
Branch Sales, partially offset by the increased revenues from the retail
banking operations acquired in the Branch Purchases and the 1996 Acquisitions.

     Management fees totaled $10 million for the year ended December 31, 1996,
compared to $15 million for the year ended December 31, 1995. The decrease is
attributed principally to the reduced number of assets under management as a
result of contracts with the Resolution Trust Corporation and other third
parties which have expired.

     Gain on sales of loans was $18 million for the year ended December 31,
1996, compared to a loss of less than $1 million for the year ended December
31, 1995. The increase is attributed in part to a gain of $7.5 million on the
sale of $298.0 million of consumer loans during the first quarter of 1996. In
addition, the Company experienced increased gains on sales of single-family
mortgage loans due to the adoption of 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 is 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.

     Gain on sales of branches was $363 million for the year ended December 31,
1996. See note 2 to the accompanying financial statements of the Company for
additional information regarding 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 $30 million for the year ended December 31,
1996, an increase of $12 million from the year ended December 31, 1995. The
increase is primarily attributed to an increase of $5 million in dividends on
FHLB stock related to an increase in the volume of such stock owned by First
Nationwide, 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 is principally due to additional compensation,
loan expense, deposit insurance premiums and other noninterest expenses,
primarily related to the growth of the Company through the various acquisitions
in 1995 and the first half of 1996 and the Special SAIF Assessment.


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     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 is primarily due to the net impact of a reduction in
employees due to the Branch Sales and First Nationwide'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.

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

     Professional fees increased $10 million, to $22 million, for the year
ended December 31, 1996. This increase includes additional expenses related to
the servicing portfolios acquired in the LMUSA Purchases, as well as additional
accruals for various legal and litigation expenses.

     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
relates 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 include subservicing fees paid on acquired
servicing portfolios prior to conversion to FNMC's systems and increased
pass-through interest expense for loan payoffs in serviced loan pools. In
addition, such expenses also include outside appraisal fees, inspection fees,
and provision for losses on loans insured by the Federal Housing Administration
or guaranteed by the Veterans Administration.

     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 is attributed 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 the $132.1 million intangible asset recorded in connection with
the 1996 Acquisitions.

     Other noninterest expense was $76 million for the year ended December 31,
1996, an increase of $16 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 as a result of 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 about the realizability of FN Holdings' 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. In order to recognize the total net deferred tax asset recorded as of
December 31, 1996, the Company must have future earnings of approximately $834
million. 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 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 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

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

     Year Ended December 31, 1995 versus Year Ended December 31, 1994

     Net Income. FN Holdings reported net income for 1995 of $147 million
compared with net income of $31 million for 1994. Net income for 1995 includes
an income tax benefit of $57 million (largely due to the recognition of a $69
million deferred tax benefit) and an extraordinary gain from the early
extinguishment of FHLB advances of $2.0 million, net of tax. Net income for
1994 includes income tax expense totalling $2.6 million and $1.4 million, net
of tax, in extraordinary gain from the early extinguishment of FHLB advances.

     FN Holdings reported income before income taxes, extraordinary item and
minority interest of $122 million in 1995 compared with pre-tax income of $32
million in 1994. The increase is generally due to the inclusion in 1995 of the
operations acquired in the FN Acquisition for a full year compared to the
operations acquired in the FN Acquisition for only the fourth quarter of 1994.

     Net interest income was $341 million for the year ended December 31, 1995,
compared with $93 million for 1994, an increase of $248 million. The increase
is generally due to the inclusion in 1995 of the operations acquired in the FN
Acquisition for a full year compared with the inclusion of the operations
acquired in the FN Acquisition for only the fourth quarter of 1994.

     Interest Income. Total interest income was $1.1 billion for the year ended
December 31, 1995, an increase of $783 million from the year ended December 31,
1994. The interest-bearing assets acquired in the FN Acquisition resulted in
total interest-earning assets for 1995 averaging $13.9 billion compared to $4.3
billion in 1994. In addition, the yield on total interest-earning assets during
1995 increased .86% from the yield on total interest-earning assets during
1994, principally due to changes in overall market interest rates and the
higher yielding assets acquired in the FN Acquisition.

     FN Holdings earned $800 million of interest income on loans receivable for
the year ended December 31, 1995, an increase of $588 million from the year
ended December 31, 1994. The loans acquired in the FN Acquisition resulted in
an increase in the average balance of loans receivable to $10.1 billion from
$2.9 billion for the years ended December 31, 1995 and 1994, respectively. The
weighted average yield on loans receivable increased to 7.95% for 1995 from
7.27% during 1994, primarily due to the repricing of the adjustable rate loans
in the portfolio acquired in the FN Acquisition.

     FN Holdings earned $24 million of interest income on loans held for sale
for the year ended December 31, 1995, an increase of $23 million from the year
ended December 31, 1994. The additional loan production from the Maryland
Acquisition and the LMUSA 1995 Purchase resulted in an increase in the average
balance of loans held for sale to $304 million from $11 million for the years
ended December 31, 1995 and 1994, respectively. The weighted average yield on
loans held for sale increased to 7.89% for 1995 from 5.22% during 1994.

     Interest income on mortgage-backed securities was $213 million for the
year ended December 31, 1995, an increase of $170 million from the year ended
December 31, 1994. The mortgage-backed securities acquired in the FN
Acquisition, including $1.3 billion of qualifying single-family loans
securitized from First Nationwide's loan portfolio in late 1994 and an
additional $.4 billion securitized in 1995, resulted in the average portfolio
balances increasing from $711 million to $3.0 billion during the years ended
December 31, 1994 and 1995, respectively. The weighted average yield on
mortgage-backed securities increased to 7.14% for 1995 from 6.05% for 1994,
primarily due to the addition of higher-yielding securities from

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the FN Acquisition, including loan securitizations, and the subsequent upward
rate adjustments of adjustable rate mortgage-backed securities related to an
overall increase in market interest rates.

     Interest income from Covered Assets declined $19 million, to $11 million,
for the year ended December 31, 1995. This decline is due to a reduction in the
volume of Covered Assets due to sales, repayments and other dispositions of
Covered Assets, including the FDIC Purchase, offset in part by an increase in
the effective rate earned on such Covered Assets which was 6.67% for 1995
compared to 6.11% for 1994. The higher rate is due to the net effect of the
increase in TCOF between the two periods due to generally increasing interest
rates, partially offset by the reduction in the applicable margin over the TCOF
prescribed in the Assistance Agreement.

     Interest income from securities and interest-bearing deposits in banks was
$28 million for the year ended December 31, 1995, an increase of $21 million
from the year ended December 31, 1994. The average portfolio balances during
the years ended December 31, 1995 and 1994 increased to $435 million from $138
million, respectively, due to the securities acquired in the FN Acquisition
being held for an entire year in 1995 versus the fourth quarter only in 1994.
The weighted average yield on these assets increased to 6.42% for 1995 from
4.95% for 1994, primarily due to the increase in overall market interest rates.

     Interest Expense. Total interest expense was $735 million for the year
ended December 31, 1995, an increase of $535 million from the year ended
December 31, 1994. The increase is generally due to the inclusion for a full
year in 1995 of the additional interest-bearing liabilities from the operations
acquired in the FN Acquisition, the issuance of the Senior Notes and changes in
overall market rates of interest paid as discussed in more detail below.

     Interest expense on deposits, including Brokered Deposits, was $447
million for the year ended December 31, 1995, an increase of $346 million from
the year ended December 31, 1994. The deposits of approximately $10 billion
acquired in the FN Acquisition, net of $1.2 billion in deposits sold in the
Illinois Sale, and the $513 million of deposits assumed in the Branch
Purchases, resulted in an increase in the average balance of deposits
outstanding from $2.6 billion to $10.0 billion for the years ended December 31,
1994 and 1995, respectively. The overall weighted average cost of deposits
increased from 3.88% for 1994 to 4.49% for 1995, due principally to increases
in the overall level of interest rates between the two years.

     Interest expense on securities sold under agreements to repurchase and
borrowings totalled $288 million for the year ended December 31, 1995, an
increase of $189 million from the year ended December 31, 1994. The timing of
the FN Acquisition and the Illinois Sale, offset in part by the reduction of
borrowings from funds received in connection with the Branch Purchases,
resulted in the average balance outstanding of securities sold under agreements
to repurchase and borrowings for the years ended December 31, 1995 and 1994
increasing to $3.8 billion from $1.5 billion, respectively. The weighted
average interest rate on these instruments increased to 7.60% in 1995 from
6.46% for 1994, primarily due to the impact of increases in overall market
interest rates. The Senior Notes issued in 1994 resulted in an additional $18
million in interest expense in 1995 compared to 1994.

     Net Interest Income. Net interest income before provision for loan losses
was $341 million for the year ended December 31, 1995, an increase of $248
million from the year ended December 31, 1994. The interest rate spread
increased to 2.36% in 1995 from 2.02% in 1994. The increase in net interest
income is generally due to the inclusion in 1995 of the operations acquired in
the FN Acquisition for a full year compared to the inclusion of the operations
acquired in the FN Acquisition for only the fourth quarter of 1994.

     Noninterest Income. Total noninterest income, consisting primarily of
mortgage banking, customer banking and management fee income, was $151 million
for the year ended December 31, 1995, an increase of $110 million from the year
ended December 31, 1994. The increase is generally due to the inclusion in 1995
of the operations acquired in the FN Acquisition for a full year compared to
the inclusion of the operations acquired in the FN Acquisition for only the
fourth quarter of 1994. In addition, additional fee revenues were generated
from operations acquired in the Maryland Acquisition and the LMUSA 1995
Purchase.


                                            Page 98

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     Fees and service charges related to mortgage banking operations, which
consist principally of loan servicing income and borrower fees, were $70
million for the year ended December 31, 1995, compared to $10 million for the
year ended December 31, 1994. This increase is due to the inclusion in 1995 of
the mortgage banking operations acquired in the FN Acquisition for an entire
year versus only the fourth quarter in 1994, as well as additional fee revenues
received as a result of the inclusion of the mortgage banking operations
acquired in the Maryland Acquisition and the LMUSA 1995 Purchase.


     Fees and service charges related to retail banking operations, consisting
of depositor fees for transaction accounts, overdrafts, and miscellaneous other
fees, were $48 million for the year ended December 31, 1995 compared to $11
million for the year ended December 31, 1994. The increase of $37 million is
due to the inclusion in 1995 of the retail banking operations acquired in the
FN Acquisition for an entire year compared to only the fourth quarter of such
operations in 1994, as well as a slight increase in such fees related to the
operations acquired in the Branch Purchases.

     Management fees, principally from commercial loan servicing and asset
management services provided for third-party investors, totalled $15 million
for the year ended December 31, 1995, an increase of $2 million over 1994. This
$2 million increase is the net effect of a $3.8 million increase in the
revenues from the asset servicing agreements entered into with Granite in
conjunction with the FN Acquisition, offset by decreases in disposition and
other third party fees received by FGB Realty, principally due to the
expiration of certain government contracts, totalling $1.8 million.

     Other noninterest income was $18 million for the year ended December 31,
1995, an increase of $10.4 million from the year ended December 31, 1994. The
increase is attributed to an increase of $3.4 million in dividends on FHLB
stock, $1.7 million in fees earned on check disbursement products, $1.1 million
in early withdrawal penalties on deposits and $4.2 million in miscellaneous
other income. The increases are attributed to the inclusion in 1995 of the
operations acquired in the FN Acquisition for a full year compared to the
inclusion of the operations acquired in the FN Acquisition for only the fourth
quarter of 1994.

     Noninterest Expense. Total noninterest expense was $333 million for the
year ended December 31, 1995, an increase of $237 million from the year ended
December 31, 1994. All categories of noninterest expense increased, primarily
due to the inclusion in 1995 of expenses related to the operations acquired in
the FN Acquisition for an entire year compared to including such expenses for
only the fourth quarter in 1994. In addition, the year ended December 31, 1995
includes charges totalling $13 million related to accrued termination and
facilities costs for specific cost reduction actions taken by First Nationwide
during the year.

     Total compensation and employee benefits expense was $154 million for the
year ended December 31, 1995, an increase of $105 million from the year ended
December 31, 1994. The increase is primarily due to the inclusion in 1995 of a
full year of such charges related to the operations acquired in the FN
Acquisition compared to only the fourth quarter of such expenses in 1994. In
addition, 1995 includes expenses totalling $7 million related to employee
severance and termination costs for the relocation of First Nationwide's
mortgage loan servicing operations to Maryland, the closure of First
Nationwide's retail mortgage loan production offices, and a bank-wide cost
reduction project.

     Occupancy and equipment expense was $50 million for the year ended
December 31, 1995, an increase of $38 million from the year ended December 31,
1994. The increase is primarily due to the inclusion in 1995 of a full year of
such charges related to the operations acquired in the FN Acquisition compared
to only the fourth quarter of such expenses in 1994. In addition, 1995 includes
expenses totalling $6 million related to space reductions and lease termination
charges for the relocation of First Nationwide's mortgage loan servicing
operations to Maryland, the closure of First Nationwide's retail mortgage loan
production offices, a bank-wide cost reduction project, and retail branch
consolidations due to duplicate facilities resulting from the Branch Purchases.

     Data processing expense increased to $10 million for the year ended
December 31, 1995 from $3 million for the year ended December 31, 1994. The
increase is primarily due to the inclusion in 1995 of a full year of such
charges related to the operations acquired in the FN Acquisition compared to
only the fourth quarter of such charges in 1994.


                                            Page 99

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     SAIF deposit insurance premiums increased to $22 million in 1995 compared
to $7 million for the year ended December 31, 1994. The increase is primarily
due to the inclusion in 1995 of a full year of such charges related to the
operations acquired in the FN Acquisition compared to only the fourth quarter
of such charges in 1994.

     Marketing expense was $11 million for the year ended December 31, 1995, an
increase of $8 million from the year ended December 31, 1994. The increase is
primarily due to the inclusion in 1995 of a full year of such charges related
to the operations acquired in the FN Acquisition compared to only the fourth
quarter of such charges in 1994.

     Professional fees increased from $3 million to $12 million during the
years ended December 31, 1994 and 1995, respectively. This increase is
attributed primarily to the inclusion of a full year of operations acquired in
the FN Acquisition compared to only the fourth quarter of 1994, as well as
increased expenses related to operations acquired in the Maryland Acquisition
and the LMUSA 1995 Purchase.

     Loan expense was $12 million for the year ended December 31, 1995, an
increase of $11 million from the year ended December 31, 1994. The increase is
due to the inclusion in 1995 of a full year of the mortgage banking operations
acquired in the FN Acquisition compared to only the fourth quarter in 1994, as
well as increased expenses related to operations acquired in the Maryland
Acquisition and the LMUSA 1995 Purchase.

     Other noninterest expense was $61 million for the year ended December 31,
1995, an increase of $42 million from the year ended December 31, 1994,
principally due to increased telecommunications, postage, office supplies and
travel expenses, all of which are attributed primarily to the inclusion in 1995
of a full year of the operations acquired in the FN Acquisition compared to
only the fourth quarter in 1994. The Branch Purchases, Maryland Acquisition,
and LMUSA 1995 Purchase also contributed to increases in these expenses.

     Provision for Income Taxes. During the years ended December 31, 1995 and
1994, FN Holdings recorded income tax (benefit) expense of $(57.2) million and
$2.6 million, respectively. The net benefit in 1995 is largely the result of
the recognition of a deferred tax benefit of $69 million. 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 tax rates were (56)% and 0% during the years ended December 31, 1995
and 1994, respectively, while its statutory federal tax rate was 35% during
both periods. The difference between effective and statutory rates was
primarily the result of the utilization of net operating loss carryforwards
and, in 1995, the recognition of a deferred tax benefit of $69 million. FN
Holdings' effective state tax rates were 9% and 8% for the years ended December
31, 1995 and 1994, respectively.

     Extraordinary Item. During the year ended December 31, 1995, FN Holdings
had a gain of $2.0 million on the early extinguishment of $250 million in FHLB
advances, net of income taxes. During the year ended December 31, 1994, FN
Holdings had a gain of $1.4 million on the early extinguishment of $95 million
in FHLB advances, net of income taxes.

PROVISION FOR FEDERAL AND STATE INCOME TAXES

     During the years ended December 31, 1996, 1995 and 1994, FN Holdings
recorded income tax (benefit) expense, excluding the tax effects associated
with extraordinary items and minority interest in 1996, 1995 and 1994, of
$(73.1) million, $(57.2) million, and $2.6 million, respectively. FN Holdings'
effective tax rates were (13)%, (47)%, and 8%, in 1996, 1995 and 1994,
respectively. FN Holdings' federal statutory tax rate was 35% in each of 1996,
1995, and 1994. 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. The non-taxable portions of the FSLIC/RF assistance payments
decreased to $1 million in 1996 from $5 million in 1995.


     At December 31, 1996, if FN Holdings had filed a consolidated tax return
on behalf of itself and its subsidiaries for each year since the formation of
First Nationwide, it would have had approximately $2.1 billion of regular net
operating losses and approximately $750 million of AMT net operating losses,
both of which FN Holdings would have been entitled

                                            Page 100

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to utilize. A portion of such losses, to the extent not previously used to
offset income, would expire in the year 2004 and 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 FN
Holdings in the current period will be subject to federal income tax at an
effective rate of 20%. For the year ended December 31, 1996, FN Holdings
incurred a federal income tax benefit of $113 million which included the
recognition of a $125 million deferred tax benefit in the second quarter. Under
the Tax Sharing Agreement, FN Holdings has eliminated a significant portion of
the amounts that it otherwise would be required to pay to Mafco Holdings in
respect of federal income tax. Likewise, it is not expected that the Company
will record significant amounts of federal income tax expense as a member of
the Mafco Group. Payments made by FN Holdings under the Tax Sharing Agreement
with the Mafco Group during the years ended December 31, 1996 and 1995 totalled
$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.

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.

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 $40 million, $37 million and $6 million for the
years ended December 31, 1996, 1995 and 1994, respectively. The allowance for
loan losses is increased by provisions for loan losses and decreased by
charge-offs (net of recoveries). See "--General--Accounting Changes." The
increase in the provision for losses in 1996 over 1995 is due to the increased
loan production activity (primarily single-family residential) and loans
acquired through acquisitions in 1996 compared to 1995.

     A significant portion of the Company's loans is secured by real estate
located within markets where real estate prices continue to be weak.
Accordingly, the ultimate collectibility of those loans is susceptible to
changes in the economic conditions in such regions. Management's periodic
evaluation of the adequacy of the allowance 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 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

     Financial institutions are subject to interest rate risk to the degree
that their interest-bearing liabilities, consisting

                                            Page 101

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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 banking 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 yield 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 Bank measures the interest rate sensitivity of the balance
sheet through gap and duration analysis, as well as net interest income and
market value simulation, and, after taking into consideration both the
variability of rates and the maturities of various instruments, evaluates
strategies which may reduce the sensitivity of its earnings to interest rate
and market value fluctuations. An important decision is the selection of
interest-bearing liabilities and the generation of interest-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 Bank
has continued its emphasis on the origination of ARM products for its
portfolio. Where possible, the Bank seeks to originate real estate loans that
reprice frequently and that on the whole adjust in accordance with the
repricing of its liabilities. During the year ended December 31, 1996, most of
the fixed and variable rate real estate loans originated were sold in the
secondary market to provide funds for the acquisition and divestiture activity
occurring during the period. At December 31, 1996, approximately 88.5% 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 Bank have a fixed
monthly payment for a given period, with any changes as a result of market
interest rates reflected in the unpaid principal balance through negative
amortization. From the lender's perspective, these loans respond most quickly
to rate changes because interest accruals immediately reflect the loans as
though they were fully indexed. In general, the closer the interest rate on a
portfolio of ARMs is to the ultimate contractual margin over market rates, the
more sensitive the portfolio yield is to changes in market interest rates.

     As a result of the FN Acquisition, First Nationwide acquired the rights
and assumed the obligations of Old FNB under certain interest rate swap
agreements. Under the terms of these agreements, the Bank pays the variable
rate based on LIBOR and receives fixed rates. During 1996 and 1995, First
Nationwide's net interest margin increased by $.6 million and decreased by
$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 Acquisition.

     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 102

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     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, 1996. Prepayment rates are assumed in each period on substantially all of
the Company's loan portfolio based upon expected loan prepayments. Repricing
mechanisms on the Company's assets are subject to limitations such as caps on
the amount that interest rates and payments on its loans may adjust and,
accordingly, such assets may not respond in the same manner or to the same
extent to changes in interest rates as the Company's liabilities. In addition,
the interest rate sensitivity of the 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. FN Holdings' estimated
interest rate sensitivity gap at December 31, 1996 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)                    $    139     $   --       $   --      $   --      $    139
Securities available for sale (3)                          542         --           --          --           542
Mortgage-backed securities available for sale (3)        1,599         --           --          --         1,599
Mortgage-backed securities held to maturity (1) (4)      1,611            2            3        --         1,616
Loans held for sale, net (3)(6)                            816         --           --          --           816
Loans receivable, net (1)(5)                             9,203          735          373        --        10,311
Investment in FHLB                                         221         --           --          --           221
                                                      --------     --------     --------    --------    --------
         Total interest-earning assets                  14,131          737          376        --        15,244

Noninterest-earning assets                                --           --           --         1,326       1,326
                                                      --------     --------     --------    --------    --------
                                                      $ 14,131     $    737     $    376    $  1,326    $ 16,570
                                                      ========     ========     ========    ========    ========

INTEREST-BEARING LIABILITIES:
Deposits (7)                                          $  7,348     $  1,150     $      4    $   --      $  8,502
Securities sold under agreements to repurchase (1)       1,529           54         --          --         1,583
FHLB advances (1)                                        2,950        1,472            7        --         4,429
Other borrowings (1)                                        29          203          242        --           474
                                                      --------     --------     --------    --------    --------
         Total interest-bearing liabilities             11,856        2,879          253        --        14,988

Noninterest-bearing liabilities                           --           --           --           354         354
Minority interest                                         --           --           --           309         309
Stockholders' equity                                      --           --           --           919         919
                                                      --------     --------     --------    --------    --------
                                                      $ 11,856     $  2,879     $    253    $  1,582    $ 16,570
                                                      ========     ========     ========    ========    ========

Gap before interest rate swap agreements              $  2,275     $ (2,142)    $    123                $    256  
Interest rate swap agreements                             (400)         400         --                        --    
                                                      --------     --------    --------                 --------   
Gap adjusted for interest rate swap                                                                                 
         agreements                                   $  1,875     $ (1,742)    $    123                $    256  
                                                      ========     ========    ========                 ========   
                                                                                                                    
Cumulative gap                                        $  1,875     $    133     $    256                $    256  
                                                      ========     ========    ========                 ========  
                                                                                                                    
Gap as a percentage of total assets                       11.3%       (10.5)%        .7%                     1.5% 
                                                      ========     ========    ========                 ========  
                                                                                                                    
Cumulative gap as a percentage of total                                                                             
     assets                                               11.3%          .8%        1.5%                     1.5% 
                                                      ========     ========    ========                 ========  
</TABLE>


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

(1)  Based upon (a) contractual maturity, (b) instrument repricing date, if
     applicable, and projected repayments and (c) prepayments of principal, if
     applicable. Prepayments were estimated generally by using the prepayment
     rates forecast by various large brokerage firms as of December 31, 1996.
     The actual maturity and rate sensitivity of these assets could vary
     substantially if future prepayments differ from prepayment estimates.

(2)  Consists of $21 million of interest-bearing deposits in other banks, $114
     million of short-term investment securities and $4 million of securities
     held to maturity.

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

(4)  Excludes underlying loans on nonaccrual status of $6 million.

(5)  Excludes allowance for loan losses of $247 million and nonaccrual loans of
     $157 million.

(6)  Excludes nonaccrual loans of $9 million.

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

     At December 31, 1996, interest-earning assets of FN Holdings exceeded
interest-bearing liabilities by approximately $256 million.

     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. At least annually, the Board of Directors of the
Bank reviews the Bank's interest rate risk management policy statements.

     On November 15, 1995, the FASB issued the Special Report. On December 29,
1995, FN Holdings reclassified substantially all of its securities and
mortgage-backed securities from held to maturity to available for sale. The
impact on the gap schedule of reclassifying securities from the
held-to-maturity portfolio to the available-for-sale portfolio was to shorten
the maturity and interest rate sensitivity of such assets. See
"--General--Accounting Changes."

LIQUIDITY

     The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. government and other specified securities to deposits
and borrowings due within one year. The OTS has currently established a minimum
liquidity requirement of 5.00%. First Nationwide's liquidity ratio was 5.32%
and 5.46% at December 31, 1996 and 1995, respectively.

     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
borrowings.

     A major source of the Bank'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 Bank 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

                                            Page 103

<PAGE>



customers. The Bank also obtains funds from the repayment and maturities of
loans and mortgage-backed securities, while additional funds can be obtained
from a variety of sources including customer and Brokered Deposits, loan sales,
securities sold under agreements to repurchase, FHLB advances, and other
secured and unsecured borrowings. It is anticipated that FHLB advances and
securities sold under agreements to repurchase will be secondary sources of
funding, and management expects there to be adequate collateral for such
funding requirements.

     The Company's primary uses of funds are the origination or purchase of
loans, the funding of maturing certificates of deposit and demand deposit
withdrawals, and the repayment of borrowings. First Nationwide's certificates
of deposit scheduled to mature during the twelve months ending December 31,
1997 aggregate $4.4 billion. The Bank 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, 1996,
First Nationwide had FHLB advances and other borrowings aggregating $4.3
billion maturing within twelve months. The Bank may elect to pay off such debt
or to replace borrowings with additional FHLB advances or other borrowings at
prevailing rates.

     During 1994, First Nationwide issued 3,007,300 shares of the Preferred
Stock. Cash dividends on the Preferred Stock are noncumulative and are payable
at an annual rate of 11-1/2% if, when, and as declared by the Board of
Directors of the Bank. The payment of dividends by the Bank is subject to
certain federal laws applicable to savings associations. Preferred Stock
dividends totalling $34.6 million were declared and paid during 1996.

     During 1995, the FSLIC/RF purchased substantially all of the remaining
Covered Assets at the fair market value of such assets in the FDIC Purchase.
Any losses sustained by First Nationwide from this directed purchase were
reimbursed under the Capital Loss Coverage provision of the Assistance
Agreement. See "Business--FN Holdings-- Other Activities--The Assistance
Agreement." Proceeds from this transaction were reinvested in the normal course
of business. As a result of the FDIC Purchase, First Nationwide's reliance on
dispositions of Covered Assets as a source of funds has been eliminated.

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

     On September 19, 1996, the Company issued $150 million of FN Holdings
Preferred Stock which has an annual dividend cost of approximately $15 million,
not including dividends paid in kind.

     In the Cal Fed Acquisition, the Bank assumed notes and Cal Fed Preferred
Stock which have an annual interest/dividend cost of $5.9 million and $18.3
million, respectively.

     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 in the foreseeable future. In addition to
cash and cash equivalents of $157.4 million at December 31, 1996, First
Nationwide has substantial additional secured borrowing capacity with the FHLB
and other sources. During 1996, the Company used existing cash and the proceeds
from securities sold under agreements to repurchase and advances from the FHLB
to finance the Branch Sales and the 1996 Acquisitions.

     Net cash provided by operating activities for the year ended December 31,
1996 totalled $526.2 million, an increase of $917.4 million from the year ended
December 31, 1995. The increase is 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 First Nationwide.

     Net cash used in operating activities for the year ended December 31, 1995
totalled $392 million, an increase of $351.5 million from the year ended
December 31, 1994. The increase is principally due to the increase in loans
held for sale due

                                            Page 104

<PAGE>



to the additional production capacity from the Maryland Acquisition and the
LMUSA 1995 Purchase.

     Net cash provided by investing activities for the year ended December 31,
1996 totalled $2.1 billion, an increase of $0.4 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, $39.3 million from the
termination of the Assistance Agreement, principal payments on mortgage-backed
securities totalling $863.1 million and proceeds from maturities of securities
of $252.1 million. Proceeds from sales of loans receivable, including loans
sold to Granite pursuant to the Put Agreement of $112.4 million, totalled
$123.0 million. Proceeds from sales of foreclosed real estate provided $156.9
million. Proceeds from the Home Federal Acquisition provided $79.0 million.
Cash flows used in investing activities included $131.5 million for the SFFed
Acquisition and mortgage loan servicing operations, purchases of securities of
$507.3 million, purchases of $149.7 million in mortgage-backed securities,
purchases of office premises and equipment of $42.4 million and purchases of
mortgage servicing rights of $66 million.

     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. Redemptions of FHLB stock
provided $25.6 million, and proceeds from sales of foreclosed real estate
provided $71.5 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, purchases of securities of
$162.8 million, purchases of $19.8 million in mortgage-backed securities, a net
increase in loans receivable of $86.2 million, and purchases of office premises
and equipment of $15.3 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, the net decrease in
securities sold under agreements to repurchase totalled $202.2 million and the
decrease in deposits totalled $56.7 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 on the Preferred Stock of First Nationwide
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. 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. Additionally, dividends on and redemptions of FN
Holdings' class C common stock totalled $29 million and $61 million,
respectively, and dividends on First Nationwide's Preferred Stock totalled
$34.6 million.

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

     The terms of the Preferred Stock and the Cal Fed Preferred Stock provide
that the Bank may not declare or pay any full dividends with respect to any
parity stock, unless and until the Bank has paid full dividends on the
Preferred Stock or the Cal Fed Preferred Stock, as the case may be, for the
most recent dividend period. The Bank is currently in compliance with such
requirement.

     The terms of the 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)

                                            Page 105

<PAGE>



the Bank has paid full dividends on the 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 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.


     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.

     FN Holdings currently anticipates that, in order to pay the principal
amount of the Senior Notes, the Senior Sub Notes or the 10-5/8% Notes upon the
occurrence of an Event of Default, (as defined in the Senior Notes Indenture,
the Senior Sub Notes Indenture, and the 10-5/8% Notes Indenture, as the case
may be) or to redeem or repurchase the Senior Notes, the Senior Sub Notes or
the 10-5/8% Notes upon a Change of Control Call Event (as defined in the Senior
Notes Indenture, the Senior Sub 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 Senior
Notes Indenture, the Senior Sub 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 Senior Notes, the Senior Sub 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 Senior Notes, the Senior Sub 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 Senior Notes, the Senior Sub
Notes or the 10-5/8% Notes or that any of such actions would be permitted by
the terms of the Senior Notes Indenture, the Senior Sub 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 Preferred Stock or
under federal thrift laws.

     The Senior Notes Indenture, the Senior Sub Notes Indenture and the 10-5/8%
Notes Indenture generally limit distributions (and other Restricted Payments
(as defined in the Senior Notes Indenture, the Senior Sub 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 Senior
Notes Indenture, the Senior Sub 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 Senior Notes Indenture, the Senior Sub
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 Senior Notes Indenture, the
Senior Sub 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 Senior
Notes Indenture, the Senior Sub Notes Indenture or the 10-5/8% Notes Indenture.
It is currently expected that, after payment of its debt service and other
obligations, for 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 106

<PAGE>



     The terms and conditions of the Senior Notes Indenture, the Senior Sub
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 Senior
Notes, the Senior Sub Notes and the 10-5/8% Notes. See "Business--FN
Holdings--Sources of Funds--Subordinated Debentures," "Business--FN
Holdings--Source of Funds--Senior Notes" and "Business--FN Holdings--Source of
Funds--Senior Sub Notes."

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

     Pursuant to SFAS No. 114, as amended by SFAS No. 118, effective January 1,
1995, loans collectively reviewed for impairment by the Company 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.
The adoption of SFAS No. 114, as amended by SFAS No. 118, had no material
impact on the Company's consolidated financial statements as the Company's
existing policy of measuring loan impairment was consistent with methods
prescribed in these standards. See "--General--Accounting Changes."

     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, which represents
substantially all of the Company's loan portfolio, 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, 1996, the carrying value of loans that are considered to
be impaired under SFAS No. 114 totalled $102 million (of which $22.6 million
were on nonaccrual status). The average recorded investment in impaired loans
during the year ended December 31, 1996 was approximately $103.7 million. For
the year ended December 31, 1996, FN Holdings recognized interest income on
those impaired loans of $10.7 million, which included $0.3 million of interest
income recognized using the cash basis of income recognition.


                                            Page 107

<PAGE>

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

                                            December 31, 1996                        December 31, 1995
                                    ------------------------------------    -----------------------------------
                                    Nonaccrual  Impaired    Restructured    Nonaccrual   Impaired  Restructured
                                    ----------  --------    ------------    ----------   --------  ------------
                                                                    (in millions)
<S>                                   <C>        <C>           <C>            <C>        <C>        <C>
     Real Estate:
         1-4 unit residential           $146     $   --        $    3           $136      $    --    $     8
         5+ unit residential              13         47            68             23           73        147
         Commercial and other              9         54            48              9           52         79
         Land                             --         --             6             --           --         --
         Construction                      1          1            --             --           --         --
                                        ----       ----          ----           ----         ----      -----
             Total real estate           169        102           125            168          125        234
     Non-real estate                       3         --            --              3           --         --
                                        ----       ----          ----           ----         ----       ----
             Total loans                 172       $102(b)       $125(c)         171         $125(b)    $234(c)
                                                   ====          ====                        ====       ====
     Foreclosed real estate, net          52                                      49
                                        ----                                    ----
          Total non-performing assets   $224(a)                                 $220
                                        ====                                    ====
</TABLE>

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

(a)  Includes loans securitized with recourse on nonaccrual status of $6
     million.

(b)  Includes $22.6 million of loans on nonaccrual status and $18.3 million of
     loans classified as troubled debt restructurings.

(c)  Includes nonaccrual loans of $2.4 million and $1.2 million at December 31,
     1996 and 1995, respectively. At December 31, 1996, $2.4 million of these
     nonaccrual, troubled debt restructurings were also considered impaired
     under SFAS No. 114.

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

     The Company's non-performing assets, consisting of nonaccrual loans, net
of purchase accounting adjustments, and foreclosed real estate, net, increased
slightly to $224 million at December 31, 1996, compared with $220 million at
December 31, 1995. Non-performing assets as a percentage of the Company's total
assets decreased slightly to 1.37% at December 31, 1996, from 1.50% of total
assets at December 31, 1995. The Put Agreement expired on November 30, 1996, at
which date the aggregate purchase price of assets "put" to Granite equaled $500
million.

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


                                            Page 108

<PAGE>




     The following table presents First Nationwide's non-performing real estate
assets by geographic region of the country as of December 31, 1996:

<TABLE>
<CAPTION>
                                                                    Total
                             Nonaccrual        Foreclosed      Non-performing
                             Real Estate      Real Estate,       Real Estate      Geographic
                           Loans, Net (2)        Net (2)           Assets        Concentration
                          ---------------     ------------     ---------------   -------------
                                                  (dollars in millions)
<S>                        <C>                <C>             <C>               <C>   
     Region:
         Northeast (1)           $35              $10             $  45               20.5%
         California              102               36               138               62.4
         Other regions            32                6                38               17.1
                              ------            -----            ------            -------
              Total             $169              $52              $221              100.0%
                                ====              ===              ====              =====
</TABLE>

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

(1)  Includes Connecticut, Massachusetts, Maine, New Hampshire, New Jersey, New
     York, Pennsylvania, Rhode Island and Vermont.


(2)  Net of purchase accounting adjustments.

     The level of non-performing assets is directly affected by economic
conditions throughout the country. The following table indicates First
Nationwide's nonaccrual real estate loans, net of purchase accounting
adjustments, by collateral type and state concentration as of December 31,
1996:
<TABLE>
<CAPTION>

                                                                                        Total
                           1-4 unit              5+ unit             Commercial       Nonaccrual
                         Residential           Residential            and Other        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                 $ 80        $ 4         $7         $1         $8        $0      $100         59.2%
New York                     21          2          0          0          0         0        23         13.6
New Jersey                    1          5          0          2          0         0         8          4.7
Hawaii                        6          1          0          0          0         0         7          4.1
Ohio                          2          2          0          2          0         0         6          3.6
Florida                       3          2          0          0          0         0         5          2.9
Illinois                      2          1          1          0          0         0         4          2.4
Connecticut                   2          0          0          0          0         0         2          1.2
Other states (1)              8          4          0          0          0         2        14          8.3
                           ----        ---         --         --         --        --      ----        -----
   Total                   $125        $21         $8         $5         $8        $2      $169        100.0%
                           ====        ===         ==         ==         ==        ==      ====        =====

</TABLE>

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

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

     At December 31, 1996, First Nationwide's largest non-performing asset was
approximately $5.3 million, and it had approximately five non-performing assets
over $2 million in size with balances averaging approximately $3.2 million.
First Nationwide has approximately 1,793 non-performing assets below $2 million
in size, including approximately 1,712 non-performing 1-4 unit residential
assets.


                                            Page 109

<PAGE>



     The following table indicates outstanding balances of troubled debt
restructured loans, net of purchase accounting adjustments, by collateral type,
interest rate type and state concentration as of December 31, 1996:

<TABLE>
<CAPTION>
                                                                                    Total
                          1-4 Unit            5+ Unit          Commercial         Troubled
                         Residential        Residential         and Other           Debt        % of
                    ------------------  -----------------  ---------------- 
                    Variable     Fixed  Variable    Fixed  Variable   Fixed   Restructured     Total
                     --------     -----  --------    -----  --------   -----   ------------     -----
                                                    (dollars in millions)

<S>                      <C>       <C>      <C>        <C>    <C>       <C>         <C>         <C>  
     California          $1        $2       $34        $3     $29       $12         $81         64.8%
     New York            --        --         4        19      --        12          35         28.0
     Missouri            --        --        --         4      --        --           4          3.2
     Other states (1)    --        --        --         4      --         1           5          4.0
                         --        --       ---       ---     ---       ---        ----        -----
         Total           $1        $2       $38       $30     $29       $25        $125        100.0%
                         ==        ==       ===       ===     ===       ===        ====        =====
</TABLE>

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

(1)  There are 2 states of which no one state had troubled debt restructured
     loans in excess of 3% of the total.

     The following table indicates First Nationwide's outstanding balances of
impaired loans, net of purchase accounting adjustments, by collateral type,
interest rate type and state concentration as of December 31, 1996:

<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                             $34        $2     $43        $8         $87        85.5%
     New York                                 4         2       1         1           8         8.2
     New Jersey                              --         2      --        --           2         2.2
     Ohio                                     1         2      --        --           3         2.1
     Other states (1)                        --        --       1         1           2         2.0
                                          -----      ----   -----      ----      ------     -------
         Total                              $39        $8     $45       $10        $102       100.0%
                                            ===        ==     ===       ===        ====       =====
</TABLE>

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

(1)  There are 2 states of which no one state had impaired loans in excess of
     2% of the total.


                                            Page 110

<PAGE>




     A summary of the activity in First Nationwide's allowance for loan losses
by loan type is as follows for the years ended December 31, 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, 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
                                             ====             ====               ===             ====

     Ratio of allowance for loan losses to non-performing loans:
              December 31, 1994              83.5%             188.6%           225.0%           112.2%
                                             ====              =====            =====            =====
              December 31, 1995              85.3%             265.6%           300.0%           122.8%
                                             ====              =====            =====            =====
              December 31, 1996              83.9%             503.2%           280.9%           143.2%
                                             ====              =====            =====            =====
</TABLE>

     For additional discussion on the non-performing assets of the Company,
"Business--FN Holdings--Non-performing Assets."

MORTGAGE BANKING OPERATIONS

     The Company, through First Nationwide and FNMC, has significantly expanded
and enhanced the efficiency of its mortgage banking operations. With the
consummation of the LMUSA 1996 Purchase on January 31, 1996 and the acquisition
of the single-family loan servicing portfolio in the SFFed and Home Federal
Acquisitions, other acquisitions and the originated servicing, the
single-family residential loans serviced for others totalled $43.1 billion at
December 31, 1996, an increase of $16.1 billion from December 31, 1995. During
1996, First Nationwide, through FNMC, originated and sold (generally with
servicing retained) single-family residential loans totalling approximately
$4.8 billion and $5.2 billion, respectively. Gross revenues from mortgage loan
servicing activities for 1996 totalled $155.4 million, an increase of $61.6
million from the year ended December 31, 1995.

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

     Effective April 1, 1995, the Company adopted SFAS No. 122, which requires
that, when a mortgage loan is sold and servicing rights are retained, a portion
of the cost of originating a mortgage loan be allocated to the mortgage
servicing rights based on its fair market value. This cost of originating the
loan is capitalized and amortized over the period of estimated future net
servicing income. The net gains on sales of single-family mortgage loans during
the year ended December 31, 1996 totalled $10.3 million and included amounts
related to the capitalization of originated and excess mortgage servicing
rights of $81.0 million.


                                            Page 111

<PAGE>




     The following is a summary of activity in mortgage servicing rights
purchased ("Purchased"), originated ("Originated") and excess servicing fees
receivable ("Excess") for the year ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
                                                                                             MSR
                                           Purchased       Originated        Excess          Hedge          Total
                                           ---------       ----------        ------          -----          -----
<S>                                         <C>              <C>            <C>         <C>               <C>     
Balance at December 31, 1995                $223,749         $16,370        $  1,236    $       --        $241,355
  Additions                                  188,510          70,622          10,406         3,780         273,318
  Amortization                               (84,499)         (4,944)         (1,263)         (275)        (90,981)
  Impairment                                      --              --              --            --              --
                                            --------         -------         -------        ------        --------
Balance at December 31, 1996                $327,760         $82,048         $10,379        $3,505        $423,692
                                            ========         =======         =======        ======        ========
</TABLE>

     No allowance for loss due to impairment of mortgage servicing rights was
necessary at December 31, 1996.

CAPITAL RESOURCES

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



                                            Page 112

<PAGE>



     At December 31, 1996, First Nationwide's total regulatory capital levels
exceeded the minimum regulatory capital requirements, with tangible, core and
risk-based capital ratios of 7.17%, 7.17% and 13.62%, respectively. The
following is a reconciliation of First Nationwide's stockholders' equity to
regulatory capital as of December 31, 1996:
<TABLE>
<CAPTION>

                                                        Tangible           Core             Risk-based
                                                         Capital          Capital             Capital
                                                         -------          -------             -------
                                                                  (dollars in thousands)
<S>                                                   <C>                 <C>               <C>       
     Stockholders' equity of First Nationwide         $1,463,862          $1,463,862        $1,463,862
     Unrealized holding gain on securities
         available for sale, net                         (46,219)            (46,219)          (46,219)
     Non-qualifying loan-servicing rights                (42,369)            (42,369)          (42,369)
     Non-allowable capital:
         Intangible assets                              (140,564)           (140,564)         (140,564)
         Investment in subsidiaries                       (6,001)             (6,001)           (6,001)
         Excess deferred tax asset                       (68,000)            (68,000)          (68,000)
     Supplemental capital:
         Qualifying subordinated debt debentures              --                  --            89,907
         General loan loss reserves                           --                  --           127,708
     Assets required to be deducted:
         Land loans with more than
              80% LTV ratio                                   --                  --            (2,882)
                                                      ----------          ----------        ----------
     Regulatory capital of First Nationwide            1,160,709           1,160,709         1,375,442
     Minimum regulatory capital requirement              242,828             485,655           807,791
                                                      ----------          ----------        ----------
     Excess above minimum capital requirement         $  917,881          $  675,054        $  567,651
                                                      ==========          ==========        ==========
<CAPTION>

                                                       Tangible           Leverage          Risk-based
                                                        Capital            Capital            Capital
                                                         Ratio              Ratio              Ratio
                                                         -----              -----              -----
<S>                                                   <C>                 <C>               <C>       
     Regulatory capital of First Nationwide              7.17%              7.17%              13.62%
     Minimum regulatory capital requirement              1.50%              3.00%               8.00%
                                                         ----               ----              ------
     Excess above minimum capital requirement            5.67%              4.17%               5.62%
                                                         ====               ====              ======
</TABLE>

     The amount of adjusted total assets used for the tangible and core capital
ratios is $16.2 billion. Risk-weighted assets used for the risk-based capital
ratios amounted to $10.1 billion.

     The Bank is also subject to the provisions of the FDICIA, which, among
other things, define specific capital categories based on an institution's
capital ratios. The capital categories, in declining order, are "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized," and "critically undercapitalized." Institutions categorized
as "undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with the OTS, prohibitions on the
payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other things. Other
restrictions may be imposed on the institution either by the OTS or by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized" it is generally placed in receivership or conservatorship
within 90 days.


                                            Page 113

<PAGE>



     To be considered "well capitalized," a savings institution must generally
have a core capital ratio of at least 5%, a Tier 1 (core capital) risk-based
capital ratio of at least 6%, and a total risk-based capital ratio of at least
10%. An institution is deemed to be "critically undercapitalized" if it has a
tangible equity ratio of 2% or less. At December 31, 1996, First Nationwide's
core capital, Tier 1 (core capital) risk-based and total risk-based capital
ratios were sufficient for it to be considered "well capitalized":
<TABLE>
<CAPTION>
                                                                               Risk-based
                                                                        ------------------------
                                                        Core Capital    Tier 1     Total Capital
                                                        ------------    ------     -------------
<S>                                                     <C>             <C>        <C>
Regulatory capital of First Nationwide                      7.17%        11.50%       13.62%
"Well capitalized" ratio                                    5.00          6.00        10.00
                                                            ----        ------        -----
Excess above "well capitalized" ratio                       2.17%         5.50%        3.62%
                                                            ====          ====         ====
</TABLE>

         First Nationwide remained a "well capitalized" institution after
consummation of the Branch Sales, the SFFed Acquisition, the LMUSA 1996
Purchase and the Home Federal Acquisition. On February 1, 1996, FN Holdings
contributed the net proceeds from the issuance of additional subordinated notes
totalling approximately $133 million as additional paid in capital of First
Nationwide, further strengthening First Nationwide's regulatory capital ratios.

         OTS capital regulations allow a savings bank to include a net deferred
tax asset under SFAS No. 109 in regulatory capital, subject to certain
limitations. To the extent that the realization of a deferred tax asset depends
on a savings bank's future taxable income, such deferred tax asset is limited
for regulatory capital purposes to the lesser of the amount that can be
realized within one year or 10 percent of core capital. As of December 31,
1994, First Nationwide recorded a valuation adjustment for 100% of First
Nationwide's net deferred tax asset because at that time, it was not more
likely than not that such deferred tax asset would be realized.

         Based on a favorable earnings trend since the consummation of the FN
Acquisition and future earnings expectations, management changed its judgment
about the realizability of First Nationwide's net deferred tax assets and
recognized a deferred tax benefit of $69 million in the fourth quarter of 1995
and an additional $125 million in the second quarter of 1996. At December 31,
1996, $68 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, 1996.




                                            Page 114

<PAGE>



CAL FED AND CALIFORNIA FEDERAL

OVERVIEW

    California Federal maintained 119 full service branches in California and
Nevada and was one of the largest savings associations in the United States
with assets of $14.1 billion at December 31, 1996. California Federal offered a
broad range of consumer financial services including demand and term deposits,
mortgage, consumer and small business loans, and insurance and investment
products.

    During 1996, California Federal was a wholly-owned subsidiary of Cal Fed, a
unitary savings and loan holding company whose only significant asset was all
of the common stock of the common stock of California Federal. On July 29,
1996, Cal Fed announced that it had entered into a definitive merger agreement
with FN Holdings. During the fourth quarter of 1996, the Merger Agreement was
approved by Cal Fed's stockholders and by regulatory authorities. The merger
closed on January 3, 1997, at which time Cal Fed was liquidated. As such, the
following discussion relates to California Federal.

    During the third quarter of 1996, federal legislation was enacted, which,
among other things, was designed to fund the Savings Association Insurance Fund
through the Special SAIF Assessment for SAIF members, such as California
Federal. The one-time special assessment was based on California Federal's
deposits as of March 31, 1995 at an assessment rate of 65.7 basis points.
During the third quarter of 1996, California Federal accrued $58.1 million for
the one-time special assessment, which was paid during the fourth quarter of
1996.

    The following is a summary of California Federal's financial highlights for
the periods indicated:
<TABLE>
<CAPTION>




                                                          For the Year Ended December 31,
                                                 -------------------------------------------------
                                                      1996              1995             1994
                                                      ----              ----             ----
                                                   (dollars in millions, except per share data)
<S>                                                     <C>               <C>             <C>      
Net interest income before provision for loan losses    $   347.5         $   311.9       $   341.6
Provisions for losses on loans and operations of
  real estate held for sale                                  49.8              39.8           120.8
General and administrative expenses                         257.7             241.9           290.3
Net earnings (loss)                                         116.4              93.6          (423.1)
Earnings (loss) available for common shareholder             93.0              68.0          (440.0)
Loan originations                                         1,922.0           1,768.4         2,545.3
Loan purchases                                              805.9             578.2           229.2
Interest rate spread                                         2.21%             2.00%           2.23%
Net interest rate margin                                     2.48%             2.23%           2.34%
General and administrative expenses as a percentage
  of average assets (a)                                      1.81%             1.70%           1.97%
Operating efficiency ratio                                  55.56%            64.87%          71.20%
Return on average assets                                     0.82%             0.66%          (2.87)%
Return on average equity                                    13.29%            11.10%         (50.10)%

</TABLE>

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

(a)  The computation excludes the $58.1 million Special SAIF Assessment for
     1996.

    California Federal's earnings available to common shareholder totaled $93.0
million for the year ended December 31, 1996 compared to earnings available to
common shareholder of $68.0 million for the year ended December 31, 1995.
Excluding the effect of the Special SAIF Assessment, California Federal's
earnings available to common shareholder for the year ended December 31, 1996
would have been $151.1 million.

    Net interest income was $347.5 million during 1996, compared to $311.9
million during 1995. The increase in the level of net interest income was the
result of an improvement in California Federal's net interest rate spread,
which resulted primarily from a decrease in the cost of interest-bearing
liabilities.

                                            Page 115

<PAGE>




    The following table presents the primary composition of California
Federal's gross income for the periods presented:
<TABLE>
<CAPTION>
                                                     Year ended December 31,
                            --------------------------------------------------------------------------
                                     1996                     1995                      1994
                                     ----                     ----                      ----
                                                     (dollars in millions)
<S>                            <C>            <C>        <C>            <C>       <C>            <C>  
Total interest income          $1,015.3       89.4%      $1,008.0       94.1%     $   908.1      81.9%
Total other income                120.1       10.6           63.5        5.9          201.2       8.1
                               --------      -----       --------      -----       --------     -----
          Total gross income   $1,135.4      100.0%      $1,071.5      100.0%      $1,109.3     100.0%
                               ========      =====       ========      =====       ========     =====
</TABLE>

    California Federal's gross income was primarily derived from interest
earned on loans, mortgage-backed securities, investment securities and other
assets that earn interest ("interest-earning assets"). Further details of the
changes in California Federal's interest income are discussed below. Other
income is primarily comprised of fees and gains from the sale of assets. In
1994, other income also includes the nonrecurring gain from the sale of
California Federal's Southeast Division.

    The following table compares California Federal's financial condition,
asset quality and capital position as of the dates indicated:

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                     --------------------------------------------------
                                                          1996             1995              1994
                                                          ----             ----              ----
                                                     (dollars in millions, except per share data)
<S>                                                     <C>               <C>               <C>      
Total assets                                            $14,098.4         $14,320.6         $14,182.4
Interest-earning assets                                  13,623.9          13,755.0          13,520.0
Deposits                                                  8,918.7           9,476.7           8,360.9
Borrowings                                                4,146.7           3,786.4           4,818.8
Total shareholder's equity                                  864.9             887.5             798.3
Ratio of NPAs to total assets                                1.02%             1.62%             1.57%
Number of depository branches                                 119               125               119
Shareholder's equity as a percentage of total
  assets                                                     6.13%             6.20%             5.63%
Tangible capital ratio                                       5.85%             5.91%             5.60%
Core capital ratio                                           5.85%             5.91%             5.60%
Risk-based capital ratio                                    12.01%            12.36%            12.45%
Tier 1 risk-based capital ratio                             10.56%            10.90%            10.77%
</TABLE>

     During the second quarter of 1996, California Federal called for
redemption all of the 3,740,000 outstanding shares of its 7 3/4% Noncumulative
Convertible Preferred Stock, Series A (the "Preferred Stock, Series A"). Except
for the conversion of 18,820 shares into 23,336 shares of Cal Fed's common
stock, all shares of the Preferred Stock, Series A were redeemed effective June
14, 1996 at a redemption price of $25.00 per share, plus a dividend of
$0.398264 per share.

     During the second quarter of 1996, California Federal sold six branches
located in San Diego County, with deposits totaling approximately $380 million.
The sale of the branches resulted in a net gain of $12.0 million. The gain is
included in "other income" on California Federal's Consolidated Statements of
Operations. Also during 1996, California Federal acquired one branch office and
$17.0 million in deposits of First Citizens Bank. During 1995, California
Federal acquired three branch offices and $138.6 million in deposits of Pacific
Heritage Bank and six branch offices and $359.4 million in deposits of
Continental Savings of America.


                                            Page 116

<PAGE>



    During 1995, California Federal made a non-taxable distribution of
Litigation Interests to its common shareholders. The Litigation Interests
represent a right to receive a portion of the net cash proceeds, if any,
resulting from California Federal's pending goodwill lawsuit against the
Federal government. The Litigation Interests trade on the Nasdaq Small Cap
Market under the symbol "CALGZ."

NET INTEREST INCOME

    Net interest income is the difference between interest income earned from
interest-earning assets and interest expense paid on savings deposits and
borrowings.

    Net interest income totaled $347.5 million for the year ended December 31,
1996, compared to $311.9 million and $341.6 million for 1995 and 1994,
respectively. Net interest income is affected by (i) the average volume and
repricing characteristics of California Federal's interest-earning assets and
interest-bearing liabilities, (ii) the level and volatility of market interest
rates and (iii) the performance of California Federal's loan portfolio and
investments. Net interest income also depends upon the excess of yields earned
on interest-earning assets over rates paid on interest-bearing liabilities
("interest rate spread").

    The following table presents the primary determinants of California
Federal's net interest income for the periods presented:

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                   -----------------------------------------------
                                                              1996           1995             1994
                                                              ----           ----             ----
                                                                     (dollars in millions)
<S>                                                       <C>             <C>            <C>         
Average interest-earning assets                           $13,987.0       $13,989.6      $14,624.5   
Less: Average non-performing loans (a)                        173.8           184.3          387.4   
                                                          ---------       ---------      ---------   
Average performing interest-earning assets                 13,813.2        13,805.3       14,237.1   
Less: Average interest-bearing liabilities                 13,200.6        13,347.6       14,217.7   
                                                          ---------       ---------      ---------   
Average performing interest-earning assets over                                                      
   average interest-bearing liabilities                   $   612.6       $   457.7      $    19.4   
                                                          ---------       ---------      ---------   
Yield earned on average interest-earning assets                7.26%           7.21%          6.21%  
Rate paid on average interest-bearing liabilities              5.05            5.21           3.98   
                                                          ---------       ---------      ---------   
Net interest rate spread                                       2.21%           2.00%          2.23%  
                                                          ---------       ---------      ---------   
Net interest rate margin                                       2.48%           2.23%          2.34%  
                                                          ---------       ---------      ---------   
Total interest income                                     $ 1,015.3       $ 1,008.0      $   908.1   
Total interest expense                                        667.8           696.1          566.5   
                                                          ---------       ---------      ---------   
Net interest income                                       $   347.5       $   311.9      $   341.6   
                                                          =========       =========      =========   
</TABLE>                                                                  

----------

(a)  Average non-performing loans ("NPLs") include non-accrual and restructured
     loans.

     As indicated in the table above, net interest income increased by $35.6
million for the year ended December 31, 1996 as compared to the year ended
December 31, 1995. The increase in net interest income was primarily due to an
increase in both the average yield earned and balance of interest-earning
assets and a decrease in both the rate paid and balance of average
interest-bearing liabilities. Net interest income decreased $29.7 million for
the year ended December 31, 1995 compared to the year ended December 31, 1994.
During 1994 and continuing into the first half of 1995, short-term market
rates, offering rates on deposits, LIBOR rates and the Eleventh District Cost
of Funds Index ("COFI") increased. The increase in rates resulted in increased
costs of deposits and borrowings and to a lesser extent, increased yields on
loans and investments. California Federal, and most of its competitors in its
deposit markets, raised interest rates on deposits during 1994 and throughout
most of 1995 in order to keep them an attractive investment vehicle for
consumers relative to other investment alternatives. Additionally, a
substantial amount of California Federal's borrowings bore interest that was
based on the 1 month LIBOR index. Because LIBOR increased significantly between
1993 and 1995, the cost of California Federal's borrowings also increased.
During the second half of 1995 the cost of funds began to stabilize; however,
the yield on California Federal's interest-earning assets increased due to the
lagging effect of the repricing characteristics of California

                                            Page 117

<PAGE>



Federal's adjustable rate loans and mortgage-backed securities. The lagging
repricing of California Federal's adjustable rate loans and mortgage-backed
securities ("MBS") led to an improvement in California Federal's interest rate
spread at December 31, 1995 as compared to December 31, 1994.

     California Federal's deposits were its primary funding source. Deposits
generally tended to reprice on a comparable basis with similar term U.S.
treasury securities and other market rates. The pricing of deposits was based
upon competitive demand and the desirability of increasing or decreasing
California Federal's level of deposits.

     Approximately 56% of California Federal's loans receivable and MBS earned
interest based upon the movement of COFI. Changes in the COFI have historically
lagged other indices and market rates. Additionally, the extent to which loans
and mortgage-backed securities could reprice upward may have been limited by
contractual terms that restricted the frequency of repricing and periodic
interest rate adjustment caps ("periodic caps").


                                            Page 118

<PAGE>




     The following table shows Consolidated Average Balance Sheets for
California Federal for the periods indicated as well as interest income and
expense and average rates earned and paid on each major category of
interest-earning assets and interest-bearing liabilities. Average balances were
predominantly calculated on a daily basis. When information was not available
for calculations to be made on a daily basis, average balances were calculated
on a weekly or monthly basis from the best available data. The interest rate
spread was calculated as the average rate earned on total interest-earning
assets less the average rate paid on total interest-bearing liabilities.
<TABLE>
<CAPTION>
                                                                          Year ended December 31,
                                     ---------------------------------------------------------------------------------------------
                                                  1996                              1995                            1994
                                     --------------------------------   ------------------------------   -------------------------
                                     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:
  Certificates of deposit             $    58   $     3         5.17%     $    65    $    4      6.15%  $    64   $    2      3.13%
  Federal funds sold                       32         2         6.25          155         9      5.81       470       20      4.26
  Investment securities (a)             1,872       103         5.50        2,055       119      5.79     2,590      121      4.67
  Mortgage-backed securities            2,137       144         6.73        2,539       169      6.66     2,390      134      5.61
  Loans receivable (b)                  9,888       763         7.72        9,175       707      7.71     9,111      631      6.92
                                      -------     -----         ----    ---------    ------      ----   -------      ---      ----
Total interest-earning assets          13,987     1,015         7.26%      13,989     1,008      7.21%   14,625      908      6.21%
                                      -------     -----         ----    ---------    ------      ----   -------      ---      ----
All other assets                          264                                 361                           605
                                      -------                           ---------                       -------
        Total assets                  $14,251                             $14,350                       $15,230
                                      =======                           =========                       =======
LIABILITIES AND SHAREHOLDER'S
 EQUITY
 Interest-bearing liabilities:
  Deposits                            $ 9,049        431        4.76%     $ 9,274       442      4.77%  $10,616      391      3.68%
  Borrowings:
    FHLB advances                       2,909        166        5.71        2,453       154      6.28     1,644       83      5.05
    Securities sold under
     agreements to repurchase           1,043         56        5.37        1,099        65      5.91     1,524       69      4.52
     Long-term borrowings                 200         15        7.50          522        35      6.71       434       24      5.53
                                     --------   --------        ----    ---------    ------      ----  --------     ----      ----
        Total borrowings                4,152        237        5.71        4,074       254      6.24     3,602      176      4.88
                                     --------    -------        ----    ---------    ------      ----  --------     ----      ----
Total interest-bearing liabilities     13,201        668        5.05       13,348       696      5.21%   14,218      567      3.98%
                                     --------    -------        ----    ---------    ------      ----   -------     ----      ----
All other liabilities                     196                                 162                           203
Shareholder's equity                      854                                 840                           809
                                      -------                           ---------                       -------
        Total liabilities and
          shareholder's equity        $14,251                             $14,350                       $15,230
                                      =======                           =========                       =======
Net interest income                              $  347                            $   312                           $341
                                                 ======                            =======                           ====
Interest Rate Spread                                            2.21%                            2.00%                        2.23%
                                                                ====                             ====                         ====
Net Margin on Average Interest-
  Earning Assets                                                2.48%                            2.23%                        2.34%
                                                                ====                             ====                         ====
</TABLE>

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

(a)  Includes securities purchased under agreements to resell, securities
     available for sale and other securities.

(b)  Non-accrual loans, past due loans and restructured loans are included in
     the applicable loan categories of this table.



                                            Page 119

<PAGE>




     The table below shows the portion of the change in net interest income
between 1996 and 1995 as well as 1995 versus 1994 which was due to changes in
average balances outstanding and to average rates earned and paid on balances.
The amount of the change due to an increase or decrease in average balances was
calculated as the change in average balances multiplied by the average rate
from the preceding year. The amount of the change due to an increase or
decrease in average rates was calculated as the change in average rates
multiplied by the average balance in the preceding year. Any remaining change
was allocated to the above two categories on a pro-rata basis.
<TABLE>
<CAPTION>

                                                                Year ended December 31,
                                      -------------------------------------------------------------------------------
                                                   1996 vs. 1995                           1995 vs. 1994
                                                  ---------------                         --------------
                                                Amount of Increase                     Amount of Increase
                                           (Decrease) Due to Changes In:           (Decrease) Due to Changes In:
                                           -----------------------------           -----------------------------
                                        Average      Average                    Average       Average
                                        Balance        Rate         Total       Balance        Rate         Total
                                        -------        ----         -----       -------        ----         -----
                                                                      (in millions)
<S>                                      <C>            <C>         <C>           <C>             <C>         <C>   
Interest-earning assets:
  Certificates of deposit              $  (1)        $--          $  (1)       $--            $   1        $   1        
  Federal funds sold                      (8)            1           (7)         (26)            15          (11)   
  Investment securities (a)              (10)           (6)         (16)          (7)             5           (2)   
  Mortgage-backed securities             (29)            4          (25)           9             26           35    
  Loans receivable (b)                    52             4           56            3             74           77    
                                       -----         -----        -----        -----          -----        -----    
Total interest-earning assets              4             3            7          (21)           121          100    
                                       -----         -----        -----        -----          -----        -----    
Interest-bearing liabilities                                                                                        
  Deposits                                (8)           (3)         (11)         (29)            80           51    
  Borrowings:                                                                                                       
     FHLB advances                        23           (11)          12           47             24           71    
     Securities sold under                                                                                          
       agreements to repurchase           (3)           (6)          (9)         (31)            27           (4)   
     Long-term borrowings                (26)            6          (20)           6              6           12    
                                       -----         -----        -----        -----          -----        -----    
          Total borrowings                (6)          (11)         (17)          22             57           79    
                                       -----         -----        -----        -----          -----        -----    
Total interest-bearing liabilities       (14)          (15)         (29)          (7)           137          130    
                                       -----         -----        -----        -----          -----        -----    
Change in net interest income          $  18         $  18        $  36        $ (14)         $ (16)       $ (30)   
                                       =====         =====        =====        =====          =====        =====    

</TABLE>
   
-----------

(a)  Includes securities purchased under agreements to resell, securities
     available for sale and other investment securities.

(b)  Includes loans held for sale.

     The decreases in average balances of interest-earning assets and
  interest-bearing liabilities for 1995 compared to 1994 resulted primarily
  from the sale of interest-earning assets included with the 1994 Bulk Sales
  and the reduction of deposits from the sale of the Southeast Division.

     During 1996 compared to 1995, decreases in both the average balances and
  rates paid on interest-bearing liabilities resulted in an improvement in
  California Federal's interest rate spread and net interest income. The
  decrease in average balances of interest-bearing liabilities during 1996
  compared to 1995 was primarily the result of decreases in deposits and
  long-term borrowings.

     During 1995 compared to 1994, increases in market rates improved the yield
  earned on California Federal's interest-earning assets, however, such
  improvements were exceeded by increases in the cost of interest-bearing
  liabilities, resulting in a negative impact on California Federal's interest
  rate spread and net interest income.


                                            Page 120

<PAGE>



     The table below presents California Federal's loans and mortgage-backed
  securities and the various indices which dictate their repricing:
<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                         -----------------------------------------------------------------------
                                                       1996                               1995
                                         -----------------------------------------------------------------------
                                                                Mortgage-                           Mortgage-
                                                                  backed                              backed
                                               Loans           Securities(a)           Loans       Securities(a)
                                               -----           -------------           -----       -------------
                                                                         (in millions)
<S>                                               <C>                  <C>                <C>                 <C>  
Adjustable Rates:
  COFI                                      $   5,873.6          $    952.0          $  5,511.4          $  1,081.4
  Treasury                                      2,573.3               836.0             2,612.1             1,063.8
  Prime rate                                      144.7              --                   142.5              --
  Other adjustable                                 23.3              --                    28.7              --
                                            -----------          ----------          ----------          ----------
                                                8,614.9             1,788.0             8,294.7             2,145.2
                                            -----------          ----------          ----------          ----------
Fixed Rates:
  Fixed                                           523.7                46.5               559.4               222.0
  Fixed for 3-5 years converting
    to ARM                                      1,120.1               129.9               625.4              --
                                            -----------          ----------          ----------          ----------
                                                1,643.8               176.4             1,184.8               222.0
                                            -----------          ----------          ----------          ----------
                                               10,258.7             1,964.4             9,479.5             2,367.2
                                            -----------          ----------          ----------          ----------
Deferred costs (fees), discounts
  and other items, items, net                       22.5                (0.5)                5.1                (0.5)
Allowance for loan losses                        (173.1)             --                  (181.0)             --
                                            -----------          ----------          ----------          ----------
                                            $  10,108.1          $  1,963.9          $  9,303.6          $  2,366.7
                                            ===========          ==========          ==========          ==========
</TABLE>

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

(a)  Included on the Consolidated Statements of Financial Condition with
     securities held to maturity.

     During 1996, both short and long-term interest rates increased as compared
  to 1995. In addition, the spread between short-term rates and long-term rates
  increased during 1996 as compared to 1995. However, although California
  Federal's loans and MBS repriced based upon COFI, they included
  characteristics that resulted in a lag between changes in COFI and repricing.

     California Federal's deposits were its primary funding source. Deposits
  generally tended to reprice on a comparable basis with similar term U.S.
  Treasury securities and other market rates. During 1994 and continuing
  through the first half of 1995, California Federal increased its offering
  rates on deposits as a result of increases in market rates. The pricing of
  deposits was based upon competitive demand and the desirability of increasing
  or decreasing California Federal's level of deposits. As a result of
  California Federal funding a portion of the sale of the Southeast Division
  with various borrowings, California Federal's level of borrowings was a more
  significant source of funding during 1994 than in 1995. During 1994 and the
  first half of 1995, the indices that contractually affected the cost of
  California Federal's borrowings increased. This contributed to the increase
  in California Federal's cost of funds during 1995 as compared to 1994. During
  1995, California Federal reduced the level of its borrowings by obtaining
  additional time deposits, primarily certificates of deposit, with maturities
  of less than two years.

         ASSET/LIABILITY MANAGEMENT

    To the extent that yields earned on assets respond to changes in market
  interest rates differently than rates paid on liabilities, earnings will be
  sensitive to changes in market interest rates. The objective of California
  Federal's interest rate risk management was to maintain a balance between
  stable income growth and its exposure to potential earnings fluctuations
  resulting from differences in the amount of interest-earning assets and
  interest-bearing liabilities maturing or repricing in different time periods
  ("interest rate sensitivity"). California Federal controlled its interest
  rate sensitivity through a variety of methods including originating loans
  that repriced monthly or semi-annually and the use of interest rate exchange
  agreements. Adjustable rate loans have interest rates that repriced
  periodically based upon changes in COFI, the one year

                                            Page 121

<PAGE>



  Treasury constant maturity index (the "CMT") and other indices. However, such
  repricing characteristics are subject to periodic caps. Additionally, many of
  California Federal's adjustable loans repriced at periodic intervals. The
  contractual limitation of the adjustment period and periodic caps had a
  negative impact on earnings during periods of increasing market rates.

    California Federal's use of derivative financial instruments was limited to
  interest rate exchange agreements. California Federal utilized interest rate
  exchange agreements as an integral part of its asset/liability management
  program.

     On a quarterly basis, California Federal simulated the level of net
  interest income expected to be earned over a twelve month period following
  the date of the simulation. The simulation was based on a projection of
  market interest rates at varying levels, and estimated the impact of such
  market rates on the levels of interest-earning assets and interest-bearing
  liabilities during the measurement period. Also, any periodic or lifetime
  caps that contractually limited the repricing of any interest earning asset
  were considered.

     Based upon the outcome of the simulation analysis, California Federal
  considered the use of interest rate exchange agreements as a means of
  reducing the volatility of projected net interest income within certain
  ranges of projected changes in interest rates. California Federal evaluated
  the effectiveness of entering into any interest rate exchange agreements by
  measuring the cost of such agreements in relation to the reduction in net
  interest income volatility within an assumed range of interest rates.

     California Federal historically used interest rate swaps and floors as a
  means of controlling the potential negative impact on net interest income
  from potential changes in interest rates. California Federal was a party to
  interest rate swap agreements in the notional amounts of $2.1 billion, $2.4
  billion and $541.5 million at December 31, 1996, 1995 and 1994, respectively.
  California Federal was a party to notional amounts of $100.0 million, $100.0
  million and $150.0 million of interest rate floor agreements at December 31,
  1996, 1995 and 1994, respectively. The net impact to net earnings as a result
  of the interest rate swaps and floors was to increase net earnings by $1.5
  million for the year ended December 31, 1996.

     During 1995, $1.6 billion of California Federal's FHLB advances, utilized
  as a funding source for the sale of the Southeast Division, matured and $0.3
  billion matured in January 1996. Those borrowings bore an interest rate based
  upon the 1 month LIBOR plus 0.27%. When those borrowings matured, the FHLB
  offered to renew them. In order to reduce the cost of those borrowings,
  California Federal entered into an interest rate swap agreement which reduced
  the cost of the advances to approximately the one month LIBOR plus 0.20%. The
  notional amount of the swaps totalled $1.5 billion at December 31, 1995 and
  $1.8 billion at December 31, 1996, and the maturity of the swaps was
  identical to that of the FHLB advances.

     California Federal also monitored the difference between the amount of
  interest rate sensitive assets and interest rate sensitive liabilities which
  reprice within one year ("one year gap"). At December 31, 1996, the one year
  gap as a percentage of total interest-earning assets was positive 2.16% as
  compared to positive 12.0% at December 31, 1995 and negative 0.74% at
  December 31, 1994.


                                            Page 122

<PAGE>



     The following table summarizes interest rate sensitive assets and
  liabilities for California Federal (exclusive of subsidiaries) at December
  31, 1996. In preparing the table below, assumptions were made regarding
  estimated prepayments and maturities of mortgage-backed securities and loans.
  These assumptions were based upon California Federal's historical experience
  of maturities and prepayments for similar assets. For all other
  interest-earning assets and interest-bearing liabilities, contractual
  maturities were used. Additionally, California Federal used the inherent
  contractual repricing characteristics of its interest-earning assets and
  interest-bearing liabilities in categorizing the interest rate sensitivity
  period.

<TABLE>
<CAPTION>

                                                                        Interest Rate Sensitivity Period                     
                                                 --------------------------------------------------------------------     
                                                    0 to         91 to          181 to          Over                 
                                                  90 Days       180 Days       365 Days        1 Year          Total       
                                                  -------       --------       --------        ------          -----       
                                                                            (in millions)
<S>                                                <C>           <C>            <C>             <C>            <C       
Interest-earning assets:
Short-term investments and investment            
  securities                                       1,379         $  --          $  --           $     6        $ 1,385       
  Mortgage-backed securities                       1,345             514             67              38          1,964       
  Loans, net                                       6,524           1,736            942           1,153         10,355       
  Impact of hedging                                 --              --             --              --             --       
                                                 -------         -------        -------         -------        -------       
          Total interest-earning assets            9,248           2,250          1,009           1,197         13,704       
Interest-bearing liabilities:                                                                                                
  Deposits                                         4,746           1,297          2,383             506          8,932       
  Borrowings:                                                                                                                
     FHLB advances                                 2,800            --             --               311          3,111       
     Other borrowings                                985            --             --                54          1,039
                                                 -------         -------        -------         -------        -------
          Total borrowings                         3,785            --             --               365          4,150
  Impact of hedging                                 (300)           --              300            --             --  
                                                 -------         -------        -------         -------        -------
          Total interest-bearing                                                                                             
           liabilities                             8,231           1,297          2,683             871         13,082
Total interest-earning assets less total                                                           
     interest-bearing liabilities                $ 1,017         $   953        $(1,674)        $   326        $   622
                                                 =======         =======        =======         =======        =======
Cumulative total interest-earning assets                                                                                    
     less cumulative total interest-bearing                                                    
     liabilities as a percentage of total                                   
     interest-earning assets                        7.42%          14.38%          2.16%           4.54%          4.54%
                                                                                                                             
</TABLE>
                                      Page 123

<PAGE>




  PROBLEM AND POTENTIAL PROBLEM ASSETS

     Net interest income is also affected by the composition, quality and type
  of interest-earning assets. California Federal's NPAs totaled $144.2 million
  or 1.02% of total assets at December 31, 1996, as compared to $231.8 million
  or 1.62% of total assets at December 31, 1995 and $223.1 million or 1.57% of
  total assets at December 31, 1994. The average amount of NPLs negatively
  impacted California Federal's interest rate spread by 9, 10 and 18 basis
  points during 1996, 1995 and 1994, respectively.

     The following table presents California Federal's total NPAs by type at
the dates indicated:
<TABLE>
<CAPTION>
                                                         Year ended December 31,
                             ------------------------------------------------------------------------------
                                        1996            1995            1994            1993           1992
                                        ----            ----            ----            ----           ----
                                                        (dollars in millions)
  <S>                                 <C>             <C>             <C>              <C>        <C>     
             Type
  Non-accrual loans                    $129.6          $206.3          $178.2          $515.4      $   725.1
  Restructured loans                      3.2             3.3             5.8            16.8           64.2
  Past due loans                         --               --              --              --             3.9
                                       ------          ------          ------          ------       --------
            Total NPLs                  132.8           209.6           184.0           532.2          793.2
  REO, net of allowances                 11.4            22.2            39.1           273.5          432.6
                                       ------          ------          ------          ------       --------
            Total NPAs                 $144.2          $231.8          $223.1          $805.7       $1,225.8
                                       ======          ======          ======          ======       ========
  Performing NPAs (included
    above)                              $25.7           $81.3           $34.5          $156.5       $  310.1
                                       ======          ======          ======          ======       ========
  Performing NPAs as a % of
    total NPAs                           17.8%           35.1%           15.5%           19.4%          25.3%
                                       ======          ======          ======          ======       ========
 
         Composition
  Residential 1-4                      $ 73.8          $122.6          $124.9          $340.4      $   383.5
  Multi-family                           51.7            88.1            61.0           241.4          460.0
  Commercial real estate                 16.8            17.6            35.3           218.0          288.2
  Other                                   1.9             3.5             1.9             5.9           94.1
                                       ------          ------          ------          ------       --------
            Total NPAs                 $144.2          $231.8          $223.1          $805.7       $1,225.8
                                       ======          ======          ======          ======       ========
  NPAs as a percentage of
    total assets                         1.02%           1.62%           1.57%           5.26%          7.11%
                                       ======          ======          ======          ======       ========

</TABLE>
 
     The 1994 Bulk Sales included the sale of approximately $1.3 billion of
  performing and non-performing assets. Although California Federal recorded a
  $274.8 million loss from the 1994 Bulk Sales, the transactions resulted in a
  $529.1 million reduction of NPAs. However, California Federal's net interest
  income was negatively impacted by the sale of the $822.1 million of
  performing interest-earning assets.


                                            Page 124

<PAGE>




     The table below presents the composition of the assets sold in the 1994
Bulk Sales:
<TABLE>
<CAPTION>
                                                Non-
                              Performing      Accrual       Restructured
                                 Loans          Loans          Loans           REO           Total
                                 -----          -----          -----           ---           -----
                                                           (in millions)
<S>                                <C>             <C>            <C>           <C>          <C>      
   Residential 1-4                 $  62.4         $121.8         $  --         $  47.0      $   231.2
   Multi-family                      487.3          183.5            7.6           34.7          713.1
   Other commercial real
     estate                          272.4          113.9            --            20.6          406.9
                                   -------         ------          -----         ------       --------
                                    $822.1         $419.2           $7.6         $102.3       $1,351.2
                                   =======         ======          =====         ======       ========
</TABLE>

    Impaired and Potential Problem Loans. California Federal established a
  monitoring system for its loans in order to identify impaired loans,
  potential problem loans and to permit periodic evaluation of impairment and
  the adequacy of allowances for losses in a timely manner. Total loans include
  the following portfolios (i) residential 1-4 loans, (ii) income property
  loans and (iii) consumer loans. In analyzing these loans, California Federal
  had established specific monitoring policies and procedures suitable for the
  relative risk profile and other characteristics of the loans within the
  various portfolios. California Federal's residential 1-4 and consumer loans
  were relatively homogeneous and no single loan was individually significant
  in terms of its size or potential risk of loss. Therefore, California Federal
  generally reviewed its residential 1-4 and consumer portfolios by analyzing
  their performance and the composition of their collateral for the portfolios
  as a whole. All homogenous loans that are 90 days or more delinquent or are
  in foreclosure are automatically placed on non-performing status.
  Additionally, homogenous loans that had a modification of terms were
  individually reviewed to determine if they met the definition of a troubled
  debt restructuring. California Federal stratified its income property loan
  portfolio by size and by type and treated smaller performing multi-family
  loans with outstanding principal balances less than $750,000 and commercial
  real estate loans with balances less than $500,000 as homogenous portfolios.
  For income property loans exceeding the homogenous threshold, California
  Federal conducted a periodic review of each loan in order to test each loan
  for impairment. The frequency and type of review was dependent upon the
  inherent risk attributed to each loan. The level of risk was measured by a
  scale which evaluated each loan on a continuum of multiple grades. The
  frequency and intensity of the loan review was directly proportionate to the
  adversity of the loan grade. California Federal evaluated the risk of default
  and the risk of loss for each loan subject to individual monitoring. Income
  property loans that were below the homogenous threshold were evaluated for
  impairment based upon their payment status and on a pool basis. All loans
  that were determined to be impaired were placed on non-accrual status or were
  designated as troubled debt restructurings.

      Loans on which California Federal ceased the accrual of interest
  ("non-accrual loans") and loans on which various concessions were made due to
  the inability of the borrower to service the obligation under the original
  terms of the agreement ("restructured loans") constituted the primary
  components of the portfolio of NPLs. Loans were generally placed on
  non-accrual status when the payment of interest was 90 days or more
  delinquent, or if the loan was in the process of foreclosure, or earlier if
  the timely collection of interest and/or principal appeared doubtful. In
  addition, California Federal monitored its loan portfolio in order to
  identify performing loans with excessive risk characteristics indicating that
  the collection of principal and interest may not be probable. In the event
  that California Federal believed collection of principal and interest did not
  appear probable, California Federal designated the loan as impaired and
  placed the loan on non-accrual status. California Federal's policy allowed
  for loans to be designated as impaired and placed on non-accrual status even
  though the loan may have been current as to principal and interest payments
  and may have continued to perform in accordance with its contractual terms.
  If a performing loan was placed on non-accrual status, cash collections of
  interest were generally applied as a reduction to the recorded investment of
  the loan.

      California Federal restructured a loan when the borrower or the
  collateral was experiencing financial or operational problems that were
  expected to be relatively short-term in nature with the expectation that the
  borrower and/or the collateral would rebuild cash flow over time.

                                            Page 125

<PAGE>



  

      The following table summarizes California Federal's gross NPLs by type at
the dates indicated:
<TABLE>
<CAPTION>
                                                     Year ended December 31,
                         ------------------------------------------------------------------------------
                               1996            1995            1994            1993            1992
                               ----            ----            ----            ----            ----
                                                          (in millions)
<S>                         <C>              <C>              <C>               <C>            <C>
Non-accrual loans:
  Real estate
     Residential 1-4         $   62.1         $   99.6         $   97.7         $  214.3         $  291.5
     Multi-family                50.5             86.3             55.9            172.4            251.5
                             --------         --------         --------         --------         --------
  Total residential real
     estate                     112.6            185.9            153.6            386.7            543.0
                             --------         --------         --------         --------         --------
  Commercial real estate         15.1             16.9             22.7            122.8            117.4
                             --------         --------         --------         --------         --------
  Total real estate             127.7            202.8            176.3            509.5            660.4
  Commercial banking           --               --               --                  2.7             61.1
  Consumer                        1.9              3.5              1.9              3.2              3.6
                             --------         --------         --------         --------         --------
Total non-accrual loans      $  129.6         $  206.3         $  178.2         $  515.4         $  725.1
                             ========         ========         ========         ========         ========

Restructured loans:
  Real estate
     Residential 1-4         $    1.9         $    3.0         $    5.8         $    2.9         $ --
     Multi-family              --                  0.3           --                 13.9             28.0
                             --------         --------         --------         --------         --------
  Total residential real
     estate                       1.9              3.3              5.8             16.8             28.0
                             --------         --------         --------         --------         --------
  Commercial real estate          1.3           --               --               --                 10.7
                             --------         --------         --------         --------         --------
  Total real estate               3.2              3.3              5.8             16.8             38.7
  Commercial banking           --               --               --               --                 25.5
                             --------         --------         --------         --------         --------
Total restructured loans     $    3.2         $    3.3         $    5.8         $   16.8         $   64.2
                             ========         ========         ========         ========         ========

Past due loans:
  Consumer                   $ --             $ --             $ --             $ --             $    3.9
                             ========         ========         ========         ========         ========
Total past due loans         $ --             $ --             $ --             $ --             $    3.9
                             ========         ========         ========         ========         ========

  Total NPLs                 $  132.8         $  209.6         $  184.0         $  532.2         $  793.2
                             ========         ========         ========         ========         ========
</TABLE>


     Changes in the level of non-performing loans were attributable to: (i)
  changes in the level of delinquent loans and (ii) changes in the level of
  performing loans designated as impaired. Performing loans designated as
  impaired typically have one or more of the following attributes: (i) inverted
  LTV ratios, (ii) levels of operating income insufficient to service the
  required loan payments, (iii) collateral requiring maintenance expenses in
  excess of the borrower's capacity or the funds generated by the collateral,
  and/or (iv) other adverse characteristics. The level of performing loans
  designated as impaired may fluctuate given changes to the factors discussed
  above. At December 31, 1996, $25.7 million, or 19.4%, of California Federal's
  NPLs were performing in accordance with their contractual terms. During the
  third quarter of 1996, California Federal sold or accepted a discounted loan
  repayment on $20.3 million of income property loans that were on non-accrual
  status, realizing a charge-off of $4.1 million. Included with the
  nonperforming loans sold or repaid at a discount during the third quarter of
  1996 were $19.0 million of loans that were performing in accordance with
  their contractual terms.

     During the second quarter of 1996, California Federal sold $34.7 million
  of delinquent residential 1-4 loans that had been placed on non-accrual
  status. California Federal realized a loss of $6.6 million from the sale of
  those loans which was recorded as a charge-off to California Federal's
  allowance for loan losses during the second quarter of 1996.
     For the year ended December 31, 1996, additional interest income of $10.3
  million would have been recorded had the non-accrual loans performed in
  accordance with their original terms, compared to $10.6 million and $18.0
  million of

                                            Page 126

<PAGE>



  additional interest income which would have been recorded for the years ended
December 31, 1995 and 1994, respectively.

     California Federal designated all impaired loans at December 31, 1996 as
  non-accrual or as troubled debt restructuring. For all impaired loans,
  California Federal evaluated the need for a specific allowance by comparing
  the fair value of the related collateral to the net recorded investment of
  the loan. In the event that the fair value of the related collateral was less
  than the net recorded investment in the loan, California Federal allocated a
  specific allowance equal to the excess of the net recorded investment in the
  loan over the fair value of the related collateral with consideration given
  to holding and selling costs. All uncollected interest relating to impaired
  loans was fully reversed from income. At December 31, 1996, California
  Federal had designated $25.7 million of loans that were performing in
  accordance with their contractual terms as impaired. California Federal
  applied cash collections from impaired loans as a reduction of the loan's
  carrying amount. The average recorded investment in the impaired loans
  measured by individual review was $173.8 million for the year ended December
  31, 1996. During the year ended December 31, 1996, California Federal
  recognized $2.3 million of interest income on restructured loans designated
  as impaired loans.

  PROVISION FOR LOAN LOSSES

     California Federal's provision for loan losses during the year ended
  December 31, 1996 totaled $41.3 million. Comparatively, provisions for loan
  losses totaled $31.8 million during 1995 and $74.9 million during 1994. Loan
  loss provisions during 1996 were recorded to partially replenish the general
  valuation allowance for net charge-offs of $30.5 million. Included in
  charge-offs during 1996 were $6.2 million related to sales and $28.1 million
  related to discounted pay-offs of non-performing loans. Charge-offs on
  residential 1-4 loans totaled $23.9 million during 1996 as compared to $21.7
  million during 1995.

     California Federal's general valuation allowance increased to $161.4
  million at December 31, 1996 from $156.7 million at December 31, 1995, down
  from $177.1 million at December 31, 1994. The total allowance for loan losses
  decreased to $173.1 million at December 31, 1996 from $181.0 million at
  December 31, 1995 and from $211.6 million at December 31, 1994. California
  Federal evaluated the allowance for losses by estimating a range of losses
  inherent in the portfolio. California Federal then performed an evaluation to
  determine what level in the range of inherent losses is most appropriate
  given: (i) the level of non-performing and classified loans, (ii) the
  composition of the loan portfolio, (iii) prevailing and forecast economic
  conditions, (iv) other credit factors, and (v) California Federal's judgment.

     The following table presents the activity in California Federal's specific
  and general allowances for loan losses for the periods presented:
<TABLE>
<CAPTION>
                                                                    Year ended December 31,
                             ---------------------------------------------------------------------------------------------------
                                            1996                             1995                             1994
                                           ------                           ------                           -----
                               Specific   General     Total     Specific   General     Total     Specific   General      Total
                               --------   -------     -----     --------   -------     -----     --------   -------      -----
                                                                         (in millions)
<S>                            <C>        <C>       <C>        <C>         <C>        <C>        <C>         <C>       <C> 
  Balance, beginning of year     $  24.3     $156.7     $181.0    $  34.5     $177.1     $211.6     $ 58.1     $196.2    $  254.3
    Provision for losses             --        41.3       41.3        --        31.8       31.8        --        74.9        74.9
   Allocations to/from general
      allowances                     6.1       (6.1)       --        21.0      (21.0)       --        75.5      (75.5)        --
   Increase in general allowances
      from acquisitions              0.6        --         0.6        --         --         --         --         --          --
    Charge-offs, net               (19.3)     (30.5)     (49.8)     (31.2)     (31.2)     (62.4)     (99.1)     (18.5)     (117.6)
                                 -------    -------    -------    -------    -------    -------     ------    -------    --------
  Balance, end of year           $  11.7     $161.4     $173.1    $  24.3     $156.7     $181.0     $ 34.5     $177.1    $  211.6
                                 =======     ======     ======    =======     ======     ======     ======     ======    ========
</TABLE>

                                            Page 127

<PAGE>



      The net charge-offs by loan category for the periods presented are
summarized as follows:

                                              Year ended December 31,
                                    --------------------------------------
                                          1996         1995      1994 (a)
                                          ----         ----      --------
                                               (dollars in millions)
  Real estate:
    Residential 1-4                      $23.9      $21.7      $  18.6
    Income property:
       Multi-family                       16.7       25.0         55.2
       Hotels                              --         --          11.6
       Office buildings                    2.2        5.1         14.9
       Shopping centers                    --         4.8          0.9
       Other                               0.4        1.6          5.8
                                         -----      -----       ------
    Total income property                 19.4       36.5         88.4
                                         -----      -----       ------
  Total real estate                       43.3       58.2        107.0
  Commercial banking                       --         --           4.8
  Consumer                                 6.5        4.2          5.8
                                         -----      -----       ------
                                         $49.8      $62.4       $117.6
                                         =====      =====       ======
  As a percentage of average net loans    0.51%      0.69%        1.35%
                                         =====       ====         ====

----------

(a)  Includes net charge-offs of $60.4 million on certain assets included in
     the 1994 Bulk Sales. These allowances were established prior to the
     designation of these assets as "Held for Accelerated Disposition."


         The table below presents certain key ratios for NPLs and the
allowances for loan losses at the dates presented:
<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                               --------------------------------------------------------
                                                      1996               1995               1994
                                                      ----               ----               ----
<S>                                                 <C>                 <C>               <C>   
NPLs as a % of gross loans receivable                 1.29%              2.21%              2.05%
Total allowances for loan losses as a % of
     NPLs                                           130.35              86.35             115.00
General allowances as a % of NPLs                   121.54              74.76              96.25
General allowances as a % of
     gross loans receivable                           1.57               1.65               1.98
Total allowances for loan losses as
ratio of NPAs to total assets                         1.02               1.62               1.57
</TABLE>



                                            Page 128

<PAGE>



     OTHER INCOME

     Other income is primarily comprised of fee income and gains from the sales
of assets. For 1996, total other income increased to $120.0 million from $63.5
million for 1995 and $201.2 million for 1994. The increase in other income for
the year ended December 31, 1996 compared to the same period of 1995 was
primarily due to the $12.0 million gain recorded during the second quarter of
1996 on the sale of six branches located in San Diego County with deposits
totaling approximately $380 million.

     Fee Income. Fee income primarily included fees charged to depositors for
services rendered, fees from loan servicing and fees earned from the sales of
alternative investment products. Total fee income is affected by the level and
type of savings deposits, the level of loan servicing and the sales of
alternative investment products. The following table presents California
Federal's sources of fee income for the periods presented:
<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                          ---------------------------------------
Source of Fees                                1996         1995          1994
--------------                                ----         ----          ----
                                                       (in millions)
<S>                                               <C>          <C>           <C> 
Deposits                                         $30.5        $25.4         $25.2
Loan servicing                                    10.9         12.4          14.6
Sales of alternative investment products          18.9         14.4          21.7
Other net fee income (expense)                   (0.3)          2.3           0.9
                                                 ----         -----         -----
                                                 $60.0        $54.5         $62.4
                                                 =====        =====         =====
</TABLE>

     The increase in savings deposit fees for the year ended December 31, 1996
compared to the same period of 1995 resulted from increases in rates charged
for depository services and improvements in effectiveness of the fee collection
process.

     Loans serviced for others totaled $3.5 billion, $3.8 billion and $4.5
billion at December 31, 1996, 1995 and 1994, respectively. Loans serviced for
others are loans that were sold with the servicing thereof retained by
California Federal. The level of loans serviced for others was determined by
the volume of loan sales and loan prepayments. The decrease in the portfolio of
loans serviced for others primarily resulted from the excess of loan payoffs
over new loan sales. California Federal limited its sale of loans during 1996,
1995 and 1994 as a result of the low volume of fixed rate loan originations and
California Federal's decision to retain more of its originations in its
portfolio of assets. The reduction in the level of loans serviced for others
resulted in a decline in servicing fee income.

     California Federal offered its customers the opportunity to purchase
investment products as an alternative to traditional savings deposits.
California Federal offered these products, including annuities, mutual funds
and other investments, through its branch network. California Federal earned a
fee from the sale of these products. Sales of alternative investment products
totaled $460.0 million for 1996 compared to $338.3 million and $477.8 million
for 1995 and 1994, respectively. The increase in the volume of sales led to an
increase in the level of fees earned by California Federal in 1996 over 1995.

     Gain (Loss) on Sales of Loans. California Federal engaged in mortgage
banking activities for several reasons, including providing liquidity and
managing asset size. California Federal's originations of conforming fixed rate
residential 1-4 loans were generally held for sale. Originations of adjustable
rate loans were generally held for investment. California Federal established
desired ranges for loan portfolio composition and asset growth based upon
numerous factors. These factors include (i) origination volume and mix, (ii)
portfolio repayments and payoffs, (iii) interest rate risk considerations, (iv)
desired servicing portfolio levels, (v) anticipated deposit flows and (vi)
regulatory capital requirements. Collectively, these factors enter into the
determination of the amount of loans originated for sale.

     For the year ended December 31, 1996, gains on sales of loans were $0.7
million compared with losses of $0.3 million for the year ended December 31,
1995 and a gain of $0.5 million for the year ended December 31, 1994. Loans
sales during 1996 totaled $280.5 million. Loan sales during 1995 totaled $183.6
million. Excluding the 1994 Bulk Sales, loan sales

                                            Page 129

<PAGE>



during the year ended December 31, 1994 totaled $174.2 million.

     During the first quarter of 1996, California Federal implemented SFAS No.
122. SFAS No. 122 removes the distinction in accounting for mortgage servicing
rights resulting from originated and purchased loans. California Federal did
not experience a material impact to its results of operations or financial
condition from the implementation of SFAS No. 122.

     Available for Sale Securities. California Federal determined which
securities were available for sale by evaluating whether such securities would
be sold in response to liquidity needs, asset/liability management objectives,
regulatory capital requirements and other factors. Generally accepted
accounting principles require the variance between the market value of
available for sale securities and the recorded investment in such securities to
be reflected as an unrealized holding gain or loss and presented as an
adjustment to shareholders' equity. At December 31, 1996 and 1995 the
adjustment was less than $0.1 million. All U.S. treasury securities held by
California Federal were included as available for sale securities. Securities
available for sale totaled $6.0 million, $200.3 million and $1.7 billion at
December 31, 1996, 1995 and 1994, respectively.

     During 1996, California Federal sold $259.3 million of securities
available for sale for a net gain of $1.1 million. California Federal sold
$952.2 million of securities available for sale for a net gain of $6.9 million
and $670.2 million of securities for a net gain of $0.2 million during 1995 and
1994, respectively. California Federal utilized the proceeds from the maturity
and sale of the securities to acquire short-term liquid investments and fund
the repayment of certain borrowings.

     OTHER EXPENSES

     Total other expenses are primarily comprised of general and administrative
expenses and operations of real estate held for sale. For the year ended
December 31, 1996, other expenses increased to $324.3 million compared to
$249.9 million and $611.0 million for the years ended December 31, 1995 and
1994, respectively. The primary reason for the increase in other expenses for
the year ended December 31, 1996 compared to the year ended December 31, 1995
was primarily due the $58.1 million Special SAIF Assessment.

     General and Administrative Expenses. General and administrative expenses
are comprised of compensation, office occupancy, federal deposit insurance
premiums and special assessments and other general and administrative expenses.
General and administrative expenses were $257.7 million for the year ended
December 31, 1996, compared to $241.9 million and $290.3 million for the years
ended December 31, 1995 and 1994, respectively. The increase in general and
administrative expenses for the year ended December 31, 1996 compared to 1995
was primarily due to the $58.1 million Special SAIF Assessment reported in the
third quarter of 1996 and increased compensation expenses resulting from the
merger with FN Holdings. The decrease in general and administrative expenses
for 1995 compared to 1994 was primarily due to reductions in all components of
general and administrative expenses. General and administrative expenses were
also reduced by staff reductions and other efficiency measures implemented in
California Federal's California operations. During 1995, California Federal
incurred approximately $1 million in expenses related to the formation of Cal
Fed. Effective January 1, 1996, California Federal became a wholly-owned
subsidiary of Cal Fed.

     Operations of Real Estate Held for Sale. Operations of real estate held
for sale consists of operations of real estate held for investment ("REI") and
operations of REO. Operations of real estate held for sale include (i)
provisions for losses, (ii) the net effect of rental income and related
operating expenses and (iii) gains or losses resulting from the sale of
properties. Operations of real estate held for sale resulted in losses of $8.5
million, $8.0 million and $45.9 million for the years ended December 31, 1996,
1995 and 1994, respectively. During 1996, California Federal recorded $5.0
million in provisions for losses on REI, in order to reflect its portfolio at a
value that would represent the expected proceeds from an accelerated
disposition of the property. California Federal began to actively market its
remaining REI during the second quarter of 1996 and during the third quarter of
1996 sold its remaining real estate project. California Federal did not record
any profit or loss from the sale. California Federal's remaining real estate
held for investment consisted of several single family residential properties.
California Federal recorded these properties at their current disposition
value. The decline in the expense of operations of real estate held for sale
between 1996 and 1995 compared to 1994 was due to lower levels of provisions
for losses on REO and REI. Such decline was due to a lower volume of REO
properties and a reduced need for allowances for losses on REI. The 1994 Bulk
Sale transaction reduced the level of delinquent loans, which has resulted in
lower levels of foreclosures and losses.

                                    Page 130

<PAGE>


     During the second quarter of 1995, California Federal provided an
allowance with respect to certain litigation involving loans made in 1989 and
1990 to California Communities Inc. ("CCI"), an inactive subsidiary of
California Federal formerly engaged in real estate development activities.
During the second quarter of 1995, an Orange County, California Superior Court
jury rendered a verdict in which it determined that California Federal was
financially liable for two loans made to CCI by the plaintiff. CCI subsequently
defaulted on the loans. The jury awarded the plaintiff $6.5 million in
compensatory damages and punitive damages of $20.0 million against California
Federal and $5.0 million against CCI. California Federal began the process of
appealing the judgment. While California Federal believed that its liability
from this litigation, if any, would be less than the amount awarded by the
jury, there can be no assurance that the ultimate outcome of this litigation
would result in an amount less than the amount determined by the jury and it is
possible that California Federal and its subsidiary (and hence, the Bank) could
ultimately be found liable for an amount in excess of the allowance that has
been established. The provision for this allowance has been included in
California Federal's 1995 income from real estate operations.

     California Federal determined its level of allowance for losses on REO by
comparing the net investment in the property to its fair value as determined by
a current appraisal, less cost of disposition. In the event that prices
indicated by the current market for similar REO properties ("market price")
were less than those indicated by appraisals, California Federal utilized the
market price in evaluating the carrying value of its REO. California Federal
provided specific allowances for all known declines in value and utilized the
most readily available market price for each property in the REO portfolio.
There can be no assurance that real estate market values or the market prices
for REO will not decline. In the event such declines occur, further provisions
for losses may be required.

     The following table presents the composition of real estate held for sale,
net of allowances, at the dates indicated:


                                       Year ended December 31,
                        -----------------------------------------------

Property Type           1996                 1995                  1994
-------------           ----                 ----                  ----
                                        (in millions)
Residential 1-4        $11.3                $47.3                 $58.6
Multi-family             1.2                  1.5                   5.1
Office buildings         0.1                  0.3                   5.6
Hotels                   --                   --                    6.1
Other                    0.3                  0.4                   2.5
                       -----                -----                 -----
                       $12.9                $49.5                 $77.9
                       =====                =====                 =====

REO                     11.4                $22.2                 $39.1
REI                      1.5                 27.3                  38.8
                       -----                -----                 -----
                       $12.9                $49.5                 $77.9
                       =====                =====                 =====


     Amortization of Goodwill. During 1994, California Federal applied
Statement of Financial Accounting Standards No. 72, "Accounting for Certain
Acquisitions of Banking or Thrift Institutions" ("SFAS No. 72") retroactively
to acquisitions initiated prior to September 30, 1982 resulting in the
elimination of $273.7 million of California Federal's goodwill effective
January 1, 1994. SFAS No. 72 requires, among other things, that to the extent
the fair value of liabilities assumed exceed the fair value of assets resulting
from the acquisition of a banking or thrift institution initiated after
September 30, 1982, the resulting goodwill recognized shall be amortized over a
period no longer than the discount that is recognized as interest income on the
acquired long-term interest-earning assets. California Federal had been
accounting for acquisitions initiated subsequent to September 30, 1982 in
accordance with SFAS No. 72. SFAS No. 72 allowed retroactive implementation for
acquisitions that were initiated prior to September 30, 1982. California
Federal's application of SFAS No. 72 resulted in the acceleration of the
amortization of goodwill arising from California Federal's thrift institution
acquisitions initiated prior to September 30, 1982.


                                            Page 131

<PAGE>



     INCOME TAXES

     Income tax expense (benefit) was computed upon, and generally varies
proportionately with, earnings (loss) before income tax expense (benefit)
adjusted for nontaxable items of income and expense and certain changes in the
components of its net deferred tax asset and related valuation allowance.
During the fourth quarter of 1996, California Federal recorded a net current
tax receivable of $23.6 million, representing the estimated net recovery of
prior years' federal and state taxes based on reaching an agreement with
federal tax authorities resolving certain prior year issues. Also during the
fourth quarter of 1996, California Federal increased its valuation allowance
against its deferred tax asset by $9.1 million, primarily attributable to prior
year net operating loss and alternative minimum tax carryforwards for state tax
purposes.

     Although California Federal had earnings before income tax expense
(benefit) for the years ended December 31, 1996 and 1995, there was minimal
income tax expense based on current earnings because of the availability of
unbenefitted net operating loss carryforwards. California Federal recorded
income tax expense of $6.3 million during 1994 to offset the tax benefit
previously recorded on unrealized losses on securities available for sale,
which were reported net of taxes as an adjustment to shareholders' equity.
Because of the uncertainty regarding the realizability of California Federal's
net operating loss carryforwards and certain other deferred tax assets,
California Federal recorded a valuation allowance against these assets at
December 31, 1996, 1995 and 1994.

    CONTINGENCIES

    California Federal was involved as a defendant in certain legal proceedings
incidental to its business. California Federal did not believe that the legal
proceedings to which it was a party, if adversely decided, would have a
material adverse effect in the aggregate upon its financial condition.
California Federal established allowances in connection with these legal
proceedings for its estimate of the potential related liabilities. It is
possible that California Federal and hence, the Bank, could be found liable for
an amount in excess of the allowance established. Adverse decisions in such
matters could have a material adverse effect upon the Bank's results of
operations for the relevant period or periods in which they occur.

     LIQUIDITY AND CAPITAL RESOURCES

     California Federal's cash flows were derived from the results of its
operating activities, investing activities and financing activities. California
Federal's cash flows from operating activities generally involved the cash
effects of transactions and other events that enter into the determination of
net earnings. California Federal's cash flows from investing activities
included making and collecting loans and acquiring and disposing of investment
securities. California Federal's cash flows from financing activities included
California Federal's deposit gathering systems, borrowing money and repaying
amounts borrowed, obtaining and paying for other resources obtained from
creditors, obtaining capital from shareholders and the dividend return of their
investment.

     Operating Activities. California Federal's net cash flows from operating
activities totaled $240.2 million, $170.4 million and $1.2 billion during 1996,
1995 and 1994, respectively. The primary sources of these cash flows included
(i) sales of loans held for sale and (ii) the excess of net interest income and
fee income over general and administrative expenses.

     Investing Activities. California Federal's net cash flows (used) provided
by investing activities totaled $(92.0) million, $247.3 million and $1.1
billion during 1996, 1995 and 1994, respectively. California Federal's cash
flows from investing activities were primarily derived from the repayments,
originations and purchases of loans, and the acquisition and maturity of
investment securities.

     Financing Activities. California Federal's net cash flows provided (used)
by financing activities totaled $363.8 million, $(57.8) million and $709.9
million during 1996, 1995 and 1994, respectively. California Federal's cash
flows from financing activities represented the major source of funds for
California Federal consisting of retail deposits, FHLB advances, reverse
repurchase agreements and other borrowings. California Federal also had access
to Brokered Deposits and capital markets as alternative sources of funds. The
mix of these funding sources changed from time to time, in light of market
conditions, liquidity needs, capital requirements and interest rate sensitivity
concerns in order to obtain the appropriate

                                            Page 132

<PAGE>



balance between maturities and costs of funds.

     Payments on loans and mortgage-backed securities represented other
significant sources of funds for California Federal. Principal payments,
including payoffs, on loans produced $1.4 billion, $1.2 billion and $1.4
billion of funds for California Federal during 1996, 1995 and 1994,
respectively. The increase in the level of payments from loans between 1995 and
1996 receivable was primarily due to an increase in the level of loan
prepayments. Payments from securities held to maturity totaled $401.8 million,
$435.8 million and $533.5 million during 1996, 1995 and 1994, respectively.
Proceeds from maturities of securities during the years ended December 31,
1996, 1995 and 1994 were $156.0 million, $808.8 million and $1.0 million
respectively.

     Total deposits of California Federal were $8.9 billion, $9.5 billion and
$8.4 billion at December 31, 1996, 1995 and 1994, respectively. Total Brokered
Deposits of California Federal were $254.8 million and $273.8 million at
December 31, 1996 and 1995, respectively. California Federal had no Brokered
Deposits at December 31, 1994. During the second quarter of 1996, California
Federal sold six branches located in San Diego County, California with deposits
totaling approximately $380 million. The sale of the branches resulted in a net
gain of $12.0 million or approximately $0.24 per share. The sale of the
branches did not have a material impact on the liquidity of California Federal.
During 1995, California Federal acquired three branch offices with $138.6
million in deposits from Pacific Heritage Bank and six branch offices with
$359.4 million in deposits from Continental Savings of America. The acquired
branches are located in Los Angeles County and in the San Francisco Bay area of
Northern California. California Federal received cash as consideration for the
assumption of the deposits. In August 1994, California Federal completed the
sale of the Southeast Division. The Southeast Division included deposits of
approximately $3.9 billion. California Federal funded the sale of the Southeast
Division with (i) FHLB advances, (ii) reverse repurchase agreements, (iii)
liquid funds held by California Federal, (iv) the sale of short-term liquid
investments, (v) proceeds from the 1994 Bulk Sales and (vi) proceeds from
equity offerings.

     California Federal's outstanding balance of Federal Home Loan Bank of San
Francisco ("FHLB") advances at December 31, 1996, 1995 and 1994 totaled $3.1
billion, $2.7 billion and $2.5 billion, respectively. The weighted average
remaining maturity of these advances at December 31, 1996 was six months.
Reverse repurchase agreements had carrying values of $978.4 million, $857.3
million and $1,751.0 million at December 31, 1996, 1995 and 1994, respectively.
During 1995, California Federal repurchased $8.7 million of its 10%
Subordinated Debentures due January 3, 2003.

     During 1994, California Federal, as part of its strategic initiatives,
raised $183.3 million from the issuance of 21.6 million of additional common
shares and $164.2 million from the issuance of 1.7 million shares of 10-5/8%
noncumulative preferred stock, Series B. During each of the quarters ending
December 31, 1995 and 1994, California Federal declared and paid quarterly
dividends of $1.8 million on its 7-3/4% noncumulative convertible preferred
stock, Series A, and $4.6 million on its 10-5/8% noncumulative preferred stock,
Series B. During the years ended December 31, 1996 and 1995, California Federal
declared and paid dividends totaling $23.4 million and $25.6 million,
respectively, on its preferred stock, Series A and Series B.

     During the second quarter of 1996, California Federal called for
redemption all 3,740,000 shares of the Preferred Stock, Series A. Except for
the conversion of 18,820 shares into 23,336 shares of Cal Fed common stock, the
Series A shares were redeemed effective June 14, 1996 at a redemption price of
$25.00 per share, plus a dividend of $0.398264 per share.


                                            Page 133

<PAGE>




     California Federal's principal use of capital resources was to originate
residential 1-4 loans. The table below presents the amount and type of loans
originated and purchased by California Federal for the periods presented:


                                                  Year ended December 31,
                                              ------------------------------
                                                   1996             1995
                                                   ----             ----
                                                       (in millions)
Originations:
  Residential 1-4                                   $1,801.7       $1,646.7
  Multi-family                                          13.1           20.6
  Commercial real estate                                 0.7            1.8
                                                   ---------       --------
          Total Real Estate Loans                    1,815.5        1,669.1
  Business banking                                      16.8            --
  Consumer                                              89.7           99.3
                                                   ---------       --------
          Total Originations                         1,922.0        1,768.4
                                                   ---------       --------
Purchases:
  Residential 1-4                                      784.4          494.5
  Multi-family                                           5.3           22.1
  Commercial real estate                                 3.1           61.6
  Business banking                                       6.3            --
  Consumer                                               6.8            --
                                                   ---------       --------
          Total Purchases                              805.9          578.2
                                                   ---------       --------
          Total Originations and Purchases          $2,727.9       $2,346.6
                                                   =========       ========


     Commercial real estate loans and multi-family loans were originated solely
to facilitate the sales of REO and REI. California Federal originated loans
through its loan representatives and its branch offices ("retail lending")
primarily located in California. Additionally, California Federal utilized
mortgage brokers who offered California Federal's various loan programs
("wholesale lending"). During 1996, California Federal's wholesale lending
generated $1.2 billion, or 67% of total residential loans. California Federal's
retail lending produced $587.5 million, or 33% of residential loans during 1996
as compared to $621.6 million or 38% during 1995. During the second half of
1995 the demand for fixed rate mortgage loans, including those loans converting
to an adjustable rate after a three to five year period, began to rise as the
spread between a fully indexed adjustable rate loan and a 30 year fixed rate
loan decreased substantially. During 1996, residential 1-4 originations and
purchases increased compared to 1995. Additionally, business banking
originations increased for 1996 compared to 1995. During 1995, California
Federal increased its purchases of mortgage loans. California Federal purchased
loans as a cost effective means to supplement its origination process.
Typically, when California Federal purchased loans, the party that originated
the loan retained the servicing. However, California Federal did purchase $56.2
million of loans and the related servicing during 1995.

     California Federal pledged certain of its assets as collateral for certain
borrowings, interest rate swap agreements and letters of credit and other
miscellaneous obligations. By utilizing collateralized funding sources,
California Federal was able to access a variety of cost effective sources of
funds. The assets pledged consist of loans, mortgage-backed securities and U.S.
treasury securities. California Federal's process for monitoring its liquidity
requirements incorporated an assessment of assets pledged, the level of assets
held for sale, additional borrowing capacity and other factors. California
Federal did not anticipate any negative impact to its liquidity from its
pledging activities. The total amount of California Federal's assets pledged
was $5.4 billion at December 31, 1996 as compared with $4.9 billion at December
31, 1995 and $6.2 billion at December 31, 1994.


                                            Page 134

<PAGE>




     The following table presents assets pledged at December 31, 1996 for
California Federal:
<TABLE>
<CAPTION>
                                                                             Mortgage-
                                                                              Backed             Total
                                               Mortgages     Securities      Securities        Collateral
                                               ----------    ----------      ----------        ----------
                                                                  (in millions)
<S>                                            <C>           <C>              <C>              <C>
Borrowings:
   FHLB advances                               $3,895.3       $    --          $   374.6          $4,269.9
   Reverse repurchase agreements                    --             --              975.7             975.7

Other Obligations:
   Interest rate swaps                              --             --                1.7               1.7
   Revenue bond standby letters of                  --             --               22.0              22.0
credit
   FHLB letters of credit/lines of                 23.3            --                --               23.3
credit
   Other miscellaneous obligations                  6.6           52.0               0.1              58.7
                                               --------          -----          --------          --------
Total pledged collateral                       $3,925.2          $52.0          $1,374.1          $5,351.3
                                               ========          =====          ========          ========
</TABLE>
                                              
     California Federal also invested in short-term liquid investments as a
means of maximizing its return on its liquid investments and to comply with the
liquidity requirements of the Office of Thrift Supervision ("OTS").

     California Federal also acquired securities for resale. California
Federal's securities available for sale consisted of U.S. Treasury securities.
During 1996 and 1995, California Federal sold $259.3 million and $952.2
million, respectively, of securities available for sale for gains of $1.1
million and $6.9 million, respectively.

     The liquidity of California Federal, as measured by the ratio of cash and
cash equivalents to the sum of withdrawable savings and borrowings payable
within one year, averaged 15.5% for the year ended December 31, 1996, compared
to 12.3% and 14.6% for the years ended December 31, 1995 and 1994,
respectively. California Federal was required by the OTS to maintain its
liquidity level in excess of 5.0%.

     CAPITAL REQUIREMENTS

     As a savings institution regulated by the OTS with deposits insured by the
Federal Deposit Insurance Corporation ("FDIC"), California Federal was required
to comply with the capital requirements of the OTS. The regulations of the OTS
require savings institutions to maintain certain minimum levels of regulatory
capital. An institution that fails to comply with its regulatory capital
requirements must obtain OTS approval of a capital plan and can be subject to a
capital directive and certain restrictions on its operations. An institution
that fails to obtain OTS approval of its capital plan is deemed to be in an
unsafe and unsound condition and could be the subject of the appointment of a
conservator or a receiver. The OTS has adopted prompt corrective action
requirements ("PCA requirements") pursuant to the FDIC Improvement Act of 1991.
At December 31, 1996, the industry-wide minimum regulatory capital requirements
were:

-    Tangible capital of 1.50% consisting generally of shareholders' equity,
     but excluding intangible assets such as goodwill.

-    A leverage ratio requiring core capital (i.e., Tier 1 capital) of 3.00%
     consisting of tangible capital plus qualifying supervisory goodwill
     (certain goodwill arising as a result of the acquisition of troubled
     institutions and regulatory assisted acquisitions).

-    Risk-based capital, consisting of core capital plus certain subordinated
     debt and other capital instruments and general valuation allowances on
     loans receivable, equal to 8.00% of the value of risk-weighted assets plus
     off-balance sheet items.


                                            Page 135

<PAGE>



     In addition, the PCA requirements provide that, a savings association is
deemed to be "well-capitalized" if the savings association has: (i) a total
risk-based capital ratio of 10.00% or greater, (ii) a Tier 1 risk-based capital
ratio (defined as Tier 1 capital as a percentage of risk-weighted assets) of
6.00% or greater, and (iii) a leverage ratio of 5.00% or greater. At December
31, 1996, (i) California Federal's total risk-based capital ratio was 12.01%,
$158.1 million in excess of "well-capitalized" requirements, (ii) California
Federal's Tier 1 risk-based capital ratio was 10.56%, $357.6 million in excess
of "well-capitalized" requirements, and (iii) California Federal's leverage
ratio was 5.85%, $120.7 million in excess of "well-capitalized" requirements.
Therefore, at December 31, 1996, California Federal met and exceeded all of the
requirements of a well-capitalized institution.

     The table below presents California Federal's regulatory capital position
compared to industry-wide capital requirements at December 31, 1996:
<TABLE>
<CAPTION>
                                                   Tangible Capital             Core Capital             Risk-based Capital
                                                ---------------------      -----------------------     ----------------------
                                                                           (dollars in millions)
<S>                                              <C>             <C>        <C>              <C>        <C>             <C>   
Regulatory capital of California Federal         $828.5          5.85%      $828.5           5.85%      $945.2          12.01%
Minimum regulatory capital
  requirements                                    212.3          1.50        424.6           3.00        630.2           8.00
                                                 ------          ----       ------           ----       ------           ----
Excess over minimum regulatory capital
  requirements                                   $616.2          4.35%      $403.9           2.85%      $315.0           4.01%
                                                 ======          ====       ======           ====       ======           ====
</TABLE>


     Following is a reconciliation of California Federal's shareholders' equity
to regulatory capital as of December 31, 1996:
<TABLE>
<CAPTION>
                                                                                  Core          Risk-based
                                                                 Tangible        Capital         Capital
                                                                 Capital         Capital         Capital
                                                                 ---------------------------------------
                                                                         (in millions)
<S>                                                               <C>             <C>              <C>   
Shareholders' Equity of California Federal                        $864.9          $864.9           $864.9
Non-allowable capital:
  Intangible assets                                                (15.7)          (15.7)           (15.7)
  Investment in non-permissible subsidiaries                       (20.7)          (20.7)           (20.7)
  Tier II capital items:
     Allowable subordinated debt                                     --              --              18.7
     Allowable general valuation allowance on loans
receivable
       (limited to 1.25% of risk-weighted assets)                    --              --              98.0
                                                                  ------          ------           ------
Regulatory capital of California Federal                          $828.5          $828.5           $945.2
                                                                  ======          ======           ======
</TABLE>

     During the third quarter of 1996, Federal legislation was enacted, which,
among other things, will fund the SAIF through the Special SAIF Assessment for
SAIF members, such as California Federal. The Special SAIF Assessment is based
on California Federal's deposits as of March 31, 1995 at an assessment rate of
65.7 basis points. During 1996, California Federal recorded an expense of $58.1
million for the Special SAIF Assessment.

     GOODWILL LITIGATION

     In February 1992, California Federal commenced litigation against the
United States in the U.S. Court of Claims (now the U.S. Court of Federal
Claims, the "Claims Court") seeking to recover the value of its supervisory
goodwill. The suit alleges that the treatment of such goodwill mandated by the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
constitutes a breach of contract between California Federal and the United
States and an unlawful taking of property by the United States without just
compensation or due process in violation of the U.S. Constitution.

     During the third quarter of 1995, California Federal distributed to its
common shareholders its Litigation Interests, entitling the holders thereof to
receive an amount equal to up to 25.377745% of the cash payment, if any,
actually received by California Federal 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 "Litigation"). California Federal's

                                            Page 136

<PAGE>



shareholders of record on July 14, 1995 received one Litigation Interest for
every ten shares of common stock owned on the record date. In the Litigation,
California Federal alleges that the United States breached certain contractual
commitments regarding the computation of its regulatory capital and deprived
California Federal of certain of its property without just compensation in
violation of the United States constitution. California Federal's claims arose
from changes, mandated by FIRREA, with respect to the rules for computing
California Federal's regulatory capital.

     During the period since the filing of the Litigation, the Claims Court,
the United States Court of Appeals for the Federal Circuit, and the United
States Supreme Court handed down decisions relating to the liability portion of
the breach of contract claims brought by three other thrift institutions, which
breach of contract claims are similar to those of California Federal. On July
1, 1996, the U.S. Supreme Court ruled on the three consolidated cases, United
States v. Winstar Corporation, and determined that when Congress adopted the
accounting changes to supervisory goodwill specified in FIRREA, the government
became responsible for any breaches to its original agreement with the
institutions regarding the accounting rules. Although the plaintiff thrift
institutions in the Winstar case prevailed in the U.S. Supreme Court decision,
a court may still determine that California Federal's claims involve
sufficiently different facts and/or legal issues as to render the Winstar case
inapplicable to the Litigation and thereby result in a different conclusion
from that of the Winstar case. Moreover, the damages portions of the claims
presented by the Winstar plaintiff thrift institutions remains to be litigated
and could take several years to resolve. California Federal did not quantify
the damages portion of its claim. The Litigation was stayed pending the
resolution of the Winstar case. In September 1996, the Claims Court ended the
stay and established a consolidated procedure for the disposition of the
Litigation and other similar cases. California Federal filed a motion for
partial summary judgment on the contract liability issue during the fourth
quarter of 1996, which the Claims Court has not yet ruled on. The Bank 
presently expects a trial date in late 1997.


                                            Page 137

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The following consolidated financial statements of FN Holdings at December
31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and 1994 are
included in this report at the pages indicated.

                                                                   Page

Independent Auditors' Report                                        F-2
Consolidated Statements of Financial Condition                      F-3
Consolidated Statements of Operations                               F-4
Consolidated Statements of Stockholders' Equity                     F-5
Consolidated Statements of Cash Flows                               F-6
Notes to Consolidated Financial Statements                          F-8

     The following consolidated financial statements of California Federal at
December 31, 1996 and 1995 and for the years ended December 31, 1996, 1995 and
1994 are also included in this report at the pages indicated.

                                                                   Page

Independent Auditors' Report                                        F-59
Consolidated Statements of Financial Condition                      F-60
Consolidated Statements of Operations                               F-61
Consolidated Statements of Changes in Shareholder's Equity          F-62
Consolidated Statements of Cash Flows                               F-63
Notes to Consolidated Financial Statements                          F-64

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

     None.



                                            Page 138

<PAGE>



PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     FN Holdings

     The following table sets forth certain information (ages as of January 1,
1997) 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...............................    54       Chairman of the Board, Chief Executive
                                                                Officer and Director
Howard Gittis....................................    63       Vice Chairman and Director
Irwin Engelman...................................    61       Executive Vice President and Chief
                                                                Financial Officer
Barry F. Schwartz................................    47       Executive Vice President and General
                                                                Counsel
Laurence Winoker.................................    40       Vice President and Controller
</TABLE>

     First Nationwide

     The following table sets forth certain information (ages as of March 1,
1997), 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...................54         Director
Gerald J. Ford.......................52         Chairman of the Board, Chief Executive Officer and Director
Carl B. Webb.........................47         President, Chief Operating Officer and Director
Edward G. Harshfield.................60         Vice Chairman of the Board and Director
Paul M. Bass, Jr.....................61         Director
George W. Bramblett, Jr..............56         Director
Bob Bullock..........................67         Director
Irwin Engelman.......................61         Director
Howard Gittis........................63         Director
Gabrielle K. McDonald................54         Director
Lynn Schenk..........................52         Director
Robert Setrakian.....................73         Director
Christie S. Flanagan.................58         Executive Vice President and General Counsel
Kendall M. Fugate....................59         Executive Vice President and Information and Technology
                                                 Services Director
Roger L. Gordon......................54         Executive Vice President
Richard P. Hodge.....................42         Executive Vice President and Corporate Tax Director
Walter C. Klein, Jr..................53         Executive Vice President; President, FNMC
Lacy G. Newman, Jr...................47         Executive Vice President and Chief Credit Officer
James R. Staff.......................49         Executive Vice President and Chief Financial Advisor
Richard H. Terzian...................60         Executive Vice President and Chief Financial Officer
Peter K. Thomsen.....................54         Executive Vice President and Retail Banking Director
Dennis L. Verhaegen..................45         Executive Vice President - Director of Corporate Finance
Michael R. Walker....................51         Executive Vice President - Commercial Real Estate
Renee Nichols Tucei..................40         Senior Vice President and Controller
</TABLE>

                                            Page 139

<PAGE>




     Mr. Perelman has been Chairman of the Board of FN Holdings since its
formation in 1994 and a Director of First Nationwide or 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 Board of Andrews Group Incorporated ("Andrews Group"),
Consolidated Cigar Corporation ("Consolidated Cigar"), Consolidated Cigar
Holdings Inc. ("Consolidated Cigar Holdings"), Mafco Consolidated, Meridian
Sports, PCT and Toy Biz, Inc. ("Toy Biz") and is the Chairman of the Executive
Committee of the Board of Directors of Marvel, Revlon and of Revlon Consumer
Products Corporation ("Revlon Products"). Mr. Perelman is a Director of the
following corporations which file reports pursuant to the Exchange Act: Andrews
Group, Coleman, Coleman Holdings Inc., Coleman Worldwide Corporation ("Coleman
Worldwide"), Consolidated Cigar, Consolidated Cigar Holdings, FN Holdings,
Parent Holdings, Mafco Consolidated, Marvel, Marvel Holdings Inc. ("Marvel
Holdings"), Marvel (Parent) Holdings Inc., ("Marvel Parent"), Marvel III
Holdings Inc. ("Marvel III"), Meridian Sports, PCT, Pneumo Abex Corporation
("Pneumo Abex"), Revlon, Revlon Products, Revlon Worldwide Corporation ("Revlon
Worldwide"), and Toy Biz. (On December 27, 1996, Marvel Holdings, Marvel
Parent, Marvel III and Marvel and several of its subsidiaries 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 First Nationwide or the Bank since 1994. Mr. Gittis has been Vice
Chairman and Director 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: Andrews Group, Consolidated Cigar,
Consolidated Cigar Holdings, Jones Apparel Group, Inc., Loral Space and
Communications, Ltd., Mafco Consolidated, FN Holdings, Parent Holdings, PCT,
Pneumo Abex, Revlon, Revlon Worldwide, Revlon Products 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 First Nationwide
or the Bank since 1992. He has been Executive Vice President and Chief
Financial Officer of MacAndrews & Forbes and various other affiliates of
MacAndrews & Forbes since February 1992. (On December 27, 1996, Marvel
Holdings, Marvel Parent, Marvel III, of which Mr. Engelman is an executive
officer, and several of the subsidiaries of Marvel Holdings filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code.) 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.

     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, Marvel Parent, Marvel III, of which Mr.
Schwartz is an executive officer, and several of the subsidiaries of Marvel
Holdings 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 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, Marvel Parent, Marvel III, of which Mr.
Winoker is an executive officer, and several of the subsidiaries of Marvel
Holdings 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 First Nationwide or 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"),

                                            Page 140

<PAGE>



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
Norwest Corporation and ACS.

     Mr. Webb has been the President, Chief Operating Officer and a Director of
First Nationwide 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.

     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 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 First Nationwide or 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, Ford Bank Group; and Chairman of the Board and
Director, Pizza Inn, Inc.

     Mr. Bramblett has been a Director of First Nationwide or 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 First Nationwide or 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 Ford Bank Group from 1992 to 1993, and
as Director of 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 First Nationwide or 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 First Nationwide or 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

                                            Page 141

<PAGE>



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 First Nationwide or 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 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.

     Mr. Flanagan has been the Executive Vice President and General Counsel of
First Nationwide or 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 First Nationwide or 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. Gordon has been an Executive Vice President of First Nationwide or the
Bank since February 1996. Mr. Gordon previously was associated with SFFed for
more than five years prior to February 1996, including most recently as
Chairman, President and Chief Executive Officer.

     Mr. Hodge has been an Executive Vice President of First Nationwide or the
Bank since January 1996 and has been employed by First Nationwide 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 First Nationwide or 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. Newman has been Executive Vice President and Chief Credit Officer of
First Nationwide or the Bank since the consummation of the FN Acquisition. Mr.
Newman has also served as President and a Director of Madison Realty since
1992. During 1991, Mr. Newman was a Senior Vice President of J.E. Robert
Companies. He served as a Senior Vice President of Bank of New England
Corporation from 1990 to 1991, and served as the President, Chief Executive
Officer and Director of the Seamen's Bank for Savings from 1989 to 1990.

     Mr. Staff has been an Executive Vice President of First Nationwide or 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.


                                            Page 142

<PAGE>



     Mr. Terzian has served as Executive Vice President and Chief Financial
Officer of First Nationwide or 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 the Chief Financial Officer
of Dime Bancorp, Inc. (The Dime Savings Bank of New York, FSB).

     Mr. Thomsen has been an Executive Vice President of First Nationwide or
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 First Nationwide or 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.

     Ms. Tucei has been a Senior Vice President and the Controller of First
Nationwide or 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. Ms. Tucei was Senior Vice President and Director of Regulatory
Assistance Compliance for First Gibraltar from 1991 to 1993, and served as
Senior Vice President and Manager of Regulatory Assistance Operations for First
Gibraltar from 1989 to 1991.

     Compensation of Directors

     Directors of FN Holdings who do not receive compensation as officers or
employees of FN Holdings or any of its affiliates receive $25,000 per year plus
an additional $1,000 per meeting. 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 143

<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, First Nationwide, and the four most highly paid executive
officers of First Nationwide, other than the Chief Executive Officer, who
served as executive officers of First Nationwide at December 31, 1996 for
services rendered in all capacities to First Nationwide and its subsidiaries
during the years ended December 31, 1996, 1995 and 1994.

                           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 (3)                 1996    $1,500,000   $  300,000         $1,152        $63,000
         Chairman & Chief               1995     1,500,000            0          7,644         49,511
         Executive Officer              1994       317,358            0            912          4,500

     Carl B. Webb (4)                   1996       900,000      300,000         22,218          56,206
         President & Chief              1995       900,000            0        274,351          66,707
         Operating Officer              1994       361,724            0        154,496           9,000

     Christie S. Flanagan (3)           1996       700,000      120,000         16,173          52,171
         Executive Vice President &     1995       700,000       20,000         10,892          44,854
         General Counsel                1994       116,669            0              0               0

     Lacy G. Newman, Jr.                1996       475,016      408,505         14,813          54,196
         Executive Vice President       1995       475,000            0        178,457          36,166
         & Chief Credit Officer         1994       345,334            0        124,916           9,000

     James R. Staff                     1996       533,352      250,000         10,411          48,722
         Executive Vice President &     1995       450,000            0         17,348          27,001
         Chief Financial Advisor        1994        65,627            0              0               0

</TABLE>

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

(1)  Includes: (i) the value of group term life insurance, (ii) amounts paid
     under relocation programs for Messrs. Webb and Newman, (iii) the value of
     the use of First Nationwide-owned automobiles for Messrs. Webb, Flanagan,
     Newman and Staff, (iv) club dues, (v) personal financial planning services
     paid by First Nationwide for Messrs. Ford, Webb, Newman and Staff, and
     (vi) security expenses paid by First Nationwide for Messrs. Webb,
     Flanagan, Newman and Staff.

(2)  Includes: (i) First Nationwide's contributions to the 401(k) plan of
     $8,571 for each named officer in 1996, (ii) First Nationwide's
     contribution to the Supplemental Employees' Investment Plan of $54,429,
     $45,430, $40,629, $44,440, and $38,430 in 1996 for Messrs. Ford, Webb,
     Flanagan, Newman and Staff, respectively, and (iii) premiums on
     supplemental life insurance paid by First Nationwide for Messrs. Webb,
     Flanagan, Newman, and Staff of $2,205, $2,971, $1,185 and $1,721,
     respectively, in 1996.

(3)  Mr. Ford became Chief Executive Officer of the Bank upon the consummation
     of the FN Acquisition on October 3, 1994. Messrs. Flanagan and Staff
     became Executive Vice Presidents on October 3 and October 17, 1994,
     respectively.

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


                                            Page 144

<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 a management incentive plan
(the "Incentive Plan") with respect to certain executive officers of First
Nationwide (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 1995, expense of $2 million was recorded relative to the Incentive Plan.
Additional expense of $35.6 million was recorded related to the Incentive Plan
during the year ended December 31, 1996.

     There were no long-term incentive plan awards in 1996 to the executive
officers named in the preceding table.

     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 1996, 1995, and 1994, Mr. Ford
was Chairman of the Board of First Nationwide. 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 145

<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). See "Certain
Relationships and Related Transactions."

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 owns 83% of Coleman, which is engaged in the
manufacture and marketing of recreational outdoor products, portable
generators, power-washing equipment, spas and hot tubs, and 65% of Meridian
Sports, a manufacturer and marketer of specialized boats and water sports
equipment. Marvel, a youth entertainment company, is 80% owned by MacAndrews &
Forbes. MacAndrews & Forbes also is engaged, through its 85% ownership of Mafco
Consolidated, in the manufacture and distribution of cigars and pipe tobacco
and through its 36% ownership of PCT, in the processing of licorice and other
flavors. 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 certian 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

     For federal income tax purposes, FN Holdings and the Bank are included in
the Mafco Group, and accordingly their federal taxable income and loss will be
included in the consolidated federal income tax return filed by Mafco Holdings.
FN Holdings and the Bank also may be included in certain state and local tax
returns of Mafco Holdings or its subsidiaries. The Bank, FN Holdings and Mafco
Holdings are parties to the Tax Sharing Agreement, effective as of January 1,
1994, pursuant to which: (i) the Bank will pay to FN Holdings amounts equal to
the taxes that the Bank would be required to pay if it were to file a return
separately from the Mafco Group, and (ii) FN Holdings will pay to Mafco
Holdings amounts equal to the 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 losses 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 loss carryovers 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.


                                            Page 146

<PAGE>



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

     At December 31, 1996, if FN Holdings would have filed a consolidated tax
return on behalf of itself and its subsidiaries for each year since the
formation of First Nationwide, it would have had approximately $2.1 billion of
regular net operating losses and approximately $750 million of alternative
minimum tax net operating losses. These losses are scheduled to expire in the
year 2004 through 2010. It is expected that under the Tax Sharing Agreement,
the Bank and FN Holdings will be able to eliminate a significant portion of the
amounts they otherwise would be required to pay to FN Holdings and Mafco
Holdings, respectively, and, accordingly, it is not expected that the Bank or
FN Holdings will record a significant amount of income tax expense as members
of the Mafco Group. Payments made by FN Holdings under the Tax Sharing
Agreement with the Mafco Group during the years ended December 31, 1996 and
1995 totalled $14.1 million and $3.1 million, respectively. During 1998 or
1999, the Bank and FN Holdings anticipate that the AMT net operating losses
will be fully utilized and the Bank and FN Holdings will begin providing
federal income tax expense at a rate of 20%. Prior to the Bank and FN Holdings
utilizing all of their AMT net operating losses, they 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 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.

     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 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

     Simultaneously with the issuance of the FN Holdings 10 5/8% Notes,
FN Escrow issued approximately $36 million aggregate liquidation value of
cumulative perpetual preferred stock, (the "FN Escrow Preferred Stock") 
to 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 FN Holdings
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

                                            Page 147

<PAGE>



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 Bank is an indirect subsidiary of First Gibraltar Holdings. In
connection with the offering of the FN Holdings 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 First Nationwide.
First Gibraltar Holdings contributed all of its shares of capital stock of
First Nationwide 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.

     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 FN Holdings 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
FN Holdings Senior Notes pledged as collateral, NationsBank or any successor or
assignee thereof will have the right to foreclose on the pledged FN Holdings
Senior Notes and sell, or direct Mr. Ford to sell, such FN Holdings 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 of $750,000. The term of this agreement extends through
December 31, 1997, 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
$750,000 for 1995 and in increasing amounts through 1997, 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 $1,225,000 and $964,000 in 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

                                            Page 148

<PAGE>



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.

     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 January 31, 1998,
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 good reason prior to the respective termination
dates, the executives would receive payment for 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 to Messrs. Webb,
Flanagan, Staff, Newman and Hodge are $900,000, $700,000, $550,000, $475,000,
and $250,000 respectively.

     Pursuant to an Agreement for Provision of Services between First
Nationwide and First Nationwide Management, dated December 1, 1994 (the
"Services Agreement"), a portion of the salaries payable by the Bank 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 $600,000, $350,000 and
$275,000 for Messrs. Webb, Flanagan and Staff, respectively. All of such fees
paid by First Nationwide Management are charged to FN Holdings for services
performed by these executives. The total amounts of fees received by First
Nationwide pursuant to the Services Agreement were approximately $1,379,000,
$1,092,000 and $214,000 in 1996, 1995 and 1994, respectively, which fees are
included in the amounts allocated by First Nationwide Management to FN
Holdings.

     First Nationwide has also entered into an employment agreement with Mr.
Gordon effective as of the consummation of the SFFed Acquisition, for a term
ending on January 30, 1999. Pursuant to such agreement, the annual base salary
payable to Mr. Gordon is $400,000. Mr. Gordon's agreement also provides for a
life insurance policy on the life of the insured in an amount equal to
$714,000. Mr. Gordon's employment agreement will be terminated effective March
31, 1997, at which time he will receive payment for base salary due for the
balance of the term and benefits through January 31, 1998.

     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 the insured in the amount of
$450,000. If Mr. Klein's agreement is terminated without cause or good reason
prior to the termination date, he would receive payment for base salary and
benefits due for the balance of the term. In addition, Mr. Klein has a sale
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 this 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 $2,524,000, $1,935,000
and $459,000 was allocated by First Nationwide Management to FN Holdings for
the years ended December 31, 1996, 1995 and 1994, respectively, including the
fees paid to First Nationwide under the Services Agreement.


                                            Page 149

<PAGE>



     Effective December 1, 1994, First Nationwide 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 First
Nationwide under the Services Agreement at the rate of approximately $107,000
per month based on actual services provided and approximated $1,379,000,
$1,092,000, and $86,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.

     Effective on June 1, 1995, First Nationwide 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 First Nationwide
subsidiary on the same date. Service charges under this agreement amounted to
approximately $13,300 and $43,000 per month during 1996 and 1995, respectively.
Management believes that the terms and conditions of these arrangements are at
least as favorable to First Nationwide as that 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 First Nationwide, sold that portion of its insurance agency
business related to marketing insurance products to First Nationwide'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 First Nationwide 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 150

<PAGE>



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

     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.)

     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


<PAGE>



          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 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)).


<PAGE>



     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 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.)

    10.11 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")).

    10.12 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.)

    10.13 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.)

    10.14 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.)

    10.15 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


<PAGE>



          Registrant's Registration Statement on Form S-1 (File No.
          333-00854)).

    10.16 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.)

    10.17 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.)

    10.18 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.)

    10.19 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.)

    10.20 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, 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)).

    10.21 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)).

    10.22 Special Bonus Agreement, dated as of November 25, 1996, by and
          between the Registrant and Carl B. Webb.

    10.23 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.)

    10.24 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.)

    10.25 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.)

    10.26 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.)

    10.27 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


<PAGE>



          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.)

    10.28 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.)

    10.29 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.)

    10.30 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.)

    10.31 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.)

    10.32 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.)

    10.33 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.)

    10.34 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)).

    10.35 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)).

    10.36 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)).

    10.37 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)).


<PAGE>




    10.38 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)).

    10.39 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)).

    10.40 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)).

    10.41 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)).

    10.42 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)).

    12.1  Statement regarding the computation of ratio of earnings to fixed
          charges 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.

    23.2  Consent of KPMG Peat Marwick LLP, Independent Auditors of California
          Federal Bank, A Federal Savings Bank.

    24.1  Power of Attorney executed by Ronald O. Perelman.

    24.2  Power of Attorney executed by Howard Gittis.

    27.1  Financial Data Schedule.


<PAGE>




(C)  REPORTS ON FORM 8-K

     None.







<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 27, 1997

                         FIRST NATIONWIDE HOLDINGS INC.




                          By:          *
                             -------------------------------
                             Ronald O. Perelman
                             Chairman of the Board
                             and Chief Executive 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 27, 1997
----------------------------------                   Executive Officer and Director
         Ronald O. Perelman         

                     *                                Vice Chairman  and Director               March 27, 1997
------------------------------------
            Howard Gittis

      /s/ Irwin Engelman                               Executive Vice President and              March 27, 1997
------------------------------------                   Chief Financial Officer
           Irwin Engelman                              (Principal Financial Officer)

      /s/ Laurence Winoker                             Vice President and Controller             March 27, 1997
------------------------------------                   (Principal Accounting Officer)
          Laurence Winoker          
</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>


                         INDEX TO FINANCIAL STATEMENTS


                                                                            Page
                                                                            ----

       At December 31, 1996 and 1995 and for the years ended December 31, 1996, 
1995 and 1994:

Independent Auditors' Report                                                F-1

Consolidated Statements of Financial Condition                              F-2

Consolidated Statements of Operations                                       F-3

Consolidated Statements of Stockholders' Equity                             F-4

Consolidated Statements of Cash Flows                                       F-5

Notes to Consolidated Financial Statements                                  F-8


                                      F-1

<PAGE>








                         INDEPENDENT AUDITORS' REPORT
                         ----------------------------


Board of Directors
First Nationwide Holdings Inc.:

We  have  audited  the  accompanying   consolidated  statements  of  financial
condition of First Nationwide  Holdings Inc. and subsidiaries  (the "Company")
as of December 31, 1996 and 1995, and the related  consolidated  statements of
operations,  stockholders'  equity,  and cash  flows  for each of the years in
three-year  period  ended  December  31, 1996.  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, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.

As discussed in note 3 to the consolidated  financial statements,  the Company
adopted the provisions of the Financial  Accounting Standard Board's Statement
of Financial  Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights" in 1995.




                                   KPMG Peat Marwick LLP

Dallas, Texas
March 7, 1997


                                      F-2

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                          DECEMBER 31, 1996 AND 1995
                 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                                                                     1996                 1995
                                                                                     ----                 ----
                        ASSETS
<S>                                                                               <C>                <C>          
Cash and amounts due from banks                                                   $   135,534        $   154,758
Interest-bearing deposits in other banks                                               20,619             32,778
Short-term investment securities                                                      113,716            125,035
                                                                                  -----------        -----------
   Cash and cash equivalents                                                          269,869            312,571
Securities available for sale, at fair value                                          542,019            348,561
Securities held to maturity (fair value $4,287 in 1996 and $1,455 in 1995)              4,272              1,455
Mortgage-backed securities available for sale, at fair value                        1,598,652          1,477,514
Mortgage-backed securities held to maturity (fair value $1,653,847 in 1996
   and $1,567,197 in 1995)                                                          1,621,662          1,524,488
Loans held for sale, net                                                              825,316          1,203,412
Loans receivable, net                                                              10,222,379          8,831,018
Covered assets                                                                             --             39,349
Investment in Federal Home Loan Bank ("FHLB") System                                  220,962            109,943
Office premises and equipment, net                                                    100,164             93,509
Foreclosed real estate, net                                                            51,987             48,535
Accrued interest receivable                                                           106,034            100,604
Intangible assets (net of accumulated amortization of $11,141 in 1996
   and $1,696 in 1995)                                                                140,564             18,606
Mortgage servicing rights                                                             423,692            241,355
Other assets                                                                          443,063            295,325
                                                                                  -----------        -----------
   Total assets                                                                   $16,570,635        $14,646,245
                                                                                  ===========        ===========
         LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
Deposits                                                                          $ 8,501,883        $10,241,628
Securities sold under agreements to repurchase                                      1,583,387            969,510
Borrowings                                                                          4,902,696          2,392,862
Other liabilities                                                                     354,076            279,099
                                                                                  -----------        -----------
   Total liabilities                                                               15,342,042         13,883,099
                                                                                  -----------        -----------
Minority interest-Bank preferred stock                                                309,376            300,730
Commitments and contingencies
Stockholders' equity:
   Floating rate cumulative perpetual preferred stock, $1.00 par value,
     liquidation value of $15,000 per share, 24,000 shares authorized,
     10,052.8 shares issued and outstanding                                           150,792                 --
   Class A common stock, $1.00 par value, 800 shares  authorized, 800 shares
      issued and outstanding                                                                1                  1
   Class B common stock, $1.00 par value, 200 shares authorized, 200 shares
      issued and outstanding                                                               --                 --
   Class C common stock, $1.00 par value, 250 shares authorized, 0 and
      169.5 shares issued and outstanding at December 31, 1996 and
      December 31, 1995, respectively                                                      --                 --
   Additional paid-in capital                                                          47,752            223,000
   Net unrealized holding gain on securities
     available for sale                                                                46,219             63,512
   Retained earnings (substantially restricted)                                       674,453            175,903
                                                                                  -----------        -----------
     Total stockholders' equity                                                       919,217            462,416
                                                                                  -----------        -----------
     Total liabilities, minority interest and stockholders' equity                $16,570,635        $14,646,245
                                                                                  ===========        ===========

</TABLE>

         See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>




                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                 YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                              1996             1995              1994
                                                                              ----             ----              ----
<S>                                                                      <C>              <C>                <C>     
Interest income:
   Loans receivable                                                      $   884,905      $   799,607        $  212,553
   Mortgage-backed securities available for sale                             115,983               --                --
   Mortgage-backed securities held to maturity                               135,103          212,880            43,015
   Covered assets                                                              1,413           10,705            29,991
   Loans held for sale                                                        61,595           24,257               583
   Securities available for sale                                              31,416               --                --
   Securities held to maturity                                                   257           26,885             4,820
   Interest-bearing deposits in other banks                                    3,127            1,511             2,177
                                                                         -----------      -----------        ----------
     Total interest income                                                 1,233,799        1,075,845           293,139
                                                                         -----------      -----------        ----------
Interest expense:
   Deposits                                                                  419,174          447,359           100,957
   Securities sold under agreements to repurchase                            120,280          104,957            18,863
   Borrowings                                                                268,346          182,499            80,025
                                                                         -----------      -----------        ----------
     Total interest expense                                                  807,800          734,815           199,845
                                                                         -----------      -----------        ----------
     Net interest income                                                     425,999          341,030            93,294
Provision for loan losses                                                     39,600           37,000             6,226
                                                                         -----------      -----------        ----------
     Net interest income after provision for loan losses                     386,399          304,030            87,068
                                                                         -----------      -----------        ----------
Noninterest income:
   Loan servicing fees, net                                                  123,887           70,265            10,042
   Customer banking fees and service charges                                  45,044           47,493            10,595
   Management fees                                                             9,694           15,141            13,121
   Gain (loss) on sale of loans, net                                          17,802             (26)             (158)
   Gain on sale of assets, net                                                38,118              173                 6
   Gain on sales of branches                                                 363,342               --                --
   Gain from termination of Assistance Agreement                              25,632               --                --
   Other income                                                               29,859           17,927             7,552
                                                                         -----------      -----------        ----------
     Total noninterest income                                                653,378          150,973            41,158
                                                                         -----------      -----------        ----------
Noninterest expense:
   Compensation and employee benefits                                        204,818          154,288            48,846
   Occupancy and equipment                                                    51,936           49,897            12,247
   Data processing                                                            10,491            9,787             2,888
   Savings Association Insurance Fund ("SAIF")
     deposit insurance premium                                                81,149           22,262             6,813
   Marketing                                                                  10,908           10,810             3,385
   Professional fees                                                          21,524           11,802             2,622
   Loan expense                                                               31,282           12,431             1,132
   Foreclosed real estate operations, net                                    (7,390)            (927)             (528)
   Amortization of intangible assets                                           9,445            1,474               222
   Other                                                                      76,406           60,729            18,671
                                                                         -----------      -----------        ----------
     Total noninterest expense                                               490,569          332,553            96,298
                                                                         -----------      -----------        ----------
Income before income taxes, extraordinary item and
   minority interest                                                         549,208          122,450            31,928
Income tax (benefit) expense                                                (73,131)         (57,185)             2,558
                                                                         -----------      -----------        -----------
Income before extraordinary item and minority interest                       622,339          179,635            29,370
Extraordinary item - (loss) gain on early extinguishment of
   debt, net                                                                 (1,586)            1,967             1,376
                                                                         -----------      ------------       -----------
Income before minority interest                                              620,753          181,602            30,746
Minority interest - Bank preferred stock dividends                            43,230           34,584                --
                                                                         -----------      -----------        ----------
     Net income                                                              577,523          147,018            30,746
Preferred stock dividends                                                      4,815               --                --
                                                                         -----------      -----------        ----------
     Net income available to common stockholders                         $   572,708       $  147,018        $   30,746
                                                                         ===========       ==========        ==========

</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, 1996, 1995 AND 1994
                                (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                           NET UNREALIZED
                                             COMMON STOCK                      ADDITIONAL   HOLDING GAIN                  TOTAL
                                      ---------------------------  PREFERRED    PAID-IN    ON SECURITIES     RETAINED  STOCKHOLDERS'
                                      CLASS A  CLASS B  CLASS C      STOCK      CAPITAL  AVAILABLE FOR SALE  EARNINGS     EQUITY
                                      -------  -------  -------      -----      -------  ------------------  --------     ------

<S>                                   <C>      <C>      <C>       <C>
Balance at December 31, 1993                $1      $--      $--    $     --    $   85,569     $      --    $  27,324    $112,894 
                                                                                                                                
Net income                                  --       --       --          --            --            --       30,746      30,746 
Issuance of class C common stock            --       --       --          --       210,376            --           --     210,376 
Issuance of the Bank's preferred                                                                                                
   stock                                    --       --       --          --       (12,144)           --           --     (12,144) 
Change in net unrealized holding                                                                                                  
   gain on securities available for sale    --       --       --          --            --        11,000           --      11,000 
                                           ---     ----     ----     -------    ----------     ---------    ---------    --------- 
                                                                                                                                  
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                                                                                                  
   gain 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                                                                                                  
  gain on securities available for sale     --       --       --          --            --       (17,293)          --     (17,293) 
                                          ----     ----     ----    --------    -----------    ---------    ---------   ----------  
                                                                                                                                  
Balance at December 31, 1996               $ 1      $--      $--    $150,792    $   47,752     $  46,219    $ 674,453    $919,217 
                                           ===      ===      ===    ========    ==========     =========    =========   ========= 
                                                                    

</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, 1996, 1995 AND 1994
                                (IN THOUSANDS)

<TABLE>
<CAPTION>
 
                                                                            1996                1995              1994
                                                                            ----                ----              ----
<S>                                                                   <C>                   <C>                <C>     
Cash flows from operating activities:
Net income                                                            $   577,523           $   147,018        $ 30,746
Adjustments to reconcile net income to net cash provided by
   (used in) operating activities:
   Amortization of intangible assets                                        9,445                 1,474             222
   (Accretion) amortization of purchase accounting
     premiums and discounts, net                                          (15,771)                 (946)            621
   Amortization of mortgage servicing rights                               90,981                33,892           3,604
   Provision for loan losses                                               39,600                37,000           6,226
   Provision for accrued termination and facilities costs                   8,679                12,772              --
   Gain on sales of assets, net                                           (38,118)                 (173)             (6)
   Gain on sale of branches                                              (363,342)                   --              --
   Gain on sales of foreclosed real estate                                (12,951)               (3,010)           (728)
   Loss on sale of loans, net                                              63,226                17,928             158
   Gain from termination of Assistance Agreement                          (25,632)                   --              --
   Extraordinary loss (gain) on early extinguishment
     of debt, net                                                           1,586                (1,967)         (1,376)
   Depreciation and amortization of office premises and
     equipment                                                             10,921                 8,884           2,493
   Amortization of deferred debt issuance costs                             1,811                   766             232
   FHLB stock dividend                                                     (7,018)               (6,951)         (3,188)
   Capitalization of originated mortgage servicing rights
     and excess servicing fees receivable                                 (81,028)              (17,902)             --
   Purchases and originations of loans held for sale                   (4,822,753)           (1,773,437)        (40,284)
   Proceeds from the sale of loans held for sale                        5,157,186             1,191,281          47,227
   Increase in other assets                                               (36,051)              (75,273)        (64,211)
   Decrease (increase) in accrued interest receivable                      20,991                (9,743)            759
   (Decrease) increase in other liabilities                               (96,316)               12,619         (22,224)
   Minority interest - Bank preferred stock                                43,230                34,584              --
                                                                      ------------          -----------         --------
       Total adjustments                                                  (51,324)             (538,202)        (70,475)
                                                                      -----------           -----------         --------
       Net cash provided by (used in) operating
         activities                                                       526,199              (391,184)        (39,729)
                                                                      ------------          ------------        ---------


                                                                                                             (Continued)
</TABLE>





                                      F-6

<PAGE>


         FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
          YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                         (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                             1996               1995              1994
                                                                             ----               ----              ----
<S>                                                                    <C>                  <C>             <C>       
Cash flows from investing activities:
 Acquisitions and divestitures:
   SFFed Acquisition                                                   $   (83,184)         $       --      $       --
   Home Federal Acquisition                                                 79,044                  --              --
   Mortgage loan servicing operations                                      (48,305)           (214,727)             --
   Branch Purchases                                                             --             501,351              --
   FN Acquisition                                                               --                  --        (526,813)
   Illinois Branch sale                                                         --                  --          31,263
  Purchases of securities available for sale                              (497,963)                 --          (5,939)
  Proceeds from sales of securities available for sale                      83,965                  --           5,939
  Proceeds from maturities of securities available for sale                250,869                  --              --
  Purchases of securities held to maturity                                  (9,303)           (162,845)       (152,068)
  Principal payments from securities held to maturity                            5                  --              --
  Purchases of mortgage-backed securities
     available for sale                                                   (149,724)                 --          (5,758)
  Proceeds from sales of mortgage-backed securities
     available for sale                                                         --                  --           5,758
  Principal payments on mortgage-backed securities
     available for sale                                                    475,186                  --              --
  Purchases of mortgage-backed securities held to maturity                      --             (19,825)        (58,125)
  Proceeds from maturities of mortgage-backed securities
     held to maturity                                                        1,250             344,475         108,754
  Principal payments on mortgage-backed securities
     held to maturity                                                      387,891             570,945         180,461
  Proceeds from sales of loans receivable                                  123,026             431,247         154,638
  Net decrease (increase) in loans receivable                            1,501,828             (86,193)        (69,025)
  Decrease in covered assets                                                39,349             272,254         279,930
  (Purchases) redemptions of FHLB stock, net                               (65,753)             25,565          28,281
  Purchases of office premises and equipment                               (42,368)            (15,331)         (2,555)
  Proceeds from the disposal of office premises
     and equipment                                                           4,071               1,667           1,427
  Proceeds from sales of foreclosed real estate                            156,890              71,453          25,763
  Purchases of mortgage servicing rights                                   (65,994)               (774)           (444)
                                                                       -----------          ----------      ----------
     Net cash provided by investing activities                           2,140,780           1,719,262           1,487
                                                                       -----------          ----------      ----------


                                                                                                            (Continued)
</TABLE>


                                      F-7

<PAGE>


         FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES
        CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
          YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
                         (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        1996               1995              1994
                                                                        ----               ----              ----
<S>                                                                 <C>               <C>             <C>         
Cash flows from financing activities:
  Branch Sales                                                      $ (4,585,022)     $         --    $         --
  Net (decrease) increase in deposits                                    (56,694)          542,633        (83,851)
  Proceeds from additional borrowings                                 10,710,331         6,151,319       1,472,160
  Principal payments on borrowings                                    (8,484,883)       (6,860,569)     (2,239,248)
  Net (decrease) increase in securities sold under
   agreements to repurchase                                             (202,169)         (913,103)        534,998
  Issuance of preferred stock                                            144,249                --              --
  Issuance of class C common stock                                            --                --         210,376
  Redemption of class C common stock                                    (124,670)          (60,801)             --
  Dividends on common stock                                              (72,216)          (29,185)             --
  Dividends on preferred stock                                            (4,023)               --              --
  Dividends paid to minority shareholders of the Bank                    (34,584)          (34,584)             --
  Minority interest - issuance of First Nationwide
   preferred stock                                                            --                --         288,586
                                                                    ------------      ------------    ------------
      Net cash (used in) provided by
        financing activities                                          (2,709,681)       (1,204,290)        183,021
                                                                    ------------      ------------    ------------

Net change in cash and cash equivalents                                  (42,702)          123,788         144,779
                                                                    ------------      ------------    ------------
Cash and cash equivalents at beginning of year                           312,571           188,783          44,004
                                                                    ------------      ------------    ------------
Cash and cash equivalents at end of year                            $    269,869      $    312,571    $    188,783
                                                                    ============      ============    ============


</TABLE>











         See accompanying notes to consolidated financial statements.

                                      F-8

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(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,  formerly
First Nationwide Bank, A Federal Savings Bank ("First  Nationwide" or "Bank"),
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").

     First Nationwide 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 August 9, 1989, the
FSLIC was abolished and its  obligations  and rights were assumed by the FSLIC
Resolution Fund ("FSLIC/RF").

     Acquisition  of  the  Closed  Associations  was  made  pursuant  to  five
substantially  similar  acquisition  agreements  and an  assistance  agreement
("Assistance Agreement") among the FSLIC/RF, First Gibraltar,  First Gibraltar
Holdings,  and M&F Holdings, and became effective on December 28, 1988. 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 First  Nationwide for
90% of the losses  incurred upon  disposition of the Covered Assets  ("Capital
Loss  Coverage").  In  January  1992,  certain  provisions  of the  Assistance
Agreement were renegotiated and amended or modified.

     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.  Subsequent to
the BAC  Sale,  First  Gibraltar  changed  its name to First  Madison  and its
principal business consisted of funding the Covered Assets and the performance
of its obligations under the Assistance Agreement.

     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.

     On October 7, 1994 the Bank sold the FN Acquired Business' branch network
in Illinois,  with approximately $1.2 billion in deposits,  to Household Bank,
f.s.b.

     Following the FN Acquisition, the Bank's principal business has consisted
of operating retail deposit branches and originating and/or purchasing one- to
four-family  real  estate  mortgage  loans and,  to a lesser  extent,  certain
consumer  loans.  The Bank actively  manages its portfolio of commercial  real
estate  loans  acquired  through  acquisitions  and is also active in mortgage
banking  and  loan  servicing.   These   operating   activities  are  financed
principally  with  customer   deposits,   secured   short-term  and  long-term
borrowings,  collections on loans and mortgage-backed securities,  asset sales
and retained earnings.



                                      F-9

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     During  1995,  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").  Any losses sustained
by First  Nationwide  as a result of the FDIC  Purchase  have been  reimbursed
under the Capital Loss  Coverage  provision of the  Assistance  Agreement.  On
August 19, 1996,  First  Nationwide  and the FDIC executed an agreement  which
resulted  in the  termination  of the  Assistance  Agreement.  A gain of $25.6
million was recognized in connection with such termination.

     On July 27,  1996,  FN Holdings  entered  into 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  ("California
Federal"),  pursuant to which on January 3, 1997, FN Holdings acquired 100% of
the outstanding  stock of Cal Fed and California  Federal and First Nationwide
merged with and into  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 California
Federal. California Federal, headquartered in Los Angeles, was a federal stock
savings bank  chartered  under the Home Owners'  Loan Act  ("HOLA"),  which 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 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 and
assumed $575 million of 10-5/8% senior subordinated notes due 2003.

     In November 1996,  First  Nationwide  formed First  Nationwide  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.  On January 31,  1997,  Preferred
Capital  Corp.  issued $500 million of its 9-1/8%  noncumulative  exchangeable
preferred  stock,  which will be reflected in the Company's 1997  consolidated
statement of financial condition as minority interest. Preferred Capital Corp.
has  entered  into a  subservicing  agreement  with the  Bank's  wholly  owned
mortgage banking subsidiary,  First Nationwide Mortgage  Corporation  ("FNMC")
pursuant to which FNMC will service Preferred Capital Corp.'s mortgage assets.
Effective  on January 6, 1997,  Preferred  Capital  Corp.  changed its name to
California Federal Preferred Capital Corporation.

(2)  ACQUISITIONS & DIVESTITURES

     Since the FN Acquisition,  First Nationwide has consummated the following
transactions in 1995 and 1996.

     Maryland Acquisition

     On February 28, 1995, FNMC acquired the mortgage servicing  operations of
the former  Standard  Federal Savings  Association in Frederick,  Maryland for
approximately $178 million (the "Maryland  Acquisition").  As a result of this
transaction,  the Bank  acquired  certain  assets and  liabilities  and a loan
servicing  portfolio of approximately  $11.4 billion (including a subservicing
portfolio of $1.8 billion).  The  transaction was accounted for as a purchase.
Accordingly,  the accompanying  consolidated  statements of operations include
the results of the acquired mortgage servicing operations for the period since
March 1, 1995.

     Branch Purchases

     In April 1995, First  Nationwide  acquired  approximately  $13 million in
deposits  located in Tiburon,  California,  from  East-West  Federal  Bank,  a
federal  savings  bank (the  "Tiburon  Purchase").  In August  1995,  the Bank
acquired  three retail  branches  located in Orange  County,  California  with
deposit accounts  totalling  approximately $356 million from ITT Federal Bank,
fsb, (the "ITT Purchase").  On December 8, 1995, the Bank acquired four retail
branches  located  in Sonoma  County,  California  with  deposit  accounts  of
approximately $144 million from Citizens Federal Bank, a Federal

                                     F-10

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Savings  Bank  (the  "Sonoma  Purchase"  and,  collectively  with the  Tiburon
Purchase and the ITT Purchase, the "Branch Purchases").  The aggregate amounts
received from the sellers in the Branch Purchases totalled $501 million.

     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 payable in
installments,  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  payable  in  installments  (the  "LMUSA  1996
Purchase" and, together with the LMUSA 1995 Purchase, the "LMUSA Purchases").

      1996 Acquisitions

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

<TABLE>
<CAPTION>

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

<S>                                  <C>                <C>             <C>                <C>    
Cash and cash equivalents            $   181,061        $      --       $   181,061          --
Mortgage-backed securities               918,817           11,007           929,824         1-5
Loans receivable, net                  2,715,758          (23,245)        2,692,513        2-12
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)          (5,898)          (56,703)        1-5
                                     -----------        ---------       -----------
                                      $  196,149        $ (47,240)          148,909
                                     ===========        =========
Purchase price                                                              264,245
                                                                            -------
Excess cost over fair value
     of net assets acquired                                             $   115,336          15
                                                                        ===========

</TABLE>

     In connection with the SFFed Acquisition, FN Holdings issued $140 million
of 9-1/8%  Senior  Subordinated  Notes Due 2003 (the  "Senior  Sub Notes") and
contributed  the proceeds  thereof of $133  million to the Bank as  additional
paid-in capital, which augmented the Bank's regulatory capital to maintain its
"well-capitalized" status after the SFFed Acquisition.


                                     F-11

<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           3,983             542,705        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)         (4,509)             (8,111)        1-5
                                                    ----------      ----------         ----------
                                                    $   50,950      $       87             51,037
                                                    ==========      ==========
Purchase price                                                                             67,823
                                                                                           ------
Excess cost over fair value
     of net assets acquired                                                            $   16,786           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 operations.


                                     F-12

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

      Branch Sales

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

                                  Sale                                Carrying Value at
                              Consummation       Number of            Respective Sale Date           Pre-tax
Branch Location                  Date            Branches         Deposits           Assets           Gain
---------------                  ----            --------         --------           ------           ----
<S>                           <C>                                                                           (dollars in thousands)

New York                        1/12/96              7          $   416,476         $  5,997        $  32,991
Ohio                            1/19/96             28            1,392,561           20,480          130,660
New York                        2/23/96              3              270,046            1,838           17,027
New York                        3/15/96              5              615,572            8,083           48,933
New Jersey                      3/22/96              4              501,262            6,396           36,268
New York                        3/22/96             11              637,045            9,465           41,286
Michigan                        6/28/96             21              799,226           15,060           56,177
                                                    --           ----------          -------         --------

                                                    79           $4,632,188          $67,319         $363,342
                                                    ==           ==========          =======         ========

</TABLE>

     The following  unaudited  pro forma  financial  information  combines the
historical  results  of  the  Company  as  if  the  SFFed  Acquisition,  LMUSA
Purchases,  Branch Sales and the issuance of the Senior Sub Notes had occurred
as of the beginning of the first year presented (in thousands):

                                           Year ended December 31,
                                           -----------------------
                                           1996          1995
                                           ----          ----
     Net interest income                 $429,076       $364,367
     Net income                           245,014        159,221
                                         ========       ========

     The gains  recognized  related to the Branch Sales are excluded  from the
above  table.  The pro forma  information  does not  include the effect of the
Maryland  Acquisition,  the Home Federal  Acquisition or the Branch  Purchases
because such effect is not material to the consolidated  financial statements.
The pro forma  results are not  necessarily  indicative  of the results  which
would have actually been obtained if the SFFed  Acquisition,  LMUSA Purchases,
Branch Sales and the issuance of the Senior Sub Notes 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  level  yield  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)


(3)  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.  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 Bank to maintain  non-interest  bearing cash  reserves
equal to a  percentage  of certain  deposits.  The  reserve  balance for First
Nationwide at December 31, 1996 was $2.0 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 earnings.
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.

     The Financial Accounting Standards Board ("FASB") issued a Special Report
in November  1995, "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.

     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-family  residential  mortgage loans  originated and intended
for sale in the secondary market and other loans which are expected to be sold
in the  near  term  are  carried  at the  lower  of 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 one- to four-family  residential  mortgage 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 33.

     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) Impaired Loans

     Effective  January 1, 1995,  the Company  adopted  Statement of Financial
Accounting  Standards No. 114,  "Accounting  by Creditors for  Impairment of a
Loan"  ("SFAS No.  114"),  as amended by  Statement  of  Financial  Accounting
Standards No. 118,  "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures"  ("SFAS No. 118").  Under SFAS No. 114, 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. 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. SFAS No. 114 does not apply to large groups of
smaller  balance  homogeneous  loans  that  are  collectively   evaluated  for
impairment. For

                                     F-15

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


FN Holdings, 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. The 
adoption of SFAS No.  114, as amended by SFAS No.  118,  had no material impact
on the Company's  consolidated  financial statements as the Company's existing
policy of measuring loan impairment was consistent  with methods  prescribed 
in these standards.

     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,  FN Holdings considers large
non-   homogeneous   loans   including   nonaccrual   loans,   troubled   debt
restructurings,    and   performing   loans   which   exhibit,   among   other
characteristics, high loan-to-value ratios, low debt-coverage ratios, or other
indications that the borrowers are experiencing  increased levels of financial
difficulty. The Company bases the measurement of collateral-dependent impaired
loans, which represent  substantially all of the Company's loan portfolio,  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.

     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.

     (g) 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 as an adjustment to yield.

     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.


                                     F-16

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (h) 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  Bank,  a
liability  is recorded  representing  the  difference  between the net present
value 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.

     (i) Foreclosed Real Estate

     Real estate acquired through  foreclosure is carried at the lower of cost
or 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.

     (j) 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.

     The Company's adoption of Statement of Financial Accounting Standards No.
121,  "Accounting  for the Impairment of Long-Lived  Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121")  effective  January 1, 1996,  which
provides  guidance  for the  recognition  and  measurement  of  impairment  of
long-lived assets,  certain  identifiable  intangibles and goodwill related to
assets to be held and used by an entity and assets to be  disposed  of, had no
material impact on the Company's consolidated financial statements.

     (k) Mortgage Servicing Rights

     The Company  purchases  mortgage  servicing  rights  separately or it may
acquire 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
are  recorded  at the  lower of the  capitalized  amount,  net of  accumulated
amortization, or fair value.

     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.



                                     F-17

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     On May 12,  1995,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 122,  "Accounting for Mortgage Servicing Rights, an amendment to
Statement No. 65" ("SFAS No. 122").  This statement  provides guidance for the
recognition of mortgage  servicing  rights as an asset when a mortgage loan is
sold and  servicing  rights are  retained.  The Company  elected to adopt this
standard effective April 1, 1995. The result of the adoption was to capitalize
approximately $71 million and $17 million in mortgage servicing rights related
to loans originated by the Company in 1996 and 1995, respectively.

     SFAS  No.  122  requires  that a  portion  of the cost of  originating  a
mortgage loan be allocated to the mortgage  servicing rights based on its fair
value. To determine the fair value of mortgage  servicing rights created since
April 1,  1995,  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.

     SFAS No. 122 requires  enterprises to measure 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, including those capitalized prior to
adoption of SFAS No. 122, 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  carrying  value  of  mortgage   servicing  rights  is  amortized  in
proportion  to, and over the period of,  estimated  net  servicing  income.  A
decline in long-term  interest rates  generally  results in an acceleration in
mortgage loan  prepayments.  Higher levels of  prepayments  would result in an
acceleration  of the  amortization  of mortgage  servicing  rights,  causing a
reduction in the Company's servicing fee income. However,  further declines in
long-term  interest  rates  could  cause  the level of  prepayments  to exceed
management's estimates.

     The Company has employed 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 18. The
premium paid by the Company on the interest rate floor  contracts is amortized
against the carrying  value of mortgage  servicing  rights based on the option
decay  rate.  Amounts  receivable  or payable  under the  principal-only  swap
agreements are recorded as a separate asset or liability  which is included in
the carrying value of mortgage servicing rights.

     (l) Gains/Losses on Sales of Mortgage Loans

     Mortgage  loans are  generally  sold with the mortgage  servicing  rights
retained by the Company.  Effective with the adoption of SFAS No. 122 on April
1, 1995,  the  carrying  value of mortgage  loans sold was 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. Such
gains and losses are adjusted by the amount of excess servicing fees recorded.
Excess  servicing  exists when the  servicing fee on a mortgage loan sold with
servicing  retained  exceeds a "normal"  servicing fee (typically .25% to .44%
per annum of the mortgage loan principal amount). The gain or loss is adjusted
to provide for the recognition of a normal service fee rate over the estimated
lives of the loans. 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.


                                     F-18

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     (m) Servicing Fee Income

     Servicing fee income  represents  the fees earned for servicing  mortgage
loans  under  servicing   agreements  with  the  Federal   National   Mortgage
Association  ("FNMA"),  the Federal Home Loan Mortgage Corporation  ("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.  Amortization of capitalized excess servicing is netted against loan
servicing fees to reflect a normal  servicing fee. The  amortization of excess
servicing fees and mortgage  servicing rights is netted against  servicing fee
income.

     (n) 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 terms of the liability.

     (o) 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 deferred tax assets and  liabilities of a
change in tax rates is  recognized  in income in the period that  includes the
enactment date.

     (p) Extraordinary Gain or Loss from Extinguishment of Debt

     During 1996, First Nationwide repurchased $44 million aggregate principal
amount of the $50  million in Senior  Notes  assumed in the SFFed  Acquisition
resulting in an  extraordinary  loss of  approximately  $1.6  million,  net of
income  taxes,  on the  early  extinguishment  of  debt.  During  1995,  First
Nationwide 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. During 1994, First Nationwide prepaid $95.2
million in FHLB advances  resulting in an extraordinary  gain of approximately
$1.4 million, net of income taxes, on the early extinguishment of debt.

                                     F-19

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     (q) Management's Use of Estimates

     The  preparation  of 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.

     (r) Reclassification

     Certain amounts within the  consolidated  financial  statements have been
reclassified to conform to the current year presentation.

     (s) Fair Value of Financial Instruments

     Statement of Financial Accounting  Standards No. 107,  "Disclosures about
Fair Value of Financial Instruments" ("SFAS No. 107"), requires the disclosure
in the financial  statements,  or notes thereto, of fair value information for
financial  instruments,  as defined,  whether or not recognized in the balance
sheet, for which it is practical to estimate fair value. In cases where quoted
market  prices are not  available,  fair values are based on  estimates  using
present  value  or  other   valuation   techniques.   Those   techniques   are
significantly  affected by the assumptions  used,  including the discount rate
and estimates of future cash flows. Fair values, estimates and assumptions are
set forth in note 34.

     (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.

     SFAS No. 125 is effective for transfers and servicing of financial assets
and  extinguishments of liabilities  occurring after December 31, 1996, and is
to be  applied  prospectively.  Earlier  or  retroactive  application  is  not
permitted. 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.
Although  the Company has not yet adopted  SFAS No. 125,  management  does not
expect such adoption to have a material  impact on the Company's  consolidated
financial statements.


                                     F-20

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(4)  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (in thousands)

     Cash paid for  interest for the years ended  December 31, 1996,  1995 and
1994 was $812,547, $702,254 and $184,499, respectively.

     During the year ended December 31, 1996,  noncash  activity  consisted of
transfers from loans  receivable to foreclosed  real estate of $109.8 million,
the  reclassification  of certain  consumer  loans from loans held for sale to
loans receivable  totalling $27.7 million,  a reduction of 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,  noncash  activity  consisted of
the  reclassification  of $1.5 billion and $231.8 million historical  carrying
value  of   mortgage-backed   securities  and  U.  S.  government  and  agency
securities,   respectively,   from  the  held-to-maturity   portfolio  to  the
available-for-sale  portfolio  (see note 3). In  addition,  $326.0  million of
consumer loans were reclassified from loans receivable to loans held for sale,
transfers from loans  receivable to foreclosed  real estate  amounted to $79.6
million,   and  $376.3  million  was  transferred  from  loans  receivable  to
mortgage-backed   securities   to  be  held  to  maturity   representing   the
securitization of certain of the Bank's qualifying single-family loans.

     During the year ended December 31, 1994,  noncash  activity  consisted of
the transfer of $21.8 million from loans  receivable to foreclosed real estate
and the  transfer of $1.3  billion from loans  receivable  to  mortgage-backed
securities to be held to maturity  representing the  securitization of certain
of the Bank's qualifying  single-family loans. The transfer to foreclosed real
estate was net of a $4 million write-down,  which was recorded as a receivable
from the FSLIC/RF (other assets), resulting from the expiration of coverage of
a multi-family residential commercial loan.


                                     F-21

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(5)   SECURITIES AVAILABLE FOR SALE

     At December  31,  1996 and 1995,  securities  available  for sale and the
related unrealized gain or loss consisted of the following (in thousands):

<TABLE>
<CAPTION>

                                                                         DECEMBER 31, 1996
                                                   ----------------------------------------------------------------
                                                                  GROSS        GROSS         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
                                                                                           =======

<CAPTION>

                                                                         DECEMBER 31, 1995
                                                  -----------------------------------------------------------------
                                                                  GROSS        GROSS         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>

     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, 1996
                                                        ---------------------------------------------
                                                                                             WEIGHTED
                                                          AMORTIZED         CARRYING          AVERAGE
                                                            COST              VALUE            YIELD
                                                            ----              -----            -----
<S>                                                       <C>              <C>                 <C>    
         Marketable equity securities                     $27,034          $  61,988             --
         U.S. government and agency obligations:
              Maturing within 1 year                      157,673            157,807           5.74%
              Maturing after 1 year but
                   within 5 years                         322,644            322,224           6.75
              Maturing after 5 years
                  through 10 years                             --                 --            --
                                                         --------           --------          -----
                  Total                                  $507,351           $542,019           6.42%
                                                         ========           ========           ====

</TABLE>


     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.  This  reclassification  resulted  in a  net
after-tax  increase in the unrealized gain account in stockholders'  equity of
$2.4 million.

     At December 31, 1996, U.S.  government and agency  obligations  available
for sale of $91.6 million were pledged as collateral for various obligations.


                                                       F-22

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     Marketable  equity  securities  available  for sale at December  31, 1996
represents approximately 5.93% of the outstanding stock of Affiliated Computer
Services  ("ACS"),  representing  2.24% of the voting power,  with an original
cost basis of $27  million.  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,  First  Nationwide  sold
2,000,000  shares of its  investment  in common  stock of ACS and acquired the
FDIC's  interest in the  remaining  shares of ACS owned by the Bank. A pre-tax
gain of $40.4  million  resulted from this  transaction  and was recorded as a
gain on sale of assets in the 1996 consolidated  statement of operations.  The
ACS stock  represented  the only  marketable  equity  security  classified  as
available for sale at December 31, 1996 and 1995.


                                     F-23

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(6)  SECURITIES HELD TO MATURITY

     At December 31, 1996 and 1995 securities held to maturity  consist of the
following (in thousands):


<TABLE>
<CAPTION>

                                                                      DECEMBER 31, 1996
                                               -----------------------------------------------------------
                                                                  GROSS            GROSS
                                               AMORTIZED       UNREALIZED       UNREALIZED        ESTIMATED
                                                 COST             GAINS           LOSSES         FAIR VALUE
                                                 ----             -----           ------         ----------

<S>                                              <C>              <C>               <C>             <C>   
     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
                                                 ======             ===             ====            ======

<CAPTION>

                                                                      DECEMBER 31, 1995
                                               ------------------------------------------------------------
                                                                  GROSS             GROSS
                                               AMORTIZED       UNREALIZED        UNREALIZED        ESTIMATED
                                                 COST             GAINS            LOSSES         FAIR VALUE
                                                 ----             -----            ------         ----------

<S>                                            <C>                 <C>              <C>             <C>   
     Municipal securities                      $1,455              $ --             $ --            $1,455
                                               ======              ====             ====            ======

</TABLE>

     As  discussed  in  note  3  to  the  consolidated  financial  statements,
securities  with a carrying  value of $231.8  million were  reclassified  from
securities  held to maturity to securities  available for sale at December 29,
1995.

     The weighted average stated interest rates on securities held to maturity
were 6.85% and 8.25% at December 31, 1996 and 1995, 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
                                                            ----              -----           -----
    Municipal securities:
<S>                     <C>                                <C>               <C>              <C> 
        Maturing within 1 year                             $   --            $   --            --
        Maturing after 1 year but within 5 years               --                --            --
        Maturing after 10 years                               190               190           8.25%
    U.S. government and agency obligations:
        Maturing within 1 year                              3,800             3,815           6.88
    Commercial paper:
        Maturing within 1 year                                282               282           5.52
                                                           ------            ------           ----
             Total                                         $4,272            $4,287           6.85%
                                                           ======            ======           ====

</TABLE>

                                     F-24

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(7)   MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

     At December 31, 1996 and 1995,  mortgage-backed  securities available for
sale and the related  unrealized  gain or loss  consisted of the following (in
thousands):

<TABLE>
<CAPTION>

                                                                           DECEMBER 31, 1996
                                                                           -----------------
                                                                     GROSS        GROSS         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
                                                                                               =======

<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>

     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, 1996
                                                     -------------------------------------------------
                                                                                             WEIGHTED
                                                          AMORTIZED         CARRYING          AVERAGE
                                                            COST              VALUE            YIELD
                                                            ----              -----            -----
<S>                                                     <C>                <C>                  <C>  
  Mortgage-backed securities:
    GNMA                                                $   67,130         $   67,687           8.37%
    FNMA                                                   523,894            523,965           6.55
    FHLMC                                                  626,267            643,072           7.54
    Collateralized mortgage obligations                    364,675            363,928           6.63
                                                        ----------         ----------           ----
      Total                                             $1,581,966         $1,598,652           7.04%
                                                        ==========         ==========           ====

</TABLE>

     On December 29, 1995, the Company  reclassified  $1.5 billion in carrying
value  of  mortgage-backed  securities  from  held-to-maturity  to  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, 1996 and 1995,  mortgage-backed  securities available for
sale  included   securities   totalling   $53.0  million  and  $63.4  million,
respectively,  which resulted from the  securitization  of certain  qualifying
mortgage loans from First Nationwide's loan portfolio.

                                     F-25

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


   At December 31, 1996 and 1995, mortgaged-backed securities available for
sale included $1.1 billion and $979.0 million, respectively, of variable-rate
securities.

     At December 31, 1996, mortgage-backed securities available for sale of
 $936.2 million were pledged as collateral for various obligations as further
discussed in notes 20, 21and 33. Further, at December 31, 1996,
mortgage-backed securities available for sale with a carrying value of $33.4
million were pledged to FNMA associated with the sales of certain securitized
multi-family loans.

(8)  MORTGAGE-BACKED SECURITIES HELD TO MATURITY

     At  December  31,  1996  and  1995,  mortgage-backed  securities  held to
maturity consist of the following (in thousands):
<TABLE>
<CAPTION>

                                                                     DECEMBER 31, 1996
                                                  ---------------------------------------------------------
                                                                       GROSS        GROSS
                                                      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
                                                    ----------        -------        ---         ----------
                                                    $1,621,662        $32,255        $(70)       $1,653,847
                                                    ==========        =======        ====        ==========

<CAPTION>

                                                                      DECEMBER 31, 1995
                                                   ---------------------------------------------------------
                                                                       GROSS        GROSS
                                                      AMORTIZED     UNREALIZED   UNREALIZED      ESTIMATED
                                                        COST           GAINS       LOSSES       FAIR VALUE
                                                        ----           -----       ------       ----------
<S>                                                 <C>               <C>           <C>         <C>        
    FHLMC                                           $  533,208        $15,285       $ --        $   548,493
    FNMA                                               988,700         27,424         --          1,016,124
    Other mortgage-backed securities                     2,580             --         --              2,580
                                                    ----------        -------       ----         ----------
                                                    $1,524,488        $42,709       $ --         $1,567,197
                                                    ==========        =======       ====         ==========

</TABLE>


     Mortgage-backed  securities  with a carrying  value of $1.5  billion were
reclassified   from   mortgage-backed   securities   held   to   maturity   to
mortgage-backed  securities  available  for sale on  December  29,  1995.  The
weighted average stated interest rates on  mortgage-backed  securities held to
maturity were 7.27% and 7.46% at December 31, 1996 and 1995, respectively.  At
December  31,  1996 and  1995,  mortgage-backed  securities  held to  maturity
included  variable rate  securities  totalling  $1.6 billion and $1.5 billion,
respectively,  which resulted from the  securitization  of certain  qualifying
mortgage loans from First  Nationwide's  loan  portfolio,  and which have been
securitized with FNMA and FHLMC with full recourse to the Bank.

     At December 31, 1996, mortgage-backed securities held to maturity of $1.4
billion  were  pledged  as  collateral  for  various  obligations  as  further
discussed in notes 20, 21 and 33.

(9)  LOANS HELD FOR SALE, NET

     Loans held for sale at the lower of aggregate amortized cost or estimated
market value, are summarized as follows:
<TABLE>
<CAPTION>
                                                         1996              1995
                                                         ----              ----
<S>                                                   <C>             <C> 
        1-4 unit residential real estate loans        $825,316        $  877,393
         Consumer loans                                      --           326,019
                                                       --------        ----------
                                                       $825,316        $1,203,412
                                                       ========        ==========

</TABLE>
     At December 31, 1996,  loans held for sale of $120.7 million were pledged
as collateral for securities sold under agreements to repurchase.

                                     F-26

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(10)  LOANS RECEIVABLE, NET

     At December  31,  1996 and 1995,  loans  receivable,  net,  included  the
following (in thousands):

                                                     1996               1995
                                                     ----               ----
     Real estate loans:
          1-4 unit residential                    $ 6,117,974       $ 5,423,411
          5+ unit residential                       2,163,992         1,854,333
          Commercial                                1,977,732         1,716,121
          Construction                                 11,242                --
          Land                                         11,074             8,840
                                                  -----------        ----------
                                                   10,282,014         9,002,705
          Undisbursed loan funds                      (4,669)                --
                                                  ----------         ----------
              Total real estate loans              10,277,345         9,002,705
                                                  -----------        ----------
     Equity-line loans                                243,011           110,830
     Other consumer loans                              64,812            60,106
     Commercial loans                                  29,651             1,913
                                                  -----------        ----------
              Total consumer and other loans          337,474           172,849
                                                  -----------        ----------
              Total loans receivable               10,614,819         9,175,554
     Deferred fees and unearned premiums                4,740            19,423
     Allowance for loan losses                      (246,556)         (210,484)
     Purchase accounting discounts, net             (150,624)         (153,475)
                                                  ----------         ---------
              Total loans receivable, net         $10,222,379        $8,831,018
                                                  ===========        ==========

     The Bank's lending  activities are  principally  conducted in California,
Georgia, Texas and Florida.

     At December 31, 1996,  $7.1 billion in residential  loans were pledged as
collateral for FHLB advances as further discussed in note 21.

     As a result  of the FN  Acquisition,  the Bank  assumed  obligations  for
certain loans sold with recourse.  The outstanding balances of loans sold with
recourse at December 31, 1996 totalled $490.9 million. No loans were sold with
recourse  during the years ended  December 31, 1996,  1995 and 1994.  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.

                                     F-27

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     The following table indicates the carrying value of loans which have been
placed on nonaccrual status as of the dates indicated (in thousands):

                                                           AT DECEMBER 31,
                                                  -----------------------------
                                                     1996               1995
                                                     ----               ----
Nonaccrual loans:
     Real estate:
         1-4 unit residential                       $146,283          $135,710
         5+ unit residential                          12,713            23,253
         Commercial and other                          9,406             9,280
         Land                                             --               136
         Construction                                    788                --
                                                    --------          --------
                  Total real estate                  169,190           168,379
         Non-real estate                               3,032             3,159
                                                    --------          --------
                  Total nonaccrual loans            $172,222          $171,538
                                                    ========          ========

     The following table  indicates the carrying value of loans  classified as
troubled debt restructurings, as of December 31, 1996 and 1995 (in thousands):

                                                             AT DECEMBER 31,
                                                  ------------------------------
                                                      1996               1995
                                                      ----               ----
     1-4 unit residential real estate                $  3,113          $  8,479
     5+ unit residential real estate                   67,621           146,971
     Commercial and other real estate                  54,057            79,000
                                                     --------          --------
         Total restructured loans                    $124,791          $234,450
                                                     ========          ========

     At December  31, 1996,  the  Company's  loan  portfolio  totalling  $10.6
billion is concentrated in California.  The financial condition of the Company
and the Bank are 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 further 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  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, 1996 and 1995 (in thousands).

<TABLE>
<CAPTION>

                                                               DECEMBER 31, 1996             DECEMBER 31, 1995
                                                               -----------------             -----------------
                                                           RECOGNIZED    CONTRACTUAL     RECOGNIZED    CONTRACTUAL
                                                           ----------    -----------     ----------    -----------
<S>                                                          <C>            <C>            <C>            <C>    
Restructured loans                                           $12,977        $13,430        $22,098        $33,093
Nonaccrual loans                                               4,860         13,752          6,136         15,329
                                                             -------        -------        -------        -------
                                                             $17,837        $27,182        $28,234        $48,422
                                                             =======        =======        =======        =======

</TABLE>

     At December 31, 1996 and 1995, the Bank and its wholly-owned  subsidiary,
FGB Realty Advisors,  Inc., managed principally  non-performing loan and asset
portfolios  totalling  $1.0  billion  and  $1.3  billion,   respectively,  for
investors. Revenues related to such activities are included in management fees
in the accompanying statements of operations.


                                     F-28

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     Activity in the  allowance  for loan losses for the years ended  December
31, 1996, 1995 and 1994 is summarized as follows (in thousands):


                                      1996             1995              1994
                                      ----             ----              ----
Balance - January 1                $210,484          $202,780         $  2,250
Purchases, net                       38,486                --          201,927
Provision for loan losses            39,600            37,000            6,226
Charge-offs                         (44,785)          (32,344)          (9,676)
Recoveries                            2,771             3,048            2,053
                                   --------         ---------         --------
Balance - December 31              $246,556          $210,484         $202,780
                                   ========          ========         ========


     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 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.

     Upon  receipt  of the  proceeds  from  the  issuance  of the FN  Holdings
Preferred Stock (as defined herein) to a corporation  owned by the Chairman of
the Board of the Bank,  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 to FN Holdings.

(11)  IMPAIRED LOANS

     The  Company's  adoption  of SFAS No.  114,  as amended by SFAS No.  118,
effective   January  1,  1995,  had  no  material   impact  on  the  Company's
consolidated   financial  statements  as  the  Company's  existing  policy  of
measuring  loan  impairment was  consistent  with methods  prescribed in these
standards.

     At December 31, 1996,  the carrying value of loans that are considered to
be impaired under SFAS No. 114 totalled $102.1 million (of which $22.6 million
were on nonaccrual status).  The average recorded investment in impaired loans
during the year ended December 31, 1996 was approximately  $103.7 million. For
the year ended December 31, 1996, the Company  recognized  interest  income on
those impaired loans of $10.7 million,  which included $.3 million of interest
income recognized using the cash basis method of income recognition.

     At December 31, 1995,  the carrying value of loans that are considered to
be impaired under SFAS No. 114 totalled $125.4 million (of which $29.6 million
were on nonaccrual status).  The average recorded investment in impaired loans
during the year ended December 31, 1995 was approximately  $125.5 million. For
the year ended December 31, 1995, the Company  recognized  interest  income on
those impaired loans of $12.9 million,  which included $.2 million of interest
income recognized using the cash 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 at December 31, 1996, 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.

                                     F-29

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(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.  The  purchase  price  represents  the  outstanding
principal balance, accrued interest and certain other expenses.

(13)  RECEIVABLES FROM THE FSLIC/RF -- COVERED ASSETS

     In June 1995,  the FDIC, as manager of the 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 as part of the FDIC
Purchase.  Any losses  sustained by First  Nationwide  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 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 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, 1996 and 1995. At
December  31,  1996,  the  Bank's  investment  in FHLB  stock was  pledged  as
collateral for FHLB advances as further discussed in note 21.


                                     F-30

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(15)  OFFICES PREMISES AND EQUIPMENT, NET

     Office  premises  and  equipment,  net at  December  31, 1996 and 1995 is
summarized as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                                           ESTIMATED
                                                                                                          DEPRECIABLE
                                                                                                            LIVES AT
                                                                        1996             1995          DECEMBER 31, 1996
                                                                        ----             ----          -----------------
<S>                                                                  <C>                <C>                       <C>   
     LAND                                                            $ 19,084           $ 17,952                  --
     BUILDINGS AND LEASEHOLD IMPROVEMENTS                              40,103             46,652                  25
     FURNITURE AND EQUIPMENT                                           50,559             37,697                   6
     CONSTRUCTION IN PROGRESS                                          10,601              2,471                  --
                                                                     --------           --------                    
                                                                      120,347            104,772
     ACCUMULATED DEPRECIATION AND AMORTIZATION                       (20,183)           (11,263)
                                                                     -------            -------- 
     TOTAL OFFICE PREMISES AND EQUIPMENT, NET                        $100,164           $ 93,509
                                                                     ========           ========

</TABLE>


     Depreciation and amortization expense of office premises and equipment 
for the years ended December 31, 1996, 1995 and 1994 totalled $10.9 million, 
$8.8 million and $2.5 million, respectively.  

     First Nationwide rents certain office premises and equipment under 
long-term, noncancelable operating leases expiring at various dates through 
2015.  Rental expense under such operating leases, included in occupancy and 
equipment expense, for the years ended December 31, 1996, 1995 and 1994 
totalled $19.3 million, $22.6 million and $4.2 million, respectively.  Rental 
income from subleasing agreements for the years ended December 31, 1996, 1995 
and 1994 totalled $1.6 million, $2.2 million and $.4 million, respectively.  At
December 31, 1996, the projected minimum rental commitments, net of sublease 
agreements, under terms of the leases were as follows (in thousands):

         YEAR ENDED
         ----------
           1997                                              $14,912
           1998                                               13,434
           1999                                               11,385
           2000                                                9,338
           2001                                                4,134
           2002 and thereafter                                 5,980
                                                             -------
               Total                                         $59,183
                                                             =======


                                     F-31

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(16)  FORECLOSED REAL ESTATE, NET

     Foreclosed  real estate,  net, at December 31, 1996 and 1995  consists of
the following (in thousands):

<TABLE>
<CAPTION>

                                                                                        1996               1995
                                                                                        ----               ----
<S>                                                                                    <C>               <C>    
      1-4 unit residential real estate                                                 $31,440           $33,694
      Multifamily real estate                                                            9,176            14,368
      Commercial real estate                                                            14,646               506
      Less allowance for losses                                                         (3,275)              (33)
                                                                                       --------          -------
         Total foreclosed real estate, net                                             $51,987           $48,535
                                                                                       =======           =======

</TABLE>

     Activity in the specific  allowance for losses on foreclosed  real estate
for the years ended December 31, 1996,  1995 and 1994 is summarized as follows
(in thousands):

<TABLE>
<CAPTION>

                                                                                       1996             1995             1994
                                                                                       ----             ----             ----
<S>                                                                                <C>                  <C>              <C> 
     Balance - January 1                                                           $      33            $ 27             $223
     Purchases                                                                         7,910              --               --
     Provision for losses                                                              1,021              --               --
     Charge-offs                                                                     (5,702)            (53)             (248)
     Recoveries                                                                           13              59               52
                                                                                   ---------            ----             ----
     Balance - December 31                                                         $   3,275            $ 33             $ 27
                                                                                   =========            ====             ====

</TABLE>

(17)  ACCRUED INTEREST RECEIVABLE

      Accrued interest receivable at December 31, 1996 and 1995 is summarized
as follows (in thousands):


                                                           1996          1995
                                                           ----          ----
     Cash and cash equivalents and securities           $  8,399       $  4,387
     Mortgage-backed securities                           24,110         21,200
     Loans receivable and loans held for sale             73,525         75,017
                                                        --------       --------
        Total accrued interest receivable               $106,034       $100,604
                                                        ========       ========




                                     F-32

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(18)  MORTGAGE SERVICING RIGHTS

     The  following  is a summary of activity for  mortgage  servicing  rights
("MSR")  purchased  ("Purchased"),   originated  ("Originated"),   and  excess
servicing  fees  receivable  ("Excess") for the years ended December 31, 1996,
1995 and 1994 (in thousands):

<TABLE>
<CAPTION>

                                                                                                          MSR
                                                   PURCHASED       ORIGINATED          EXCESS            HEDGE              TOTAL
                                                   ---------       ----------          ------            -----              -----
<S>                                               <C>                <C>               <C>               <C>              <C> 
Balance at December 31, 1993                      $      --          $   --            $   --            $   --           $      --
   Additions from FN Acquisition                     90,000              --                --                --              90,000
   Additions - other                                    168              --               276                --                 444
   Amortization                                      (3,600)             --                (4)               --              (3,604)
                                                  ---------          ------            ------            ------            --------
Balance at December 31, 1994                         86,568              --               272                --              86,840
   Additions from Maryland Acquisition               76,369              --                --                --              76,369
   Additions from Lomas 1995 Purchase                93,362              --                --                --              93,362
   Additions - other                                    774          16,824             1,078                --              18,676
   Amortization                                     (33,324)           (454)             (114)               --             (33,892)
                                                   --------          ------            ------            ------            --------
Balance at December 31, 1995                        223,749          16,370             1,236                --             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
    Additions - other                                64,421          70,622            10,406                --             145,449
    Premium on interest rate floor
      contracts                                          --              --                --             3,509               3,509
   Net received under principal-only
      swap agreements and floors                         --              --                --               271                 271
   Amortization                                     (84,499)         (4,944)           (1,263)             (275)            (90,981)
                                                    -------          ------            ------            ------            --------
Balance at December 31, 1996                        $327,760         $82,048           $10,379           $3,505            $423,692
                                                    ========         =======           =======           ======            ========

</TABLE>


     At  December  31,  1996,  1995 and  1994,  the  outstanding  balances  of
single-family  residential  mortgage  loan  participations,  whole  loans  and
mortgage pass-through securities serviced for other investors by FNMC totalled
$43.1 billion, $28.6 billion and $7.5 billion, respectively. In addition, FNMC
had $5.7 billion and $3.0 billion of master servicing at December 31, 1996 and
1995, respectively.

     SFAS No. 122 requires  enterprises to measure the impairment of servicing
rights based on the  difference  between the carrying  amount of the servicing
rights and their  current  fair  value.  At  December  31,  1996 and 1995,  no
allowance for impairment of the mortgage  servicing rights was necessary.  The
estimated  fair value of the  mortgage  servicing  rights was $529 million and
$307 million at December 31, 1996 and 1995, respectively.

     At December 31, 1996 and 1995,  servicing  advances and other receivables
related to single-family residential mortgage loan servicing, net of valuation
allowances  of $12.5  million  and $6 million in 1996 and 1995,  respectively,
(included in other assets) consisted of the following (in thousands):

                                                         1996          1995
                                                         ----          ----
         Servicing advances                            $104,932       $ 57,359
         Corporate advances due from banks               55,601         73,566
         Other                                           31,828         35,042
                                                       --------       --------
                                                       $192,361       $165,967
                                                       ========       ========

                                     F-33


<PAGE>

               FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     A  decline  in  long-term   interest  rates   generally   results  in  an
acceleration in mortgage loan prepayments.  Higher than anticipated  levels of
prepayments generally cause the accelerated amortization of mortgage servicing
rights and  generally  will  result in the  reduction  of the market  value of
mortgage servicing rights and in the Company's  servicing fee income. In order
to reduce the  sensitivity  of its earnings to interest  rate and market value
fluctuations,  the Company initiated a program to hedge the change in value of
its servicing rights based on changes in interest rates. At December 31, 1996,
the  Company,  through  FNMC,  was a party  to  several  interest  rate  floor
contracts maturing on October 15, 2001 and November 15, 2001. 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  price.  At
December 31, 1996,  the notional  amount of the interest  rate floors was $500
million and the strike  prices were 5.0% and 6.5%.  In addition,  the Company,
through FNMC,  entered into  principal-only  swap  agreements  with a notional
amount of $69 million.  The estimated  market value of the interest rate floor
contracts and swaps designated as hedges against mortgage  servicing rights at
December 31, 1996 were $3.3 million and $.1 million, respectively.

  (19) DEPOSITS

     A summary of deposits and weighted average contractual  interest rates at
December 31, 1996 and 1995 follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                1996                        1995
                                                    --------------------------   -------------------------

                                                    AVERAGE        CARRYING       AVERAGE       CARRYING
                                                      RATE          VALUE           RATE          VALUE
                                                      ----          -----           ----          -----
<S>                                                    <C>     <C>                   <C>     <C>        
  Passbook accounts                                    3.65%   $   840,685           2.17%   $   663,880
  Demand deposits:
   Interest-bearing                                    1.03        509,788            .98        684,079
   Noninterest-bearing                                 --          729,648           --          696,918
  Money market deposit accounts                        3.57        881,285           3.14      1,443,465
  Term accounts:
     3.00% or less                                      .53            125           2.82          2,882
     3.01 - 4.00%                                      3.87          3,268           3.68        112,564
     4.01 - 5.00                                       4.81        314,444           4.65        367,247
     5.01 - 6.00                                       5.52      4,096,186           5.49      3,053,770
     6.01 - 7.00                                       6.54        680,800           6.52      1,944,418
     7.01 - 8.00                                       7.21        359,261           7.34        935,780
     8.01 - 9.00                                       8.39         46,744           8.47        123,293
     9.01 - 10.00                                      9.16          2,010           9.29        149,434
    10.01 - 11.00                                      --               --          10.57          3,696
    11.01 - 12.00                                      --               --          11.52            788
    12.01 - 13.00                                     12.25             64          12.27          1,587
                                                      -----     ----------          ------   -----------
                                                       4.53%     8,464,308           4.67%    10,183,801
                                                      =====                         =====
   Accrued interest payable                                         31,901                        50,755
   Purchase accounting adjustments                                   5,674                         7,072
                                                                ----------                   -----------
      Total deposits                                            $8,501,883                   $10,241,628
                                                                ==========                   ===========

</TABLE>


     The aggregate  amount of jumbo  certificates  of deposit (term  deposits)
with a minimum  denomination  of $100,000 was  approximately  $868 million and
$690   million  at  December  31,  1996  and  1995,   respectively.   Brokered
certificates of deposit  totalling $470 million and $965 million were included
in deposits at December  31, 1996 and 1995,  respectively.  Total  deposits at
December 31, 1996 and 1995  include  escrow  balances  for loans  serviced for
others of $550 million and $348 million, respectively.


                                     F-34

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     A summary of  interest  expense by deposit  category  for the years ended
December 31, 1996, 1995 and 1994 follows (in thousands):


                                             1996           1995          1994
                                             ----           ----          ----
  Passbook accounts                      $  31,418      $  14,668      $  3,843
  Interest-bearing demand deposits           5,398          6,953         1,809
  Money market deposit accounts             32,073         50,847        16,137
  Term accounts                            350,285        374,891        79,168
                                          --------       --------      --------
                                          $419,174       $447,359      $100,957
                                          ========       ========      ========

     At December 31, 1996,  term accounts had scheduled  maturities as follows
(in thousands):

       1997                                   $4,371,939
       1998                                      716,139
       1999                                      137,232
       2000                                      150,403
       2001                                      120,116
       2002 and thereafter                         7,073
                                              ----------
                                              $5,502,902
                                              ==========


                                     F-35

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (20) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

     A summary of information  regarding  securities sold under  agreements to
repurchase as of December 31, 1996 and 1995 follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                 DECEMBER 31, 1996
                                                               -----------------------------------------------------------
                                                                  UNDERLYING COLLATERAL               REPURCHASE LIABILITY
                                                                 --------------------------          --------------------
                                                                 RECORDED          MARKET                         INTEREST    
                                                                 VALUE (I)          VALUE            AMOUNT          RATE     
                                                                 ---------          -----            ------          ----     
<S>                                                             <C>              <C>
Maturing within 30 days                                         $  626,260       $   636,069     $   609,949        5.61% 
Maturing 30 days to 90 days                                        573,904           582,125         550,409        5.48  
Maturing 90 days to 1 year                                         342,531           344,483         350,000        6.97  
Maturing over 1 year                                                67,845            67,929          53,920        6.59  
                                                                ----------        ----------      ----------                  
   Total  (ii)                                                   1,610,540         1,630,606       1,564,278                  
Purchase accounting adjustment                                       2,578             2,578             755                  
Accrued interest payable                                                --               --           18,354                     
                                                                ----------        ----------      ----------                  
                                                                $1,613,118        $1,633,184      $1,583,387                  
                                                                ==========        ==========      ==========                  
<CAPTION>


                                                                                 DECEMBER 31, 1995
                                                                -----------------------------------------------------------
                                                                 UNDERLYING COLLATERAL             REPURCHASE LIABILITY
                                                                 ---------------------            -------------------------
                                                                 RECORDED         MARKET                          INTEREST        
                                                                 VALUE (I)         VALUE             AMOUNT          RATE          
                                                                 ---------         -----             ------          ----          
<S>                                                               <C>            <C>                 <C>            <C>     
Maturing within 30 days                                           $501,647       $   511,513         $487,528       5.82%   
Maturing 30 days to 90 days                                        236,483           240,152          210,057       6.64    
Maturing over 1 year                                               253,363           254,502          250,000       7.63    
                                                                  --------        ----------         --------                    
   Total  (ii)                                                     991,493         1,006,167          947,585                    
Purchase accounting adjustment                                         554               554               --                    
Accrued interest payable                                                --                --           21,925                    
                                                                  --------        ----------         --------                    
                                                                  $992,047        $1,006,721         $969,510                    
                                                                  ========        ==========         ========                    

</TABLE>

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

   (i)  Recorded  value  includes  accrued  interest at December  31, 1996 and
        1995. In addition,  the recorded  values at December 31, 1996 and 1995
        include adjustments for the unrealized gain or loss on mortgage-backed
        securities available for sale.

   (ii) Total  mortgage-backed  securities  collateral at December 31, 1996 and
        1995  includes  $1.1  billion  and  $585  million,   respectively,  in
        outstanding  balances of loans  securitized  with full recourse to the
        Bank.  The market value of such  collateral  was $1.1 billion and $600
        million at December 31, 1996 and 1995, respectively.

     At December 31, 1996 and 1995,  these  agreements  had  weighted  average
stated  interest  rates of  5.90%  and  6.48%,  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 First Nationwide the identical  securities at
the maturities of the agreements. The average daily balance of securities sold
under  agreements to repurchase  was $2.1 billion and $1.6 billion during 1996
and 1995,  respectively,  and the maximum amount  outstanding at any month-end
during these periods was $2.7 billion and $2.2 billion, respectively.

     At December 31, 1996, securities sold under agreements to repurchase were
collateralized  with $1.5  billion of  mortgage-backed  securities  and $120.7
million of loans held for sale.

                                     F-36

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (21)  BORROWINGS

     Borrowings  at  December  31,  1996 and 1995 are  summarized  as  follows
(dollars in thousands):

<TABLE>
<CAPTION>

                                                                         1996                            1995
                                                            -------------------------------    ----------------------------
                                                                   CARRYING        AVERAGE            CARRYING         AVERAGE
                                                                    VALUE            RATE              VALUE            RATE   
                                                                    -----            ----              -----            ----    
<S>                                                              <C>                   <C>          <C>                     <C>    
  Fixed-rate borrowings from the FHLB                            $3,564,953            5.93%        $1,789,811              6.68%
  Variable-rate borrowings from the FHLB                            854,486            5.67            250,000              6.02   
  Subordinated debentures due 2006                                   92,100           10.00             92,100             10.00   
  Senior debt                                                         6,000           11.20                 --               --     
  Senior notes due 2001                                             200,000           12.25            200,000             12.25   
  Senior subordinated notes due 2003                                140,000            9.13                 --               --     
  Federal funds purchased                                            25,000            7.50             55,000              6.00   
  Other borrowings                                                      885            8.54              3,755              7.91   
                                                                 -----------           ----         ----------             -----   
   Total borrowings                                               4,883,424            6.33          2,390,666              7.19   
  Accrued interest payable                                           20,948            --               11,555               --     
  Purchase accounting adjustments, net                              (1,676)            --               (9,359)              --     
                                                                 ---------             ----         ----------             -----   
   Total other borrowings                                        $4,902,696            6.33%        $2,392,862              7.19%  
                                                                 ==========            ====         ==========             =====   

</TABLE>

     Maturities and weighted  average  stated  interest rates of borrowings at
December  31,  1996,  not  including  accrued  interest  payable  or  purchase
accounting adjustments, are as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                                            WEIGHTED
  MATURITIES DURING THE YEARS                                             BALANCES MATURING               AVERAGE RATES
                                                                   ---------------------------         ---------------------
  ENDING DECEMBER 31                                                     FHLB        OTHER               FHLB        OTHER
  ------------------                                                     ----        -----                ----        -----
<S>                                                                <C>               <C>                  <C>          <C>  
  1997                                                             $2,741,311        $  25,136            5.78%        7.51%
  1998                                                              1,460,000              141            6.01         8.55
  1999                                                                200,250               77            6.10         8.80
  2000                                                                     --               39            --           9.50
  2001                                                                 10,833          200,000            6.50        12.25
  2002 and thereafter                                                   7,045          238,592            7.20         9.52
                                                                   ----------        ---------            ----       ------
  Total                                                            $4,419,439         $463,985            5.88%       10.59%
                                                                   ==========         ========            ====        =====

</TABLE>



                                     F-37

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     Interest  expense on  borrowings  for the years ended  December 31, 1996,
1995 and 1994, is summarized as follows (in thousands):

<TABLE>
<CAPTION>

                                                                                  1996            1995             1994
                                                                                  ----            ----             ----
<S>                                                                             <C>              <C>               <C>    
     FHLB advances                                                              $221,017         $139,051          $71,662
     Interest rate swap agreements                                               (11,532)         (15,177)          (8,797)
     Subordinated debentures due 2006                                              9,210            9,210            2,303
     Senior debt                                                                   3,641               --               --
     Senior notes due 2001                                                        24,504           24,500            6,150
     Senior subordinated notes due 2003                                           11,739               --               --
     Federal funds purchased                                                       3,529            2,268              438
     Other                                                                           199            1,403              332
     Purchase accounting adjustments                                               6,039           21,244            7,937
                                                                                --------         --------          -------
          Total                                                                 $268,346         $182,499          $80,025
                                                                                ========         ========          =======

</TABLE>

     The  following  is a summary of the carrying  value of assets  pledged as
collateral for FHLB advances at December 31, 1996 (in thousands):

      Real estate loans (primarily residential)                     $7,126,366
      Mortgage-backed securities                                       833,857
      FHLB stock                                                       220,962
                                                                  ------------
          Total                                                     $8,181,185
                                                                  ============
       Senior Notes due 2001

     In connection  with the FN  Acquisition,  the Company issued $200 million
principal  amount of 12-1/4%  Senior Notes  ("Senior  Notes"),  including $5.5
million  principal amount of 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 Senior Notes' issuance  totalling $9.9 million were recorded in other
assets and are being amortized over the term of the 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 Bank Preferred Stock (as defined herein).

     The  terms  and   conditions  of  the  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.

      Senior Subordinated Notes due 2003

     On January 31, 1996, the Company issued $140 million  principal amount of
the 9-1/8%  Senior Sub Notes.  The Senior Sub 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 Senior Sub Notes totalling
$7.0 million were  recorded in other assets and are being  amortized  over the
term of the Senior Sub Notes.

     The Senior Sub 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.

                                     F-38

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Senior Sub 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 Senior Sub 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  Senior  Sub  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.

      Subordinated Debentures due 2006

     As part of the FN Acquisition,  the Bank assumed subordinated debentures,
which bear  interest  at 10% per annum and mature on October 1, 2006 (the "Old
FNB Debentures").  At December 31, 1996, the aggregate principal amount of the
Old FNB Debentures outstanding was $92.1 million.

     Events of Default  under the indenture  governing the Old FNB  Debentures
(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  Old FNB  Debentures
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  Old FNB  Debentures to the Bank and the
trustee.

      Senior Debt

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

                                     F-39

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


bankruptcy, insolvency or reorganization of the Bank or its subsidiaries.

     Consummation of the Cal Fed Acquisition constituted a "Change of Control"
under the Note  Purchase  Agreement.  Accordingly,  holders of the SFFed Notes
have the right to compel the Bank to redeem  the SFFed  Notes held by any such
holder at a redemption price of 100% of the principal amount thereof.

  (22) INTEREST RATE SWAP AGREEMENTS

     Interest rate swap  agreements  outstanding  and their  weighted  average
rates at December 31, 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>          
    April 1998                        $400,000          5.64%      8.38%            1.26       3 month LIBOR


     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.

     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 highly
rated counterparties.


                                     F-40

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



  (23)   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, 1996,  1995 and 1994 is presented in the following  summary
(in thousands):


</TABLE>
<TABLE>
<CAPTION>

                                                              MORTGAGE           RETAIL        CONSOLIDATED
                                                               LENDING           BANKING           TOTAL
                                                               -------           -------           -----
<S>                                                         <C>               <C>                <C>        
     1996
     ----
       Total revenues (1)                                   $   215,134       $ 1,749,043        $ 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 (2)                                1,582,236        16,253,075         16,570,635

     1995
     ----
       Total revenues (3)                                       100,930         1,161,650          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 (4)                                1,337,767        14,455,002         14,646,245

     1994
     ----
       Total revenues (5)                                        13,010           329,257            334,297
       Income before income taxes, extraordinary item
         and minority interest                                   (4,982)           36,910             31,928
       Office premises and equipment, net                         3,894            72,215             76,109
       Identifiable assets (6)                                  203,400        14,666,797         14,683,559
</TABLE>


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


     (1)   Excludes the elimination of $6.9 million in intercompany  servicing
           fees, $.1 million in interest  income and $70.0 million in interest
           expense on intercompany loans.

     (2)   Excludes the  elimination  of $23.3 million in deposits  maintained
           with the Bank and $1,241 million in  intercompany  borrowings  from
           the Bank.

     (3)   Excludes the elimination of $6.1 million in intercompany  servicing
           fees and $29.7 million in interest expense on intercompany loans.

     (4)   Excludes the  elimination  of $13.8 million in deposits  maintained
           with the Bank and $1,133 million in  intercompany  borrowings  from
           the Bank.

     (5)   Excludes the elimination of $6.0 million in intercompany  servicing
           fees and $2.0 million in interest expense on intercompany loans.

     (6)   Excludes  the   elimination  of  $186.6  million  in   intercompany
           borrowings from the Bank.

                                     F-41

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



  (24)   MINORITY INTEREST-- PREFERRED STOCK OF THE BANK

     In connection with the FN Acquisition,  the Bank issued  3,007,300 shares
of its  11-1/2%  noncumulative  perpetual  preferred  stock  ("Bank  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  Bank  Preferred  Stock  issuance  were  deducted  from
additional paid-in capital.  At or after September 1, 1999, the Bank 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 Bank Preferred Stock for each
year during 1996 and 1995 totalled $34.6 million.

  (25)  STOCKHOLDERS' EQUITY

        (a) Common Stock

            In  connection  with the FN  Acquisition  and the  offering of the
       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
       B common stock to a limited partnership, Hunter's Glen/Ford, Ltd., 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.   There  were  no  dividends  or
       distributions on common stock in 1994. 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.



                                     F-42

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


       (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 the redemption of the
       FN Holdings  Preferred Stock by the Company,  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.

       (c) Payment of Dividends

            The terms of the Senior Sub Notes  indenture  and the 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.

            As of December  31,  1996,  the Bank could pay  dividends  of $609
       million  without the consent of the OTS and it could pay  dividends  of
       $370 million and still be "well  capitalized." As of December 31, 1996,
       the Company could pay dividends of $354 million  without  violating the
       most restrictive terms of the Indentures.



                                     F-43

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (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 core capital to adjusted  total assets,
   and  of  Tier 1 and  total  risk-based  capital  to  risk-weighted  assets.
   Management  believes,  as of  December  31,  1996,  that the Bank meets all
   capital adequacy requirements to which it is subject.

         As of December 31, 1996 and 1995, 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 core,  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.

         The Bank's actual  capital  amounts and ratios are also  presented in
   the table (dollars in thousands):

<TABLE>
<CAPTION>

                                                                                                       To Be Well
                                                                                                   Capitalized Under
                                                                          For Capital              Prompt Corrective
                                               Actual                  Adequacy Purposes           Action Provisions
                                               ------                  -----------------           -----------------
                                          Amount        Ratio          Amount         Ratio        Amount        Ratio
                                          ------        -----          ------         -----        ------        -----
<S>                                       <C>           <C>              <C>           <C>        <C>             <C>    
  As of December 31, 1996:
   Tangible Capital
     (to Adjusted Total Assets)           $1,160,709    7.17%            $242,828       1.50%            N/A        N/A
   Core Capital (Leverage)
     (to Adjusted Total Assets)            1,160,709    7.17              485,655       3.00      $  809,426       5.00%
   Tier 1 Risk Based Capital
     (to Risk Weighted Assets)             1,160,709   11.50                  N/A        N/A         603,993       6.00
   Total Risk Based Capital
     (to Risk Weighted Assets)             1,375,061   13.62              805,324       8.00       1,006,655      10.00

  As of December 31, 1995:
   Tangible Capital
     (to Adjusted Total Assets)              853,326    5.84              219,104       1.50             N/A        N/A
   Core Capital (Leverage)
     (to Adjusted Total Assets)              853,326    5.84              438,208       3.00         730,347       5.00
   Tier 1 Risk Based Capital
     (to Risk Weighted Assets)               853,326    9.14                  N/A        N/A         554,547       6.00
   Total Risk Based Capital
     (to Risk Weighted Assets)             1,057,288   11.34              739,396       8.00         924,245      10.00

</TABLE>


                                     F-44

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (27)     FINANCIAL ASSISTANCE PROVIDED BY FSLIC/RF

      Financial assistance provided pursuant to the Assistance Agreement for
  the years ended December 31, 1996, 1995 and 1994 follows (in thousands):

<TABLE>
<CAPTION>

                                                                  ACTUAL       FSLIC/RF      GUARANTEED
  1996                                                         YIELD (LOSS)   ASSISTANCE        YIELD
  ----                                                         -----------    ----------        -----
<S>                                                              <C>            <C>            <C>   
  Yield maintenance on Covered Assets:

    Loans and accounts receivable                                $ --           $1,413         $1,413
    Investments in and advances to subsidiaries                    --               --             --
    Real estate owned                                             (23)              23             --
                                                                 ----           ------         ------
                                                                 $(23)           1,436         $1,413
                                                                 ====                          ======
  FSLIC/RF Reimbursement                                                            --
                                                                                ------
  Total effect of FSLIC/RF assistance on the
    consolidated statement of operations                                        $1,436
                                                                                ======

  FDIC Purchase proceeds, write-downs, losses                                   $3,227
    on Covered Assets and other claims                                          ======
                                                     
<CAPTION>


                                                                  ACTUAL       FSLIC/RF        GUARANTEED
  1995                                                         YIELD (LOSS)   ASSISTANCE            YIELD
  ----                                                         ------------   ----------            -----
<S>                                                                <C>         <C>               <C>      
  Yield maintenance on Covered Assets:
     Loans and account receivable                                  $7,572      $   (213)         $   7,359
     Investments in and advances to subsidiaries                      (63)          283                220
     Real estate owned                                             (1,890)        5,016              3,126
                                                                   ------      --------          ----------
                                                                   $5,619         5,086          $  10,705
                                                                   ======            --          =========
  FSLIC/RF Reimbursement                                                       --------
  Total effect of FSLIC/RF assistance on the
    consolidated statement of operations                                       $  5,086
                                                                               ========

  FDIC Purchase proceeds, write-downs, losses
     on Covered Assets and other claims                                        $236,378
                                                                               ========

<CAPTION>

                                                                  ACTUAL       FSLIC/RF          GUARANTEED
  1994                                                         YIELD (LOSS)   ASSISTANCE           YIELD
  ----                                                         ------------   ----------           -----
<S>                                                            <C>             <C>                <C>    
  Yield maintenance on Covered Assets:
   Loans and accout receivable                                 $21,573         (5,543)            $16,030
   Investments in and advances to subsidiaries                    (473)         1,178                 705
   Real estate owned                                            (1,561)        14,817              13,256
                                                                -------        ------              ------
                                                               $19,539         10,452             $29,991
                                                               =======                            =======
  FSLIC/RF Reimbursement                                                       (1,060)
  Total effect of FSLIC/RF assistance on the                                   ------ 
      consolidated statement of operations                                    $ 9,392
                                                                              =======

  Write-downs and losses on Covered Assets and                                $71,220
    other claims                                                              =======

</TABLE>


                                                        F-45

<PAGE>



                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (28) OTHER NONINTEREST INCOME AND EXPENSE

     Other  noninterest  income and expense  amounts are summarized as follows
for the years ended December 31, 1996, 1995 and 1994 (in thousands):

<TABLE>
<CAPTION>

                                                                                     1996             1995             1994
                                                                                     ----             ----             ----
<S>                                                                                  <C>            <C>              <C>
        Other noninterest income:
             Dividends on FHLB stock                                                 $11,670        $  6,546         $  3,186
             Disbursement float                                                        5,369           2,622              943
             Other                                                                    12,820           8,759            3,423
                                                                                     -------       ---------        ---------
                                                                                     $29,859         $17,927         $  7,552
                                                                                     =======         =======         ========
        Other noninterest expense:
             Telephone                                                               $11,727        $  7,652         $  2,134
             Insurance and surety bonds                                                3,811           4,005            2,321
             Postage                                                                   7,141           6,856            1,535
             Printing, copying and office supplies                                     6,549           6,096            2,057
             Employee travel                                                           6,112           5,244            1,249
             Other                                                                    41,066          30,876            9,375
                                                                                    --------        --------         --------
                                                                                     $76,406         $60,729          $18,671
                                                                                     =======         =======          =======
</TABLE>

  (29)   INCOME TAXES

     Total income tax (benefit) expense for the years ended December 31, 1996,
1995 and 1994 was allocated as follows (in thousands):

<TABLE>
<CAPTION>

                                                                            1996             1995           1994
                                                                            ----             ----           ----
<S>                                                                        <C>             <C>             <C>   
      Income before income taxes, extraordinary item
        and minority interest                                              $(73,131)       $(57,185)       $2,558
      Extraordinary item                                                       (176)            221           119
      Net unrealized holding (loss) gain on securities available
       for sale                                                              (1,921)          7,055            --
                                                                           --------        --------        ------
                                                                           $(75,228)       $(49,909)       $2,677
                                                                           ========        ========        ======

</TABLE>

     Income tax (benefit)  expense  attributable to income before income taxes
and  extraordinary  item for the years ended December 31, 1996,  1995 and 1994
consisted of (in thousands):


                                     1996             1995           1994
                                     ----             ----           ----
    Federal
        Current                   $   11,733        $    285         $   --
        Deferred                    (125,000)        (69,000)            --
                                  ----------        --------             --
                                    (113,267)        (68,715)            --
                                  ----------        --------         ------
    State and local
        Current                       40,136          11,530             --
        Deferred                          --              --          2,558
                                  ----------        --------         ------
                                      40,136          11,530          2,558
                                  ----------        --------         ------
                                  $  (73,131)       $(57,185)        $2,558
                                  ==========        ========         ======


                                     F-46

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     The  consolidated  income  tax  (benefit)  expense  for the  years  ended
December 31, 1996, 1995 and 1994 differs from the amounts computed by applying
the statutory U.S.  Federal  corporate tax rate of 35% for 1996, 1995 and 1994
to income before income taxes,  extraordinary  item and minority  interest (in
thousands):

<TABLE>
<CAPTION>

                                                                                1996            1995           1994
                                                                                 ----           ----           ----
<S>                                                                          <C>            <C>               <C>    
       Computed "expected" income tax expense                                $192,223       $ 42,858          $11,175
       Increase (decrease) in taxes resulting from:
            State income taxes, net of Federal income
                tax benefit                                                    26,088           7,495           1,740
            Tax exempt income                                                    (584)         (2,636)         (3,493)
            Amortization of excess cost over fair
                 value of net assets acquired                                      33              --             --
            Temporary differences from acquisitions                             6,196              --             --
            Adjustment to prior year's tax expense                                595          (1,675)            --
            Adjustment to deferred tax asset                                    2,821           7,644             --
            Unrealized holding (loss) gain on securities available for
                sale recognized for tax purposes                               (3,703)         15,937             --
            Other                                                               1,214          (1,747)           306
            Change in the beginning-of-the-year balance of
                the valuation allowance for deferred tax assets
                allocated to income tax expense                             (298,014)        (125,061)        (7,170)
                                                                           ---------        ---------         ------
                                                                           $ (73,131)       $ (57,185)        $ 2,558
                                                                           =========        =========         =======

</TABLE>

     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, 1996,  1995 and 1994 are as follows
(in thousands):

<TABLE>
<CAPTION>

                                                                        1996           1995          1994
                                                                        ----           ----          ----
<S>                                                                   <C>            <C>          <C>    
    Deferred tax expense (exclusive of the effects
      of other components listed below)                               $ 166,818      $ 56,061     $ 9,728
    Temporary differences from acquisitions                               6,196            --          --
    Decrease in beginning-of-the-year balance of the
       valuation allowance for deferred tax assets                    (298,014)      (125,061)     (7,170)
                                                                      ---------       --------     -------
                                                                     $(125,000)     $ (69,000)     $ 2,558
                                                                     =========      =========      =======

</TABLE>



                                     F-47

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     The tax effects of temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax  liabilities  at December
31, 1996 and 1995 are presented below (in thousands):

<TABLE>
<CAPTION>

                                                                                   1996                 1995
                                                                                   ----                 ----
<S>                                                                            <C>                 <C>        
Deferred tax assets:
  Net operating loss carryforwards                                             $ 723,234           $  920,300
  Foreclosed real estate                                                             312                   --
  Loans receivable                                                                 4,774                6,868
  Securities                                                                          95                   --
  Miscellaneous accruals                                                          11,851               11,842
  Accrued liabilities                                                             30,017               12,675
  Deferred interest                                                                6,440                4,552
  State taxes                                                                     16,074                4,243
  Other intangible assets                                                         35,476               47,169
  Alternative minimum tax credit and investment
     tax credit carryforwards                                                     14,157                2,932
  Other                                                                            3,165                8,174
                                                                               ---------           ----------
   Total gross deferred tax assets                                               845,595            1,018,755
   Less valuation allowance                                                    (513,027)            (810,459)
                                                                               --------            ---------
      Net deferred tax assets                                                    332,568              208,296
                                                                               ---------           ----------

Deferred tax liabilities:
   Change in accounting method                                                    23,362               35,043
   Other intangible assets                                                        48,280               41,651
   Purchase accounting adjustments                                                29,881               56,319
   FHLB stock                                                                     12,688                2,610
   Unrealized gains on securities available for sale                               1,640                2,503
   Other                                                                          24,357                3,673
                                                                               ---------           ----------
      Net deferred tax liabilities                                               140,208              141,799
                                                                               ---------           ----------
       Net deferred tax assets and liabilities                                 $ 192,360           $   66,497
                                                                               =========           ==========

</TABLE>

     The net  change  in the  total  valuation  allowance  for the year  ended
December 31, 1996 was a decrease of $297.4 million, of which $298.0 million is
attributable  to income before income taxes,  extraordinary  item and minority
interest and $(.6) million is  attributable  to the  extraordinary  item.  The
decrease  of $298.0  million  attributable  to  income  before  income  taxes,
extraordinary  item and minority  interest consists of $125.0 million relating
to the  favorable  reassessment,  in the  second  quarter  of 1996,  of future
earnings expectations and $173.0 million relating to the current year.

     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  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.

     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 Bank 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 Bank  had a tax bad debt  reserve
totalling  $232  million,  all of which has been  provided for in deferred tax
liabilities. Accordingly, the enactment of this legislation is not expected to
have any  material  adverse  impact  on the  Bank's  operations  or  financial
position.

                                     F-48

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     At December 31, 1996,  if FN Holdings  had filed a  consolidated  Federal
income  tax  return  on  behalf  of  itself  (as  common   parent)   with  its
subsidiaries,  it would  have had  regular  and  alternative  minimum  tax net
operating losses for Federal income tax purposes of approximately $2.1 billion
and $750 million, respectively, which expire in 2004 through 2010.

(30) EMPLOYEE BENEFIT PLANS

      Postretirement Benefits Plan

     In connection with the FN Acquisition, the Bank assumed unfunded plans to
provide  postretirement  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  postretirement  health care  benefits  has been
accrued on an actuarial net present value basis.

     The following table sets forth the plans' combined  liabilities  included
in the Company's  consolidated  statements of financial  condition at December
31, 1996 and 1995 (in thousands):

<TABLE>
<CAPTION>

                                                                          1996              1995
                                                                          ----              ----
<S>                                                                       <C>             <C>    
         Accumulated postretirement benefit obligation:
              Retirees                                                    $2,212          $    --
              Eligible active plan participants                              471            1,177
              Ineligible active plan participants                            733            1,719
                                                                          ------           ------
                  Accumulated postretirement benefit
                      obligation (other liabilities)                      $3,416           $2,896
                                                                          ======           ======

</TABLE>

     The  projected  benefit  obligation  at  December  31,  1996 and 1995 was
determined using a discount rate of 7.5% and 8.0%,  respectively.  At December
31, 1996, an increase of 1% in the health care cost trend rate would cause the
accumulated  postretirement benefit obligation to increase by $.3 million, and
the service and interest costs to increase by less than $.1 million.

     Net periodic  postretirement  benefits cost for the years ended  December
31, 1996 and 1995 included the following components (in thousands):

<TABLE>
<CAPTION>


                                                                          1996              1995
                                                                          ----              ----
<S>                                                                       <C>                <C> 
         Service cost - benefits attributable
              to service during the current period                        $301               $340
         Interest cost on accumulated postretirement
              benefit obligation                                           231                163
         Amortization of loss                                               19                 --
                                                                          ----               ----
                  Periodic postretirement benefit cost                    $551               $503
                                                                          ====               ====

     The initial health care cost trend rate for medical  benefits in 1996 was
9.50%, the average trend rate was 7.50% and the ultimate trend rate was 5.50%,
which will be reached in eight years.  Similar  trend rates were  utilized for
the 1995 valuation.


                                     F-49

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     Investment Plan

     In connection with the FN Acquisition, the Bank assumed Old FNB's defined
contribution plan. Effective December 31, 1994, the Bank resolved to merge Old
FNB's plan with the Bank's plan.  The merger was  completed  in February  1995
upon completion of the transfer of all funds to the surviving plan. Both plans
were qualified  plans under Section  401(a) of the Internal  Revenue Code. The
plan 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 $2.3 million,  $2.8 million,  and
$1.5  million  for  the  years  ended  December  31,  1996,   1995  and  1994,
respectively.

(31)  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 1996 and 1995, accruals relative
to the Incentive Plan totalled $35.6 million and $2.0 million, respectively.

(32) 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
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 are not included in the
expense  recorded by the  Company.  Management  expects the 1997 SAIF  deposit
premiums to decline to 6.48 cents per $100 of  SAIF-insured  deposits per year
from the prior rate of 23 cents.


                                     F-50

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


(33) COMMITMENTS AND CONTINGENCIES

     In the ordinary course of business,  the Company has various  commitments
and  contingent  liabilities  that  are  not  reflected  in  the  accompanying
consolidated  financial  statements.  Loan commitments have off-balance  sheet
credit risk because only origination fees and accruals for possible losses are
recognized  in the  consolidated  statement of financial  condition  until the
commitments  are fulfilled.  Credit risk  represents the accounting  loss that
would be recognized at the reporting date if counterparties  failed to perform
as contracted.  The credit risk amounts are equal to the contractual  amounts,
assuming the amounts are fully advanced and that  collateral or other security
is of no value.  The Company does not anticipate any material loss as a result
of these  commitments.  The Company applies the same credit  standards used in
the  lending  process  to  extending  these   commitments,   and  periodically
reassesses the customers' credit worthiness through ongoing credit reviews.

     The following is a summary of outstanding  firm commitments to originate,
purchase and sell loans at December 31, 1996 (in thousands):

     Commitments to originate and purchase loans:
         Fixed-rate                                              $210,400
         Variable-rate                                             77,243

     Forward commitments to sell loans                            707,881

     On September 28, 1994,  First  Nationwide  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  First  Nationwide  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, 1996,
First Nationwide had pledged as collateral  certain  securities  available for
sale with a carrying value of $91.6 million.

     At December 31, 1996,  mortgage-backed securities available for sale with
a carrying  value of $33.4  million were pledged to FNMA  associated  with the
sales of certain securitized multi-family loans.

     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 as
discussed in notes 7, 8, 20 and 21.

     At December  31,  1996,  loans  receivable  included  approximately  $2.3
billion of loans that had the potential to experience negative amortization.

     During the second quarter of 1996, the two issues in dispute with respect
to the Bank's 1994 acquisition of substantially  all of the assets and certain
of the  liabilities of Old FNB pursuant to the Asset  Purchase  Agreement were
resolved.  First  Nationwide  prevailed  in the  arbitration  of one of  these
issues,  and in July  1996,  the  $24  million  previously  in  dispute,  plus
interest,  was  remitted  to the Bank.  The  parties  mutually  agreed  upon a
settlement  relating to the other open issue.  There was no material impact on
the  consolidated  financial  statements  of the  Company  as a result of this
settlement.


                                     F-51

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



     In addition,  First Nationwide 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's consolidated financial statements.

(34)  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following table presents the carrying  amounts and fair values of the
Company's financial instruments at December 31, 1996 and 1995 (in thousands):


</TABLE>
<TABLE>
<CAPTION>

                                                                   1996                             1995
                                                       ------------------------------    ------------------------------
                                                            CARRYING          FAIR             CARRYING          FAIR
                                                              VALUE          VALUE               VALUE           VALUE
                                                              -----          -----               -----           -----
<S>                                                      <C>             <C>                 <C>          <C>         
Financial Assets:
   Cash and cash equivalents                             $    269,869    $    269,869        $  312,571   $    312,571
   Securities available for sale                              542,019         542,019           348,561        348,561
   Securities held to maturity                                  4,272           4,287             1,455          1,455
   Mortgage-backed securities available for sale            1,598,652       1,598,652         1,477,514      1,477,514
   Mortgage-backed securities held to maturity              1,621,662       1,653,847         1,524,488      1,567,197
   Loans held for sale                                        825,316         825,316         1,203,412      1,209,302
   Loans receivable, net                                   10,222,379      10,438,730         8,831,018      8,971,983
   Covered assets                                                  --              --            39,349         39,349
   Investment in FHLB                                         220,962         220,962           109,943        109,943
   Accrued interest receivable                                106,034         106,034           100,604        100,604
Financial Liabilities:
   Deposits                                                 8,501,883       8,514,099        10,241,628     10,283,600
   Securities sold under agreements
       to repurchase                                        1,583,387       1,585,964           969,510        978,700
   Borrowings:
         Gross                                              4,908,087       4,941,563         2,409,166      2,464,431
         Interest rate swap agreements (1)                     (5,391)       (13,763)          (16,304)        (32,000)
                                                         ------------    -----------         ---------    ------------
             Total borrowings                            $  4,902,696    $  4,927,800        $2,392,862   $  2,432,431
                                                         ============    ============        ==========   ============


Off-balance sheet net unrealized gains (losses): 
   Commitments to originate loans                                           $   (503)                       $  1,691
   Forward commitments to sell loans                                           1,022                          (2,757)
   Interest rate floor contracts                                                 110                              --
   Principal-only swap agreements                                                112                              --

</TABLE>

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

(1)   Designated as a hedge against FHLB advances.

     The  carrying  amounts  in the table  are  included  in the  accompanying
consolidated  statement of financial  position  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.


                                     F-52

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



     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.

     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.

     Covered  assets:  Since the  carrying  value of  Covered  Assets is fully
guaranteed  by the  FSLIC  Resolution  Fund,  fair  value of  these  financial
instruments approximates the carrying value.

     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.

     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
Bank's interest rate swap agreements,  which  effectively hedge certain of the
Bank's  FHLB  advances,  are based on the net present  value of the  estimated
interest  due to the Bank as compared  to the  estimated  interest  due to the
counterparties of the agreements.

                                     F-53

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     Off-balance  sheet  financial  instruments:  Fair  values  of the  Bank'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 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 Bank'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)


(35)  SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     The following table presents  selected  quarterly  financial data for the
years ended December 31, 1996 and 1995 (in thousands) (unaudited):

<TABLE>
<CAPTION>

                                                                        QUARTER ENDED
                                        ------------------------------------------------------------------------------

                                             DECEMBER 31,   SEPTEMBER 30,     JUNE 30,        MARCH 31,
                                                1996           1996            1996            1996          TOTAL 1996
                                                ----           ----            ----            ----          ----------
<S>                                         <C>              <C>            <C>            <C>              <C>       
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
     (see notes 2 and 5)                        57,917         75,870         154,652         364,939          653,378
Total noninterest expense
     (see note 32)                            (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 (see note 29)                      (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 common
     stockholders                           $   21,568       $    188       $ 252,374      $  298,578       $  572,708
                                            ==========       ========       =========      ==========       ==========

<CAPTION>

                                                                        QUARTER ENDED
                                       -------------------------------------------------------------------------------
                                            DECEMBER 31,   SEPTEMBER 30,     JUNE 30,       MARCH 31,
                                                1995           1995            1995            1995          TOTAL 1995
                                                ----           ----            ----            ----          ----------
<S>                                           <C>            <C>             <C>            <C>             <C>       
Total interest income                         $277,679       $270,583        $268,127       $259,456        $1,075,845
Total interest expense                        (185,619)      (184,751)       (185,237)      (179,208)         (734,815)
                                              --------       --------        --------       --------        ----------
   Net interest income                          92,060         85,832          82,890         80,248           341,030
Provision for loan losses                      (19,000)        (6,000)         (5,799)        (6,201)          (37,000)
                                              --------       --------        --------       --------        ----------
   Net interest income after
     provision for loan losses                  73,060         79,832          77,091         74,047           304,030
Total noninterest income                        45,717         35,636          38,595         31,025           150,973
Total noninterest expense                      (82,725)       (76,973)        (92,520)       (80,335)         (332,553)
                                              --------       --------        --------       --------        ----------
   Income before income
     taxes, extraordinary item
     and minority interest                      36,052         38,495          23,166         24,737           122,450
Income taxes (see note 29)                      64,614         (4,005)         (2,743)          (681)           57,185
                                             ---------      --------        --------        --------        -----------
   Income before extraordinary
     item and minority interest                100,666         34,490          20,423         24,056           179,635
Extraordinary item                                  --             --              --          1,967             1,967
                                             ---------      ---------       ---------       --------       -----------
   Income before minority interest             100,666         34,490          20,423         26,023           181,602
Minority interest                               (8,646)        (8,646)         (8,646)        (8,646)          (34,584)
                                             --------       --------        ---------       --------        ----------
   Net income                                $  92,020      $  25,844       $  11,777      $  17,377       $   147,018
                                             =========      =========       =========      =========       ===========

</TABLE>

                                     F-55

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


  (36) CONDENSED PARENT COMPANY FINANCIAL INFORMATION

     The following  represents  condensed statements of financial condition of
the  Company  (parent  company  only)  at  December  31,  1996  and  1995  (in
thousands):

<TABLE>
<CAPTION>

                                                                                  1996               1995
                                                                                  ----               ----
<S>                                                                            <C>                  <C>          
  ASSETS 
      Cash and cash equivalents                                                $  112,496            $      6
      Investment in the Bank                                                    1,463,862             959,885
      Loan to affiliate                                                            20,443                  --
      Other assets and deferred charges                                            14,724               8,794
                                                                               ----------            --------
      Total assets                                                             $1,611,525            $968,685
                                                                               ==========            ========

  LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
      Senior notes                                                             $  200,000            $200,000
      Senior sub notes                                                            140,000                  --
      Accrued interest payable                                                      9,021               3,131
      Payable to affiliates                                                         4,786                 304
      Other liabilities                                                            29,125               2,104
                                                                               ----------            --------
      Total liabilities                                                           382,932             205,539
         Minority interest - Bank Preferred Stock                                 309,376             300,730
          Total stockholders' equity                                              919,217             462,416
                                                                               ----------            --------
      Total liabilities, minority interest and stockholders' equity            $1,611,525            $968,685
                                                                               ==========            ========

</TABLE>

     The following  represents  parent  company only  condensed  statements of
operations  for  the  years  ended  December  31,  1996,  1995  and  1994  (in
thousands):

<TABLE>
<CAPTION>

                                                                         1996            1995           1994
                                                                         ----            ----           ----
<S>                                                                 <C>             <C>             <C>    
  Interest income                                                   $  4,061        $    341        $   155
  Dividends received from the Bank                                   275,707         111,900             --
                                                                    --------        --------        -------
                                                                     279,768         112,241            155
  Interest expense                                                    36,243          25,539          6,381
  Noninterest expense                                                 10,850           5,819            987
                                                                    --------        --------        -------
  Income (loss) before equity in undistributed
     net income of the Bank                                          232,675          80,883        (7,213)
  Equity in undistributed net income of the Bank                     387,220          99,360         37,326
                                                                   ---------        --------        -------
  Income before income taxes and minority interest                   619,895         180,243         30,113
  Income tax expense (benefit)                                         (858)         (1,359)          (633)
                                                                    -------         -------        -------
  Income before minority interest                                    620,753         181,602         30,746
  Minority interest in earnings of the Bank                           43,230          34,584             --
                                                                    --------        --------       --------
  Net income                                                         577,523         147,018         30,746
  Preferred stock dividends                                            4,815              --             --
                                                                    --------        --------       --------
     Net income available to common stockholders                    $572,708        $147,018        $30,746
                                                                    ========        ========        =======

</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, 1996, 1995 and 1994 (in thousands):

<TABLE>
<CAPTION>

                                                                                1996              1995              1994
                                                                                ----              ----              ----
<S>                                                                        <C>                <C>               <C>      
   Cash flows from operating activities:
      Net income                                                           $  577,523         $147,018         $   30,746
      Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
        Amortization of deferred issuance costs                                 1,811              764                232
        (Increase) decrease in receivable from the Bank                            --            3,156             (3,156)
        (Increase) decrease in other assets and
           deferred charges                                                   (2,842)              633               (863)
        Increase (decrease) in payable to affiliates                            4,482             (997)             1,301
        Increase in accrued interest payable                                    5,890               --              3,131
        Increase in other liabilities                                          27,022            1,979                125
        Equity in undistributed net income of the Bank                      (387,220)          (99,360)           (37,326)
        Minority interest                                                      43,230           34,584                 --
                                                                           ----------         --------         ----------
          Total adjustments                                                 (307,627)          (59,241)           (36,556)
                                                                           ---------          --------         ----------
          Net cash provided by (used in) operating
            activities                                                        269,896           87,777             (5,810)
                                                                           ----------         --------         ----------

   Cash flows from investing activities:
      Increase in loans receivable                                           (67,212)               --                 --
   Purchases of furniture, fixtures and equipment                                 --                --               (414)
   Proceeds from disposal of furniture, fixture and
           equipment                                                              --               414                 --
   Capital contributions to the Bank                                        (168,634)           (2,000)          (390,791)
                                                                           ---------          --------         ----------
               Net cash used in investing activities                        (235,846)           (1,586)          (391,205)
                                                                           ---------          --------         ----------

      Cash flows from financing activities:
         Proceeds from issuance of Senior Notes                                    --               --            190,440
         Proceeds from issuance of Senior Sub Notes                           135,100               --                 --
         Proceeds from other borrowings                                            --               --             19,029
         Repayment of other borrowings                                             --               --            (19,029)
         Issuance of preferred stock                                          144,249               --                 --
         Issuance of class C common stock                                          --               --            210,376
         Redemption of class C common stock                                 (124,670)          (60,801)                --
         Dividends on class A common stock                                   (52,467)               --                 --
         Dividends on class B common stock                                   (13,116)               --                 --
         Dividends on class C common stock                                    (6,633)          (29,185)                --
         Dividends on preferred stock                                         (4,023)               --                 --
                                                                           ---------          --------         ----------
               Net cash provided by (used in) financing
            activities                                                         78,440          (89,986)           400,816
                                                                           ----------         --------         ----------

            Net change in cash and cash equivalents                           112,490          (3,795)              3,801
            Cash and cash equivalents at beginning of year                          6            3,801                 --
                                                                           ----------         --------         ----------
            Cash and cash equivalents at end of year                       $  112,496         $      6         $    3,801
                                                                           ==========         ========         ==========

</TABLE>



                                     F-57

<PAGE>


                FIRST NATIONWIDE HOLDINGS INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


    Noncash investing and financing activities:

     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-58



<PAGE>
                         INDEPENDENT AUDITORS' REPORT

The Board of Directors
California Federal Bank, A Federal Savings Bank

      We have audited the accompanying consolidated statements of financial
condition of California Federal Bank, A Federal Savings Bank and subsidiaries
("California Federal") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, changes in shareholder's equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of
California Federal's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.

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

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of California
Federal Bank, A Federal Savings Bank and subsidiaries as of December 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.

      As discussed in Note 1 of the notes to the consolidated financial
statements, California Federal adopted the provisions of the Financial
Accounting Standards Board's Statements of Financial Accounting Standards No.
72, Accounting for Certain Acquisitions of Banking or Thrift Institutions, in
1994.

                                       KPMG Peat Marwick LLP

Los Angeles, California
February 21, 1997


                                     F-50

<PAGE>



       CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

                             (DOLLARS IN MILLIONS)

                                    ASSETS

<TABLE>
<CAPTION>

                                                                                                      December 31,
                                                                                         ------------------------------------
                                                                                                1996                1995
                                                                                                ----                ----
<S>                                                                                      <C>                <C> 
Cash................................................................................          $    242.1          $   273.7
Short-term liquid investments.......................................................                69.0               74.1
Securities purchased under agreements to resell.....................................             1,310.1            1,674.6
Securities available for sale.......................................................                 6.0              200.3
Securities held to maturity (market value: $1,942.3 in 1996
  and $2,361.3 in 1995).............................................................             1,963.9            2,366.7
Loans receivable held for sale (market value: $8.7 in 1996
  and $13.8 in 1995)................................................................                 8.7               13.6
Loans receivable held for investment................................................            10,099.4            9,290.0
Federal Home Loan Bank stock........................................................               166.8              135.7
Interest receivable.................................................................                74.0               79.5
Premises and equipment..............................................................                58.9               71.2
Real estate held for sale...........................................................                12.9               49.5
Prepaid expenses and other assets...................................................                86.6               91.7
                                                                                             -----------        -----------
          Total Assets..............................................................           $14,098.4          $14,320.6
                                                                                               =========          =========

                                           LIABILITIES AND SHAREHOLDER'S EQUITY

Deposits............................................................................           $ 8,918.7           $9,476.7
Advances from Federal Home Loan Banks...............................................             3,111.0            2,671.0
Securities sold under agreements to repurchase......................................               978.4              857.3
Student Loan Marketing Association advances.........................................                 --               200.0
Subordinated debentures.............................................................                57.0               57.6
Other borrowings ...................................................................                 0.3                0.5
Interest payable....................................................................                21.7               29.4
Other liabilities...................................................................               146.4              140.6
                                                                                            ------------        -----------
          Total Liabilities.........................................................           $13,233.5          $13,433.1
                                                                                               ---------          ---------
Shareholder's equity
  Preferred stock, Series A.........................................................                 --                93.5
  Preferred stock, Series B.........................................................               172.5              172.5
  Common stock......................................................................                  *                49.2
  Additional paid-in capital........................................................               922.8              838.6
  Retained earnings (deficit).......................................................              (230.4)            (266.3)
                                                                                            ------------        -----------
          Total Shareholder's Equity................................................               864.9              887.5
                                                                                            ------------       ------------
          Total Liabilities and Shareholder's Equity................................           $14,098.4         $14,320.6
                                                                                               =========         =========

</TABLE>

          See accompanying notes to consolidated financial statements.

----------
* Common stock value at par is $100.

                                     F-51

<PAGE>



       CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                             (DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                                -----------------------------------------------
                                                                                   1996               1995               1994
                                                                                   ----               ----               ----
<S>                                                                            <C>                <C>                <C>  
Interest income:
  Loans receivable............................................................ $   763.4          $   706.9          $   630.4
  Securities held to maturity.................................................     143.7              170.3              135.5
  Securities purchased under agreements to resell.............................      91.7               68.5               44.0
  Securities available for sale...............................................      11.8               49.4               75.2
  Short-term liquid investments...............................................       4.7               12.9               23.0
                                                                               ---------          ---------          ---------
          Total interest income...............................................   1,015.3            1,008.0              908.1
                                                                               ---------          ---------          ---------
Interest expense:
  Deposits....................................................................     430.7              441.6              390.8
  Borrowings..................................................................     237.1              254.5              175.7
                                                                               ---------          ---------          ---------
          Total interest expense..............................................     667.8              696.1              566.5
                                                                               ---------          ---------          ---------
          Net interest income.................................................     347.5              311.9              341.6
Provision for loan losses.....................................................      41.3               31.8               74.9
                                                                               ---------          ---------          ---------
          Net interest income after provision for loan losses.................     306.2              280.1              266.7
Other income:
  Fee income..................................................................      60.0               54.5               62.4
  (Loss) gain on sales of loans...............................................       0.7               (0.3)               0.5
  Gain on sales of securities.................................................       1.1                6.9                0.2
  Gain on sale of Southeast Division..........................................       --                 --               135.0
  Other.......................................................................      58.2                2.4                3.1
                                                                               ---------          ---------          ---------
          Total other income..................................................     120.0               63.5              201.2
                                                                               ---------          ---------          ---------
Other expenses:
  Compensation................................................................     113.5               97.1              118.7
  Office occupancy............................................................      37.2               39.4               47.3
  Other general and administrative............................................      85.0               79.4               89.2
  Federal deposit insurance premiums and special assessments..................      22.0               26.0               35.1
                                                                               ---------          ---------          ---------
          Total general and administrative expenses...........................     257.7              241.9              290.3
 Savings Association Insurance Fund special assessment ......................      58.1                --                 --
  Operations of real estate held for sale.....................................       8.5                8.0               45.9
  Loss on assets held for accelerated disposition.............................       --                 --               274.8
                                                                               ---------          ---------          ---------
          Total other expenses................................................     324.3              249.9              611.0
                                                                               ---------          ---------          ---------
Earnings (loss) before income tax expense (benefit) and cumulative
  effect of change in accounting for goodwill.................................     101.9               93.7             (143.1)
Income tax expense (benefit)..................................................     (14.5)               0.1                6.3
                                                                               ---------          ---------          ---------
Earnings (loss) before cumulative effect of change in accounting for goodwill.     116.4               93.6             (149.4)
Cumulative effect of change in accounting for goodwill........................       --                 --              (273.7)
                                                                               ---------          ---------          ---------
          Net earnings (loss).................................................  $  116.4            $  93.6            $(423.1)
Preferred dividends...........................................................      23.4               25.6               16.9
                                                                               ---------          ---------          ---------
Earnings (loss) available for common shareholder.............................. $    93.0            $  68.0            $(440.0)
                                                                               =========          =========          =========
</TABLE>


         See accompanying notes to consolidated financial statements.


                                     F-52

<PAGE>


       CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

                 (Dollars in Millions, Except per Share Data)

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                           --------------------------------------------------
                                                                              1996              1995               1994
                                                                              ----              ----               ----
<S>                                                                        <C>              <C>                <C>
Preferred stock:
  Balance at beginning of year...........................................    $266.0            $266.0             $ 93.5
     Issuance of preferred stock, series B...............................       --                --               172.5
     Redemption of preferred stock, series A.............................     (93.5)              --                 --
                                                                           --------          --------            --------
  Balance at end of year.................................................     172.5             266.0              266.0
                                                                           --------          --------            --------

Common stock:
  Balance at beginning of year...........................................      49.2              49.2               25.0
     Issuance of shares of common stock..................................       --                --                21.6
     Exercise of common stock warrants...................................       --                --                 2.6
     Capitalization of Cal Fed Bancorp Inc...............................     (49.2)              --                 --
                                                                           --------          --------            --------
  Balance at end of year.................................................       --               49.2               49.2
                                                                           ========          ========            ========

Additional paid-in capital:
  Balance at beginning of year...........................................     838.6             836.6              658.2
     Issuance cost of preferred stock, Series B..........................       --                --                (8.3)
     Issuance of shares of common stock..................................       --                --               161.7
     Exercise of common stock warrants...................................       --                --                20.7
     Long-term incentive stock options...................................       --                2.0                4.3
     Capitalization of Cal Fed Bancorp Inc. .............................      27.1               --                 --
     Distribution of secondary participation interests to parent.........      57.1               --                 --
                                                                           --------          --------            --------
  Balance at end of year.................................................     922.8             838.6              836.6
                                                                           ========          ========            ========

Net unrealized holding (losses) gains on securities available
  for sale:
  Balance at beginning of year...........................................       --              (19.2)               8.3
     Net unrealized holding gains (losses)...............................       --               19.2              (27.5)
                                                                           --------          --------            --------
  Balance at end of year.................................................       --                --               (19.2)
                                                                           ========          ========            ========

Retained earnings (deficit):
  Balance at beginning of year...........................................    (266.3)           (334.3)             105.7
     Dividends on preferred stock, Series A  ($1.35 per share in 1996,
       $1.94 in 1995 and $1.94 per share in 1994)........................      (5.0)             (7.2)              (7.2)
     Dividends on preferred stock, Series B ($10.625 per share in 1996,
       $10.625 per share in 1995 and $5.61 per share in 1994)............     (18.4)            (18.4)              (9.7)
     Dividend in-kind to parent .........................................     (57.1)              --                 --
     Net earnings (loss).................................................     116.4              93.6             (423.1)
                                                                           --------          --------            --------
  Balance at end of year.................................................    (230.4)           (266.3)            (334.3)
                                                                           --------          --------            --------
Total Shareholder's Equity...............................................    $864.9            $887.5             $798.3
                                                                           ========          ========            ========
</TABLE>

         See accompanying notes to consolidated financial statements.


                                     F-53

<PAGE>

       CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars in Millions)

<TABLE>
<CAPTION>
                                                                                            For the Year Ended December 31,
                                                                                      ------------------------------------------
                                                                                          1996          1995           1994
<S>                                                                                    <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ...............................................................    $    116.4    $     93.6    $   (423.1)
Adjustments to reconcile net earnings (loss) to net cash provided by 
 operating activities:
  Loss on assets held for accelerated disposition .................................        --            --             274.8
  Cumulative effect of change in accounting principle .............................        --            --             273.7
  Depreciation and amortization ...................................................          14.2          13.0          14.8
  Accretion of fees and discounts .................................................        --             (13.5)        (37.3)
  Provision for losses on loans receivable ........................................          41.3          31.8          74.9
  Provision (recovery) for losses on real estate held for sale ....................           5.0          (7.4)         79.7
  (Gain) loss on sales of loans ...................................................          (0.7)          0.3          (0.5)
  Loans originated for sale .......................................................        (230.8)       (117.2)       (115.8)
  Gain on sales of securities .....................................................          (2.3)         (6.9)         (0.2)
  Proceeds from sales of loans receivable held for sale ...........................         281.1         183.2       1,099.4
  Decrease in other assets ........................................................          10.6          39.0           7.3
  (Decrease) increase in other liabilities ........................................          (1.9)        (34.4)         17.0
  Other items .....................................................................           7.3         (11.1)        (20.5)
                                                                                       ----------    ----------     ---------
        Net cash provided by operating activities ................................         240.2         170.4       1,244.2
CASH FLOWS FROM INVESTING ACTIVITIES:
  Loans originated for investment .................................................      (2,369.2)     (2,128.9)     (2,503.5)
  Purchases of securities available for sale ......................................        (221.0)       (202.9)     (1,519.2)
  Proceeds from sales of securities available for sale ............................         261.6         976.3         670.4
  Net (purchases) maturities of securities held to maturity .......................        --             (54.2)          0.4
  Principal collected on loans receivable held for investment .....................       1,399.7       1,152.1       1,406.9
  Principal collected on securities held to maturity ..............................         401.8         435.8         533.5
  Proceeds from maturities of securities ..........................................         156.0         808.8           1.0
  Net increase in FHLB stock ......................................................         (31.1)         (1.6)        (12.6)
  Proceeds from sales of real estate held for sale, net ...........................         126.2         136.8         398.2
  Net (additions) dispositions of premises and equipment ..........................          (1.6)         (2.8)          8.3
  Net increase (decrease) in short-term liquid investments ........................           5.1         259.7         (27.0)
  Net increase (decrease) in securities purchased under agreements to resell ......         364.5      (1,626.4)        (18.0)
                                                                                       ----------    ----------     ---------
         Net cash used (provided) by investing activities .........................          92.0        (247.3)     (1,061.6)
CASH FLOWS FROM FINANCING ACTIVITIES:
  (Decrease) increase in deposits .................................................        (558.0)      1,115.8      (4,239.9)
  Proceeds from Federal Home Loan Bank advances ...................................       2,030.0       3,135.0       1,710.0
  Payments on Federal Home Loan Bank advances .....................................      (1,590.0)     (2,990.0)       (200.0)
  Net decrease (increase) in reverse repurchase agreements ........................         121.1        (893.7)      1,501.2
  Proceeds from other borrowings ..................................................           0.4           3.0         202.0
  Payments on other borrowings and subordinated debentures ........................        (201.2)       (286.7)        (41.4)
  (Payments) proceeds from the (redemption) issuance of common stock ..............         (49.2)       --             210.9
  (Payments) proceeds from the (redemption) issuance of preferred stock ...........         (93.5)       --             164.2
  Payment of dividends on preferred stocks ........................................         (23.4)        (25.6)        (16.9)
                                                                                       ----------    ----------     ---------
         Net cash (provided) used by financing activities .........................        (363.8)         57.8        (709.9)
                                                                                       ----------    ----------     ---------
Net decrease in cash ..............................................................         (31.6)        (19.1)       (527.3)
Cash at beginning of period .......................................................         273.7         292.8         820.1
                                                                                       ----------    ----------     ---------
Cash at end of period .............................................................    $    242.1    $    273.7     $   292.8
                                                                                       ==========    ==========     =========

</TABLE>

         See accompanying notes to consolidated financial statements.

                                     F-54


<PAGE>



       CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

      The consolidated financial statements include the accounts of California
Federal Bank, A Federal Savings Bank and its subsidiaries ("California
Federal"). California Federal maintains 119 full service branches in
California and Nevada and is one of the largest savings associations in the
United States. California Federal offers a broad range of consumer financial
services including demand and term deposits and mortgage and consumer loans.
Subsidiaries of California Federal sell insurance and investment products to
California Federal's customers, and have previously engaged in the real estate
investment and development and trust business. California Federal's deposit
gathering and loan production operations are concentrated in California,
particularly in Southern California.

      It is California Federal's policy to consolidate all majority-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
1995 and 1994 data in order to conform to the current presentation. The
preparation of California Federal's financial statements, in conformity with
generally accepted accounting principles, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported operations of California Federal for
the periods presented. Actual results may differ from those estimates
calculated by California Federal.

      On January 3, 1997, Cal Fed Bancorp Inc. ("Bancorp"), the parent and
sole shareholder of California Federal, was acquired by First Nationwide
Holdings Inc. ("Holdings"). The consolidated financial statements do not
reflect any purchase accounting adjustments from the acquisition.

      During 1995, California Federal obtained regulatory and shareholder
approval to reorganize into a holding company structure, which provided
greater flexibility for meeting future financial and competitive needs. In
December 1995, California Federal contributed approximately $22 million in
capital to Bancorp as part of the reorganization into a holding company
structure. As a result of the reorganization, on January 1, 1996, each share
of California Federal's common stock was converted into one share of Bancorp
common stock. Consequently, California Federal became a wholly-owned
subsidiary of Bancorp. California Federal's other securities remain
outstanding securities of California Federal.

   SHORT-TERM LIQUID INVESTMENTS

      California Federal's short-term liquid investments consist of federal
funds sold and certificates of deposit. These investments generally mature
within 60 days. California Federal invests in these assets as a means to
maximize its return on short-term funds that it holds for liquidity purposes.

   SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

      California Federal invests in securities purchased under agreements to
resell ("repurchase agreements") to maximize the yield on its liquid assets.
California Federal obtains collateral for these agreements, which normally
consists of U.S. treasury securities or mortgage-backed securities ("MBS")
guaranteed by agencies of the U.S. government. The collateral is held in the
custody of a trustee, who is not a party to the transaction. The duration of
these agreements is typically less than 30 days. California Federal deals only
with nationally recognized investment banking firms as the counterparties to
these agreements. California Federal's investment in repurchase agreements
solely consisted of securities purchased under agreements to resell identical
securities.


                                     F-55

<PAGE>



   INVESTMENTS IN SECURITIES

      California Federal's investment in securities principally consists of
U.S. treasury securities and mortgage-backed securities. California Federal
has created MBS when it exchanges pools of loans for mortgage-backed
securities ("securitized loans"). In accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities ("SFAS No. 115"), California Federal classifies its
investment in securities as held to maturity securities, trading securities
and available for sale securities as applicable. California Federal did not
hold any trading securities at December 31, 1996 or 1995.

   Available for Sale Securities

      California Federal has classified certain securities as "available for
sale." California Federal classifies securities as available for sale based
upon a determination that such securities may be sold at a future date or if
there are foreseeable circumstances under which California Federal would sell
such securities.

      Securities designated as available for sale are recorded at market
value. Changes in the market value of debt securities held for sale are
included in Shareholder's Equity as unrealized holding gains or losses net of
the related tax effect, if any. Unrealized losses, on available for sale
securities reflecting a decline in value judged to be other than temporary,
are charged to income in the Consolidated Statements of Operations. Realized
gains or losses on available for sale securities are computed on a specific
identification basis.

   Securities Held to Maturity

      California Federal has classified certain securities as "held to
maturity." Securities are designated as held to maturity if California Federal
has the positive intent and the ability to hold the securities to maturity.
Held to maturity securities are carried at amortized cost, adjusted for the
amortization of any related premiums or the accretion of any related discounts
into interest income using a methodology which approximates a level yield of
interest over the estimated remaining period until maturity. Unrealized losses
on held to maturity securities, reflecting a decline in value, judged by
California Federal to be other than temporary, are charged to income and
reported under the caption "Gain (loss) on Sale of Securities" in the
Consolidated Statements of Operations.

   LOANS RECEIVABLE

      California Federal's principal interest-earning asset is loans
receivable. California Federal primarily originates loans secured by
residential property of four units or less ("residential 1-4 loans"). Prior to
1993, California Federal was active in the origination of loans secured by
residential properties of five or more units ("multifamily loans") and loans
secured by office buildings, shopping centers, industrial buildings,
warehouses, marinas and hotels ("commercial real estate loans"). California
Federal currently limits its originations of multifamily and commercial real
estate loans to finance the sale of real estate. Prior to 1993, California
Federal was active in the origination of loans secured by vehicles, mobile
homes, boats and unsecured personal loans ("consumer loans"). Since 1993,
California Federal has ceased originating consumer loans for its own
portfolio. However, California Federal does originate consumer loans for other
financial institutions for a fee. California Federal segregates its loan
portfolio into loans held for sale and loans held for investment. California
Federal normally designates a loan as held for sale at the time of
origination. California Federal's portfolio of residential 1-4 loans,
multi-family loans and commercial real estate loans is primarily secured by
property located in California. California Federal continues to focus its
origination efforts in California, particularly in Southern California.
California Federal's ability to originate loans is affected by economic
conditions, competition and the market for real estate in California.
Likewise, the ability of California Federal's borrowers to honor their
contractual loan obligations to California Federal is also affected by the
strength of the California economy and particularly the availability of
employment and the pricing for residential housing. Should the California
economy, the market for real estate, and/or the availability of employment
experience a significant downturn over the near term, California Federal may
experience a reduction in the level of loan originations and/or an increase in
loan losses.


                                     F-56

<PAGE>



     Loans Receivable Held for Sale

      California Federal has designated certain of its loans receivable as
"held for sale." In determining the level of loans held for sale, California
Federal considers whether such loans would be sold in response to liquidity
needs, asset/liability management requirements, regulatory capital needs and
other factors. California Federal's current policy is to designate
substantially all originations of fixed-rate residential 1-4 loans that
conform to the underwriting criteria of Fannie Mae ("FNMA"), formerly known as
the Federal National Mortgage Association or Freddie Mac ("FHLMC"), formerly
known as the Federal Home Loan Mortgage Corporation, as held for sale.

      Loans held for sale are recorded at the lower of cost or market value.
Unrealized losses are recorded as a reduction in earnings and are included
under the caption "Gain (loss) on sale of loans" in the Consolidated
Statements of Operations. Realized gains and losses from the sale of loans
receivable are computed under the specific identification method.

     Gains and Losses from the Sale of Loans

      California Federal sells whole loans and participations in mortgage
loans to institutional and private investors. Gains and losses resulting from
the sales of loans are determined on the specific identification method and
reflect the extent that the sales proceeds exceed or are less than California
Federal's investment in the loans (which includes adjusting the unpaid
principal balance of the loans for unearned discounts, premiums and deferred
fees and costs at the time of sale). In some cases, California Federal sells
loans and continues to service such loans for the investor. In these cases,
California Federal recognizes a gain or loss on the loan sale measured by the
present value of the difference between the yield on the loans and the yield
to be paid to the buyer, reduced by the normal servicing fees, over the
estimated remaining lives of those loans using market prepayment, default and
discount rate assumptions. If loans are sold with recourse, the estimated
liability under the recourse provisions is provided for in the computation of
the gain or loss. The resulting deferred discount or premium ("excess
servicing") is amortized as an addition to or deduction from income using the
interest method, adjusted for actual prepayments. California Federal
periodically reviews the remaining premium to ensure that it does not exceed
the present value of the estimated excess servicing fees, using current
estimates of market prepayments and default. In the event that actual
prepayments exceed the assumptions used in determining the gain or loss, the
deferred premium is adjusted to reflect current prepayment projections by a
charge to operations. To the extent sales of loans involve the sale of part of
a loan or a pool of loans with disproportionate credit and prepayment risks,
the cost basis is allocated based upon the relative fair market value of the
portion sold and the portion retained on the date such loans were acquired or,
if that is not determinable, the date of sale. The amount of excess servicing
recorded by California Federal was $4.8 million and $3.9 million at December
31, 1996 and 1995, respectively. Such amounts were included in "Prepaid
expenses and other assets" on the Consolidated Statements of Financial
Condition.

     Loan Servicing

      California Federal services its loan portfolio and real estate and
consumer loans which are owned by independent investors. Loans serviced by
California Federal for others are primarily the result of California Federal
selling loans while retaining the servicing of such loans. Loans which are
serviced for other parties are not included with loans receivable or any other
asset in the accompanying consolidated financial statements. Fees earned for
servicing loans for others are reported as income when the related loan
payments are collected. Loan servicing costs are charged to expense as
incurred.

     Loans Receivable Held for Investment

      California Federal's loan portfolio is comprised of residential 1-4
loans, loans secured by income producing real estate ("income property loans")
and consumer loans. Since 1993, California Federal has not actively engaged in
originating income property loans, except to finance the sale of California
Federal's real estate.

      Loans receivable are generally recorded at the contractual amounts owed
by borrowers, less deferrals, unearned interest, the allowance for loan
losses, undisbursed funds and purchase premiums and discounts. Interest on
loans is credited to income as earned, to the extent deemed collectible.
Discounts on loans purchased and unearned interest on

                                     F-57

<PAGE>



consumer loans is accreted into interest income using the interest method over
the contractual lives of the loans, adjusted for actual prepayments.

     Loan Origination Fees and Costs

      Loan origination fees and certain direct loan origination costs are
deferred and recognized over the lives of the related loans as an adjustment
of loan yield using the interest method. When a loan is paid off or sold, any
unamortized net deferred fee balance is credited to income. Commitment fees
received in connection with the purchase of loans are deferred and recognized
over the life of the resulting loans as an adjustment of yield, or if the
commitment expires unexercised, credited to income upon expiration of the
commitment. Any costs in connection with the purchase of loans are expensed as
incurred.

     Impaired and Non-Performing Loans

      In May 1993, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan ("SFAS 114"). 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. SFAS 114 excludes among other items, large groups of
smaller-balance homogenous loans that are collectively evaluated for
impairment. California Federal adopted SFAS 114 as of January 1, 1995.
California Federal has defined residential 1-4 loans, consumer loans,
multifamily loans with an outstanding balance of less than $750,000 and
commercial real estate loans with an outstanding balance of less than $500,000
as homogenous loans. All homogenous loans that are 90 days or more delinquent
or are in foreclosure are automatically placed on non-performing status.
Additionally, homogenous loans that have had a modification of terms are
individually reviewed to determine if they meet the definition of a troubled
debt restructuring. 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. The amount by which the recorded investment of
the loan exceeds the measure of the impaired loan is recognized by recording a
valuation allowance with a corresponding charge to the provision for losses.
For all loans secured by real estate, California Federal measures impairment
and establishes specific valuation allowances by utilizing the fair value of
the property collateralizing the loan.

      All loans designated by California Federal as "impaired" are either
placed on non-accrual status or are designated as restructured and are
included with those loans reported as non-performing. California Federal's
non-performing loans consist of loans on which California Federal has ceased
the accrual of interest ("non-accrual loans") and loans on which various
concessions have been made with respect to the interest rate or other terms
due to the inability of the borrower to service the obligation under the
original terms of the agreement ("restructured loans"). It is California
Federal's policy to place a loan on non-accrual status in the event that the
borrower is 90 days or more delinquent or earlier if the timely collection of
interest and/or principal appears doubtful. When a loan is determined to be
impaired and/or placed on non-accrual status, the accrued and unpaid interest
receivable is reversed. All cash subsequently collected on non-accrual loans
is used to reduce the recorded investment in the loan until the loan is
returned to performing status. California Federal's policy allows loans that
are contractually performing to be designated as impaired and to be placed on
non-accrual status if the future collection of interest and or principal
appears doubtful or the risk of default is probable.

     Allowance for Loan Losses

      California Federal has established valuation allowances for estimated
losses on specific loans ("specific valuation allowances") and for the
inherent risk in the loan portfolio which has yet to be specifically
identified ("general valuation allowances").

      California Federal maintains a loan monitoring system which provides a
means for the timely identification of impaired and potential problem loans
and to permit the evaluation of the adequacy of the allowances for losses.
California Federal's loan monitoring system has established specific policies
relating to its residential 1-4, income property, commercial banking and
consumer loan portfolios. Additionally, California Federal is required by
various regulatory agencies to monitor and classify its assets as Pass,
Special Mention, Substandard, Doubtful and Loss. California Federal's
monitoring system further disaggregates loans that are determined to be Pass
into four separate

                                     F-58

<PAGE>



grades. Additionally, California Federal places loans on a watchlist if they
exhibit certain credit characteristics. These characteristics include dollar
size, tenant concentration and the timing of maturity.

      California Federal's residential 1-4 loans and consumer loans are
relatively homogenous and no single residential 1-4 or consumer loan possesses
the potential for significant risk of loss. Therefore, California Federal
normally evaluates the risk of loss on these loans by analyzing their loss
experience, performance, default rates and other indicators of risk for the
portfolios as a whole. California Federal stratifies its income property loan
portfolio by size and by type and treats performing multi-family loans with
outstanding principal balances less than $750,000 and commercial real estate
loans with balances less than $500,000 as homogenous portfolios. Income
property loans that are below the homogenous threshold are evaluated for
impairment based upon their payment status and on a pool basis. For income
property loans exceeding the homogenous threshold, California Federal conducts
a periodic review of each loan in order to test each loan for impairment. The
frequency and type of review is dependent upon the inherent risk attributed to
each loan. The level of risk is measured by a scale which evaluates each loan
on a continuum of multiple grades. The frequency and intensity of the loan
review is directly proportionate to the adversity of the loan grade.
California Federal evaluates the risk of default and the risk of loss for each
loan subject to individual monitoring. Non-performing income property loans
and performing loans that have been graded substandard, special mention, or
watchlist are typically reviewed on a quarterly basis. Current appraisals are
generally obtained annually as long as the loan continues to possess certain
risk characteristics. These loans are monitored throughout the year by a
review of the collateral's operating performance and the borrowers' indicated
or demonstrated ability to continue to meet their obligations. When necessary,
California Federal utilizes operating statements of the collateral to perform
its own discounted cash flow analyses. These analyses provide the basis for
specific valuation allowances. Numerous other factors are considered in the
evaluation, including a review of certain individual borrowers' current
financial status, credit standing, available collateral, California Federal's
judgment regarding prevailing and anticipated economic conditions and other
relevant factors.

      Specific valuation allowances are provided when an identified decline in
the value of an impaired loan (or the related collateral) is identified. The
determination of specific valuation allowances includes a periodic evaluation
of the financial status of certain individual borrowers or collateral relating
to loans specifically identified as containing elements of potential risk in
the loan portfolio. For loans that are impaired and secured by real estate or
other collateral, California Federal provides specific allowances based upon
the excess of the outstanding loan amount over the fair value of the related
collateral with consideration of holding and selling costs.

      General valuation allowances are based upon the inherent risk in the
loan portfolio that has not been specifically identified. The general
valuation allowance is based upon a number of factors, including historical
loss experience, the level of non-performing and internally classified loans,
the composition of the loan portfolio, estimated remaining lives of the
various types of loans within the portfolio, prevailing and forecasted
economic conditions and California Federal's judgment. General allowances are
provided for all loans, regardless of any specific allowances provided. The
determination of California Federal's allowance for loan losses is based on
estimates that are affected by changes in the regional or national economy and
market conditions. California Federal believes that as of December 31, 1996
and 1995, the allowance for loan losses is adequate based on current economic
and market conditions. However, in the course of evaluating the adequacy of
the allowance for loan losses, California Federal has projected that the
California economy and the market for real estate will remain in the same
relative condition that it was in at December 31, 1996. Should these factors
experience a downturn in the near term or if market interest rates increase
significantly in the near term, California Federal could experience a material
increase in the level of loan defaults and charge-offs.


                                     F-59

<PAGE>



   REAL ESTATE HELD FOR SALE

      Real estate held for sale consists of real estate acquired in settlement
of loans ("REO") and real estate investments ("REI"). REO generally results
when property collateralizing a loan is foreclosed upon or otherwise acquired
by California Federal in satisfaction of the loan. REO is recorded at the
lower of the recorded investment in the loan satisfied, the fair value or the
disposition value of the related assets acquired less anticipated disposition
costs. The fair value of the assets is based upon a current appraisal adjusted
for estimated carrying and selling costs. The disposition value is based upon
the current market pricing of the asset. Net cash receipts on REO are recorded
as a reduction in the basis of the asset. Net cash payments are expensed as
incurred. California Federal's REI consists of properties that California
Federal, through its subsidiaries, acquired for purposes of development where
California Federal is actively seeking to dispose of the property in an
expeditious manner. California Federal has not been actively involved in real
estate investment or development for several years. California Federal records
its REI at the lower of cost or fair value of the properties. California
Federal determines fair value by utilizing recent sales activity and deducting
holding and disposition costs over the estimated remaining period to sell the
projects. California Federal has assumed an orderly disposition in estimating
the holding period to sale. Should California Federal be unable to sell the
project at the projected prices, if the holding period is substantially longer
than forecast, or if California Federal's intent with respect to an orderly
disposition were to change, the fair value ultimately realized by California
Federal could be materially lower than California Federal's current forecast.

   PREMISES AND EQUIPMENT, DEPRECIATION AND CAPITALIZATION OF INTEREST

      Maintenance and repairs on premises and equipment are charged to expense
in the year incurred. Depreciation and amortization of premises and equipment
are computed using the straight-line method over the estimated useful lives of
the assets. Interest incurred on amounts used to finance the construction of
such assets is capitalized and amortized over the depreciable lives of the
related assets.

   GOODWILL

      Goodwill, which represents the excess of cost over the fair value of
tangible and identifiable intangible net assets acquired, was amortized on a
straight-line basis over the expected periods to be benefited, ranging from 20
to 40 years. During 1994, California Federal applied Statement of Financial
Accounting Standards No. 72, Accounting for Certain Acquisitions of Banking or
Thrift Institutions ("SFAS 72") to acquisitions initiated, by California
Federal, prior to September 30, 1982. SFAS 72 requires, among other things,
that to the extent, the fair value of liabilities assumed exceeds the fair
value of identifiable assets acquired from a banking or thrift institution,
the unidentifiable intangible asset recognized (i.e., goodwill) generally
shall be amortized over a period no longer than the discount on the acquired
long-term interest-earning assets. SFAS 72 was effective for acquisitions
initiated after September 30, 1982 with retroactive application permitted.
California Federal had been accounting for its acquisitions initiated
subsequent to September 30, 1982 in accordance with SFAS 72. The cumulative
effect of the retroactive application of SFAS 72 resulted in the acceleration
of California Federal's goodwill amortization arising from California
Federal's thrift institution acquisitions initiated prior to September 30,
1982. Under generally accepted accounting principles, the cumulative effect
from the retroactive application of SFAS 72 must be reflected as of the first
day of the fiscal year in which it is implemented. To that extent, $273.7
million of remaining unamortized goodwill was eliminated effective January 1,
1994.

   INCOME TAXES

      California Federal and its subsidiaries are included in a consolidated
federal income tax return and a combined California franchise tax report filed
by Bancorp.

      California Federal has adopted Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS 109") and has applied the provisions of SFAS 109 retroactively to
January 1, 1982. Under the asset and liability method of SFAS 109, deferred
income tax expense (benefit) is derived by establishing deferred tax assets
and liabilities as of the reporting date for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in

                                     F-60

<PAGE>



which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date. California Federal's evaluation of the realizability of deferred tax
assets includes consideration of the amount and timing of future reversals of
existing temporary differences, as well as available taxable income in
carryback years. California Federal has not considered income from future
operations in evaluating the realizability of its deferred tax assets. See
Note 20 Income Taxes.

   SHAREHOLDER'S EQUITY

      On July 29, 1996 Bancorp, the parent company of California Federal,
announced that it had entered into a definitive merger agreement with First
Nationwide Holdings Inc., the parent company of First Nationwide Bank, San
Francisco. The merger agreement was approved by Bancorp's stockholders and by
regulatory authorities and closed on January 3, 1997.

      During the 1995 fourth quarter, California Federal obtained regulatory
and shareholder approval to reorganize into a holding company structure. As a
result of the reorganization, on January 1, 1996, each share of California
Federal's common stock was converted into one share of Bancorp common stock.
Consequently, California Federal became a wholly-owned subsidiary of Bancorp.
California Federal's other equity securities remained outstanding securities
of California Federal.

      During 1994, California Federal issued 1,725,000 shares of 105/8%
noncumulative perpetual preferred stock, Series B ("Preferred Stock, Series
B"). Cash dividends on the Preferred Stock, Series B, are not cumulative and
are payable quarterly when declared by California Federal's Board of
Directors. The Preferred Stock, Series B, has a liquidation preference and par
value of $100.00 per share. The par value of the Preferred Stock, Series B was
$100.00 per share at December 31, 1996 and 1995. Both the designated and
outstanding number of shares at December 31, 1996 and 1995 were 1,725,000. The
Preferred Stock, Series B, is generally not redeemable prior to April 1, 1999.
The Preferred Stock, Series B, is redeemable at the option of California
Federal, in whole or in part, at $105.313 per share on or after April 1, 1999
and prior to April 1, 2000, and at prices decreasing annually thereafter to
the liquidation preference of $100.00 per share on or after April 1, 2003,
plus declared but unpaid dividends. In addition, the Preferred Stock, Series
B, is redeemable at the option of California Federal or its successor or any
acquiring or resulting entity with respect to California Federal on or after
April 1, 1996 and prior to April 1, 1999 in whole, but not in part, in the
event of a change of control of California Federal at $114.50 per share.

      During the second quarter of 1996 California Federal called for
redemption all 3,740,000 shares of its 7 3/4% noncumulative convertible
preferred stock, Series A. Except for the conversion of 18,820 shares into
23,336 shares of Bancorp's common stock, the Series A shares were redeemed
effective June 14, 1996 at a redemption price of $25.00 per share, plus a
dividend of $0.398264 per share.

   FINANCIAL INSTRUMENTS

      The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 107 "Disclosures about Fair Value of
Financial Instruments" ("SFAS 107").

      Financial instruments are defined under SFAS 107 as cash, evidence of an
ownership in an entity, or a contract that conveys or imposes on an entity the
contractual right or obligation to either receive or deliver cash or another
financial instrument.

      A significant portion of California Federal's assets and liabilities are
financial instruments as defined under SFAS 107. California Federal is also a
party to financial instruments that are not reported on the Consolidated
Statements of Financial Condition ("off balance sheet financial instruments").
Such off balance sheet financial instruments include: commitments to originate
loans, standby letters of credit, recourse arrangements and interest rate
exchange agreements.


                                     F-61

<PAGE>



     Risks Associated with Financial Instruments

     Credit Risk

      Credit risk of a financial instrument is the possibility that a loss may
result from the failure of another party to perform in accordance with the
terms of the contract. The most significant credit risk associated with
California Federal's financial instruments is concentrated in its loans
receivable. Additionally, California Federal is subject to credit risk on
certain off-balance sheet financial instruments. California Federal utilizes a
loan monitoring system to evaluate the level of credit risk on its loan
portfolio and utilizes a similar process for loans sold by California Federal
with recourse and standby letters of credit. California Federal's credit risk
with respect to interest rate exchange agreements is limited to the premium
paid on interest rate cap and floor arrangements, and the amount of interest
due from the counterparty.

     Market Risk

      Market risk of a financial instrument is the possibility that future
changes in market prices may reduce the value of a financial instrument or
increase the contractual obligations of California Federal. California
Federal's market risk is concentrated in its portfolios of securities held for
sale and loans receivable. California Federal's securities held for sale are
traded in active markets. The values of these securities are susceptible to
fluctuations in the general market. When a borrower fails to meet the
contractual requirements of his loan agreement, California Federal is subject
to the market risk of the collateral securing the loan.

     Interest Rate Risk

      Financial instruments are subject to interest rate risk to the extent
that they reprice on a frequency, degree or basis that varies from market
repricing. California Federal is subject to interest rate risk to the degree
that its interest-earning assets reprice on a different frequency or schedule
than its interest-bearing liabilities. A majority of California Federal's
loans receivable and mortgage backed securities reprice based upon the FHLB
Eleventh District cost of funds index ("COFI"). The repricing of COFI tends to
lag market interest rates. California Federal closely monitors the pricing
sensitivity of its financial instruments and, if deemed cost effective,
utilizes hedging and other asset/liability techniques to mitigate the impact
of interest rate risk.

     Concentrations of Credit Risk

      California Federal's lending activities are principally conducted in
California and California Federal currently focuses on the origination of
residential 1-4 loans. The largest concentration of California Federal's loan
portfolio is located in the Los Angeles County area of California. The ability
of California Federal's borrowers to repay their commitments is contingent on
several factors, including the economic conditions in the borrower's
geographic region, primarily Southern California, market interest rates, and
upon the individual financial condition of the borrower.

     Fair Value of Financial Instruments

      SFAS 107 requires the disclosure of the fair value of financial
instruments, whether or not recognized on the statement of financial
condition, for which it is practicable to estimate the value. SFAS 107
requires that California Federal disclose estimated fair values for its
financial instruments. Fair values, estimates and assumptions are set forth in
Note 21 Fair Value of Financial Instruments.

     Derivative Financial Instruments

      California Federal's derivative financial instruments are primarily
limited to interest rate exchange contracts and such contracts are
predominantly utilized for hedging activities for existing assets and
liabilities.

      California Federal uses several types of interest rate exchange
contracts as an integral part of its asset/liability management program
including: (i) interest rate swaps, (ii) interest rate caps and (iii) interest
rate floors. Interest rate exchange agreements have been utilized primarily to
reduce interest rate risk on certain interest-bearing liabilities and

                                     F-62

<PAGE>



interest-earning assets. Interest rate swap agreements are instruments in
which California Federal and another party agree to exchange interest 
payments on a notional amount. When using interest rate
cap agreements, California Federal pays another party a premium in exchange
for cash payments on a notional amount in the event that a specified index
exceeds a specified rate. When utilizing interest rate floors, California
Federal pays a premium in exchange for cash payments on a notional amount in
the event that a specified index is less than a specified rate. These premiums
are amortized over the duration of the agreement. The notional amounts of
interest rate exchange agreements are not reflected in the Consolidated
Statements of Financial Condition, but are disclosed in the notes to these
Consolidated Financial Statements. California Federal records interest income
and expense on the accrual method for its interest rate exchange agreements.
Changes in the value of interest rate exchange agreements that are designated
as held for a purpose other than trading are not reflected in the Consolidated
Financial Statements unless California Federal determined that it was probable
that the counterparty would default. Interest rate exchange agreements that
are designated as held for trading purposes are evaluated at fair value, and
in the event that such evaluation indicates a net liability to California
Federal, such liability is reflected on the Consolidated Statements of
Financial Condition with a corresponding charge reflected on the Consolidated
Statements of Operations. To the extent that California Federal is in a gain
position, California Federal records net cash flow as income upon receipt and
typically does not record unrealized gains as income.

   NEWLY ENACTED AND PROPOSED ACCOUNTING PRONOUNCEMENTS

      In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used for long-lived assets and certain identifiable intangibles to be disposed
of. SFAS 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. In the event that a long lived asset is
determined to be impaired, an impairment loss shall be recognized. SFAS 121
prescribes that impairment losses for long-lived assets shall be measured as
the amount by which the carrying amount of the asset exceeds its fair value.
Additionally, SFAS 121 provides that long-lived assets, to be disposed by sale
or abandonment, shall be reported at the lower of carrying amount or fair
value less cost of disposition. This statement is effective for financial
statements for fiscal years beginning after December 15, 1995, earlier
application is permitted. SFAS 121 was adopted by California Federal on
January 1, 1996 and did not have a material adverse effect on the financial
position or results of operations.

      In May 1995, the FASB issued Statement of Financial Accounting Standards
No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS 122"), an amendment
of FASB Statement No. 65 "Accounting for Certain Mortgage Banking Activities"
("SFAS 65"). SFAS 122 amends SFAS 65 to remove the distinction in accounting
for mortgage servicing rights resulting from originated loans and those
resulting from purchased loans. Additionally, SFAS 122 requires that an
enterprise with mortgage banking activities assess its capitalized mortgage
servicing rights for impairment based on the fair value of those rights. SFAS
122 is to be applied prospectively to fiscal years beginning after December
15, 1995, earlier application is permitted. SFAS 122 was adopted during the
first quarter of 1996. California Federal did not experience a material impact
to its results of operations or financial condition from such implementation.

      In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 establishes financial accounting and reporting standards for
stock-based employee compensation plans. Those plans include all arrangements
by which employees receive shares of stock or other equity instruments of the
employer or the employer incurs liabilities to employees in amounts based on
the price of the employer's stock. Examples are stock purchase plans, stock
options, restricted stock, and stock appreciation rights. This Statement also
applies to transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Those transactions must be
accounted for, or at least disclosed in the case of stock options, based on
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable. The accounting
requirements of SFAS 123 are effective for transactions entered into in fiscal
years that begin after December 15, 1995. The disclosure requirements of SFAS
123 are effective for financial statements for fiscal years beginning after
December 15, 1995, or for an earlier fiscal year for which SFAS 123 is
initially adopted for recognizing compensation cost. During 1996, California
Federal had no stock-based employee compensation plans. In addition,
California Federal did not enter into any transactions in which its equity
instruments were used to acquire 
                                     F-63

<PAGE>

goods or services from non-employees. Therefore, SFAS 123 had no effect on 
the Financial Statements of California Federal.

      In November 1995, the FASB issued a Special Report ("Special Report") as
an aid in understanding and implementing Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). The Special Report included such guidance that
enabled California Federal to reassess the appropriateness of the
classifications of all securities held and account for any resulting
reclassifications at fair value in accordance with SFAS 115. During the fourth
quarter of 1995, California Federal, in accordance with the Special Report,
redesignated $17.2 million of MBS from "held to maturity" to "available for
sale." Prior to December 31, 1995, California Federal sold the MBS for a loss
of less than $0.1 million.

      In June 1996, the FASB issued Statement of Financial Accounting
Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"). SFAS 125 establishes new
criteria for determining whether a transfer of financial assets in exchange
for cash or other consideration should be accounted for as a sale or as a
pledge of collateral in a secured borrowing. SFAS 125 also establishes new
accounting requirements for pledged collateral. As issued, SFAS 125 is
effective for all transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and earlier
or retroactive application is not permitted. During 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 127").
SFAS 127 defers for one year the effective date (a) of paragraph 15 of SFAS
125 and (b) of paragraphs 9-12 and 237(b) of Statement 125 for repurchase
agreement, dollar-roll, securities lending, and similar transactions. SFAS 127
provides additional guidance on the types of transactions for which the
effective date of SFAS 125 has been deferred. It also requires that if it is
not possible to determine whether a transfer occurring during calendar-year
1997 is part of a repurchase agreement, dollar-roll, securities lending, or
similar transaction, then paragraphs 9-12 of SFAS 125 should be applied to
that transfer. Although the provisions of SFAS 125 as amended by SFAS 127 have
not yet been adopted by California Federal, management does not expect such
adoption to have a material impact on its consolidated financial statements.

   NOTE 2:  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

      For the purposes of the Consolidated Statements of Cash Flows,
California Federal defines cash as currency on hand and demand deposits with
other financial institutions.

<TABLE>
<CAPTION>
                                                                           1996                1995                1994
                                                                           ----                ----                ----
                                                                                      (Dollars in Millions)
<S>                                                                         <C>                 <C>                 <C>  
Cash Paid (Received) During the Year for:
  Interest expense................................................         $675.5             $685.2              $557.8
  Income taxes refunded...........................................          (11.2)              (1.6)               (8.5)
Non-Cash Investing and Financing Activities:
  Loan foreclosures...............................................          120.2              146.2               189.3
  Loans exchanged for mortgage-backed securities..................            --               239.7               424.0
  Transfer of securities to available for sale....................            --                17.2 (a)             --
  Change in unrealized gain on securities available for sale .....            --                19.2               (27.5)
  Transfer of loans to held for sale .............................           44.9               78.7             1,213.9 (b)
</TABLE>

----------
       (a) In November 1995, FASB issued the Special Report. During the fourth
       quarter of 1995, California Federal, in accordance with the Special
       Report, redesignated $17.2 million of MBS from "held to maturity" to
       "available for sale" and, prior to December 31, 1995, sold the MBS for
       a loss of less than $0.1 million.

      (b) During 1994, California Federal designated $1.2 billion of
      performing and non-performing loans as assets held for accelerated
      disposition. This designation was made during 1994 as an integral part
      of California Federal's program to improve its capital position, reduce
      non-performing assets and improve its operating efficiency.



                                     F-64

<PAGE>



NOTE 3:  SHORT-TERM LIQUID INVESTMENTS

      California Federal's short-term liquid investments include certificates
of deposit, commercial paper and Federal funds sold. The amount of short-term
liquid investments held by California Federal at any point in time is a
function of many factors including liquidity requirements, projected cash
requirements and cash flows.

      The following table presents California Federal's short-term liquid
investments at the dates indicated:


<TABLE>
<CAPTION>
                                               December 31, 1996                                    December 31, 1995
                                -----------------------------------------------      --------------------------------------------
                                                                  Weighted Avg.                                      Weighted Avg.
                                Carrying      Weighted Avg.        Maturity           Carrying      Weighted Avg.      Maturity
                                 Value            Rate              (Days)              Value           Rate            (Days)
                                --------      -------------       -------------       --------      -------------     ------------
                                          (Dollars in Millions)                                (Dollars in Millions)
<S>                             <C>            <C>              <C>                   <C>           <C>              <C>
Federal funds sold............   $69.0            6.08%                2                $70.0            5.80%             2
Certificates of deposit.......      --              --                --                  4.1            5.19             27
                                 -----                                                 ------                        
                                 $69.0            6.08%                                 $74.1            5.77%         
                                 =====                                                 ======
</TABLE>

      At December 31, 1996 and 1995 accrued interest and dividends receivable
related to short-term liquid investments held to maturity were $0.1 million
and $0.2 million, respectively.

NOTE 4:  SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL

      Securities purchased under agreements to resell are collateralized by
mortgage-backed securities at December 31, 1996 and by U.S. Treasury
securities at December 31, 1995. The following table provides additional
information on the agreements:
<TABLE>
<CAPTION>
                                                                                             December 31,
                                                                                ---------------------------------------
                                                                                       1996                 1995
                                                                                       ----                 ----
                                                                                         (DOLLARS IN MILLIONS)
<S>                                                                                  <C>                  <C>    
     Carrying value of agreements to resell...................................       $1,310.1             $1,674.6
     Market value of collateral...............................................        1,341.2              1,704.4
     Maximum amounts of outstanding agreements to resell
       at any month-end.......................................................        1,912.9              1,704.2
     Average amounts of outstanding agreements to resell
       for the year...........................................................        1,660.5              1,144.5
     Weighted average interest rate for the year..............................          5.52%                5.99%
     Weighted average interest rate on year-end  balances.....................          6.72%                6.01%
     Weighted average maturity of outstanding agreements
       to resell (days).......................................................              3                   11
</TABLE>

      At December 31, 1996 and 1995, California Federal held only securities
purchased under agreements to resell the identical securities. The securities
collateralizing these agreements are held in the custodial accounts of a
trustee, who is not a party to the agreement for California Federal for the
duration of the agreements. The following table presents California Federal's
securities purchased under agreements to resell, by counterparty, at the dates
indicated:

<TABLE>
<CAPTION>
                                                                                              December 31,
                                                                                  ------------------------------------
Counterparty                                                                             1996              1995
                                                                                       (Dollars in Millions)
<S>                                                                                  <C>               <C>  
Lehman Brothers...............................................................          $    263.0         $   700.7
Nomura Securities.............................................................               350.0             500.0
Bear Stearns..................................................................               209.8             473.9
Paine Webber .................................................................               407.3                --
Donaldson, Lufkin and Jenrette................................................                80.0                --
                                                                                          --------          --------
                                                                                          $1,310.1          $1,674.6
                                                                                          ========          ========
</TABLE>

      Accrued interest related to securities purchased under agreements to
resell at December 31, 1996 and 1995 totaled $1.6 and $2.7 million,
respectively.

                                     F-65

<PAGE>




NOTE 5: SECURITIES AVAILABLE FOR SALE

      The carrying values, market values and weighted average rate of
securities available for sale at December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                      Net      
                                                       Unrealized  Unrealized      Unrealized                     Weighted
                                Historical  Carrying     Holding    Holding        Holding          Market        Average
                                   Cost       Value       Gains     Losses       Gains (Losses)     Value          Rate
                                ----------  --------   ---------- ----------     --------------   ----------      --------
                                                                        (DOLLARS IN MILLIONS)   
<S>                               <C>         <C>       <C>         <C>            <C>               <C>            <C>
U.S. Treasury securities:
  Maturing after 1 year
     but within 5 years ......    $6.0        $6.0      $  --       $  --          $   --            $6.0           6.13%
                                  ====        ====      =====       ======         ======            ====           =====  
</TABLE>


      The carrying values, market values and weighted average rate of
securities available for sale at December 31, 1995 are as follows:

<TABLE>
<CAPTION>
                                                                                                                
                                                                                                                
                                                                                                                
                                                                                      Net      
                                                       Unrealized  Unrealized      Unrealized                     Weighted
                                Historical  Carrying     Holding    Holding        Holding          Market        Average
                                   Cost       Value       Gains     Losses       Gains (Losses)     Value          Rate
                                ----------  --------   ---------- ----------     --------------   ----------      --------
                                                                        (DOLLARS IN MILLIONS)   
<S>                               <C>         <C>       <C>         <C>            <C>               <C>            <C>
U.S. Treasury securities:
  Maturing within 1 year......    $150.0      $149.9     $   --     $(0.1)         $ (0.1)         $149.9          4.00%
  Maturing after 1 year
   but within 5 years........      50.3        50.4        0.1         --             0.1            50.4          7.46
                                 -------      ------     -----     ------           -----          ------        ------
                                  $200.3      $200.3     $ 0.1      $(0.1)          $  --          $200.3          4.87%
                                 ======       ======     ======    ======           =====          ======        ======
</TABLE>


      The table below presents the activity of securities available for sale
for the periods presented:

<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                                    -----------------------------------------------------
                                                          1996                 1995                1994
                                                          ----                 ----                ----
                                                                (Dollars in Millions)
<S>                                                    <C>                 <C>                    <C>    
Balance, January 1.........................               $ 200.3          $1,731.5                $894.7
Purchases..................................                 221.0             202.9               1,519.2
Sales......................................                (259.3)           (969.4)               (670.2)
Transfers..................................                    --              17.2 (a)                --
Maturities (b).............................                (156.0)           (801.1)                 22.2
Market value adjustment....................                    --              19.2                 (34.4)
                                                       ----------           -------               --------
Balance, December 31.......................              $    6.0            $200.3               $1,731.5
                                                         ========            ======               ========
</TABLE>

----------
      (a) During 1995, California Federal transferred $17.2 million of
      mortgage-backed securities held to maturity to securities available for
      sale. See Note 6 Securities Held to Maturity for further information.

      (b) Maturities include amortization of premiums and accretion of 
      discounts.

      Accrued interest receivable on securities available for sale at December
31, 1996 and December 31, 1995 totaled $0.1 million and $2.7 million,
respectively.

      Proceeds from sales of securities available for sale during the years
ended December 31, 1996, 1995 and 1994 were $261.6 million, $976.3, and $670.4
million, respectively.


                                     F-66

<PAGE>




      California Federal has pledged certain securities, including those
available for sale, as collateral for advances from the Student Loan Mortgage
Association ("SLMA") and various other borrowings. The following table
presents the outstanding balances at California Federal's carrying value of
securities pledged as collateral at December 31, 1996 and 1995, respectively.


                                                     December 31,
                                            -------------------------------
                                                 1996            1995
                                                 ----
                                                 (Dollars inMillions)
Pledged as collateral for:
  SLMA advances............................ $     --           $124.9
  Other borrowings.........................      52.0            58.8
                                                -----          ------
                                                $52.0          $183.7
                                                =====          ======

NOTE 6: SECURITIES HELD TO MATURITY

      California Federal's securities held to maturity have primarily
consisted of MBS. California Federal had an investment in a guaranteed
investment contract, which matured in 1995. California Federal's portfolio of
MBS consist of securities issued by agencies of the United States, such as
FNMA. The investments are purchased or are obtained by exchanging pools of
mortgage loans for the securities ("securitized loans").

      Summarized below are securities held to maturity at December 31, 1996
and 1995:

<TABLE>
<CAPTION>
                                                                        1996                                
                                         -------------------------------------------------------------------
                                                              Gross             Gross                       
                                            Carrying        Unrealized        Unrealized         Market     
                                              Value           Gains             Losses           Value      
                                              -----           -----             ------           -----      
                                                                  (Dollars in Millions)                     
<S>                                        <C>               <C>             <C>              <C>    
Mortgage-backed securities:
  FNMA.................................    $1,038.2            $ 6.2          $  (3.1)          $1,041.3    
  California Federal AA-rated
    mortgage pass-through
    securities.........................       623.9              0.9             (2.4)             622.4     
  Other................................       301.8              0.4            (23.6)             278.6    
                                           -------             -----          -------           --------
                                           $1,963.9             $7.5           $(29.1)          $1,942.3      
                                           ========             ====           ======           ========     

<CAPTION>
                                                                          1995                                  
                                             -------------------------------------------------------------    
                                                                Gross             Gross                           
                                             Carrying        Unrealized        Unrealized        Market          
                                              Value            Gains             Losses           Value          
                                              -----            -----             ------           -----          
                                                                   (Dollars in Millions)                       
<S>                                           <C>               <C>             <C>              <C>    
Mortgage-backed securities:                                                                                        
  FNMA.................................     $1,192.7           $ 17.9            $ (0.2)       $1,210.4         
  California Federal AA-rated                                                                                   
    mortgage pass-through                                                                                       
    securities.........................       802.3               1.3              (5.2)          798.4          
  Other................................       371.7               1.5             (20.7)          352.5          
                                           --------             -----           -------        --------
                                           $2,366.7             $20.7            $(26.1)       $2,361.3          
                                           ========             =====            ======        ========          
                                                                         
</TABLE>

      The weighted average interest rates of MBS held to maturity were 6.82%
and 6.93% at December 31, 1996 and 1995, respectively. Accrued interest
receivable related to MBS held to maturity outstanding at December 31, 1996
and 1995 totaled $11.2 million and $13.8 million, respectively. California
Federal utilizes MBS as collateral for various borrowings. At December 31,
1996 and 1995, $1,374.1 and $1,316.3 million, respectively, of MBS, were
pledged as collateral for various borrowings as follows:

                                                      December 31,
                                           -------------------------------
                                                  1996            1995
                                                  ----            ----
                                             (Dollars inMillions)
Pledged as collateral for:
  Advances from FHLB..................          $  374.6          $255.9
  Repurchase agreements...............             975.7           908.9
  SLMA advances.......................               --            108.6
  Other obligations...................              23.8            42.9
                                              ----------        --------
                                                $1,374.1        $1,316.3
                                              ==========        ========

                                     F-67

<PAGE>


      At December 31, 1996, California Federal had $924.9 million of
securitized loans with some form of recourse to California Federal. In the
unanticipated event the securitized loans are sold, purchasers would have
varying forms of recourse to California Federal. The recourse provisions
subject California Federal to varying degrees of liability in the event of
loss. California Federal currently intends to hold its portfolio of
mortgage-backed securities until maturity. The following table presents the
composition of securitized loans with potential recourse, by collateral type,
at December 31, 1996:

<TABLE>
<CAPTION>

                                                    Original     
                                                  Loan to Value     Original   
                                                     Ratio       Loan to Value 
                                     Original       greater       Ratio greater
             Securitized Loans      Loan to Value   than 80%        than 80%   
                with Recourse       Ratio is less     With          Without    
             Collateralized by     than or = 80%    PMI (a)         PMI (a)         Total
             -----------------     -------------  -------------  -------------       -----
                                                    (Dollars in Millions)
<S>                                   <C>           <C>           <C>              <C>   
Residential 1-4 units............     $537.5         $44.0           $ 8.9          $590.4
Multi-family property............      331.8           --              2.7           334.5
                                      ------         -----           -----          ------
                                      $869.3         $44.0           $11.6          $924.9
                                      ======         =====           =====          ======
</TABLE>
----------
      (a) Private mortgage insurance (PMI) provides limited insurance
      protection to California Federal in the event of default.

      California Federal periodically reviews the credit quality of its
portfolio of MBS. In the case of securitized loans with recourse provisions,
California Federal makes an assessment of the credit quality of the underlying
loans. See Note 1 Summary of Significant Accounting Policies for a discussion
of California Federal's loan monitoring policies.

      In November 1995, the FASB issued the Special Report as an aid to
understanding and implementing SFAS 115. During the fourth quarter of 1995,
California Federal, in accordance with the Special Report, redesignated $17.2
million of MBS from "held to maturity" to "available for sale" and, prior to
December 31, 1995, sold the MBS for a loss of less than $0.1 million. There
were no sales of MBS during the year ended December 31, 1994.

NOTE 7: LOANS RECEIVABLE HELD FOR SALE

      In order to manage its asset size, liquidity requirements, the
composition and interest rate sensitivity of its interest-earning assets and
other factors; California Federal originates certain fixed rate residential
1-4 loans for sale.

      At December 31, 1996 and 1995, the historical cost bases of loans
receivable held for sale were $8.7 and $13.6 million, respectively. At
December 31, 1996 and 1995, the market value of loans receivable held for sale
were $8.7 million and $13.8 million, respectively. Market values, at December
31, 1996 and 1995, were based upon quotes of similar or identical loans.

      Gross unrealized gains on loans receivable held for sale were less than
$0.1 million and $0.2 million at December 31, 1996 and 1995, respectively.
Gross unrealized losses on loans receivable held for sale were less than $0.1
million at both December 31, 1996 and 1995. Proceeds from sales of loans
receivable held for sale were $281.1 million, $183.2 million, and $1,099.4
million for the years ended December 31, 1996, 1995 and 1994, respectively.

      The following table summarizes the gains and losses recorded for the
periods presented for loans receivable:

<TABLE>
<CAPTION>

                                                                     December 31,
                                                                     ------------
                                                           1996           1995          1994
                                                           ----           ----          ----
                                                               (Dollars in Millions)
<S>                                                        <C>            <C>           <C>  
Realized gains from sales of loans receivable.......       $1.4           $0.3          $1.0
Realized losses from sales of loans receivable......       (0.7)          (0.6)         (0.5)
                                                          -----          -----         -----
Net (losses) gains..................................       $0.7          $(0.3)        $ 0.5
                                                           ====          =====         =====
</TABLE>


                                     F-68

<PAGE>



NOTE 8: LOANS RECEIVABLE HELD FOR INVESTMENT

     Loans receivable held for investment consist of the following:
<TABLE>
<CAPTION>

                                                                                         December 31,
                                                                            ------------------------------------
                                                                                   1996               1995
                                                                                   ----               ----
                                                                                   (Dollars in Millions)
<S>                                                                           <C>                 <C> 
Loans secured by real estate:
  Residential 1-4.....................................................          $ 8,253.1           $ 7,277.6
  Equity..............................................................               57.4                64.1
                                                                               ----------           ---------
                                                                                  8,310.5             7,341.7
  Income property:
     Multi-family.....................................................            1,249.4             1,346.2
     Shopping centers.................................................               69.1                81.8
     Office buildings.................................................              145.6               168.9
     Other income property............................................              272.5               291.3
                                                                               ----------           ---------
       Total income property..........................................            1,736.6             1,888.2
                                                                               ----------           ---------
                Total loans secured by real estate....................           10,047.1             9,229.9
Consumer:
     Mobile homes.....................................................               53.0                66.3
     Vehicles.........................................................                2.1                21.5
     Equity creditline................................................              117.4               137.8
     Unsecured........................................................               14.1                14.6
     Loans secured by deposits........................................                8.1                 9.4
                                                                               ----------          ----------
     Total consumer loans.............................................              194.7               249.6
                                                                               ----------          ----------
 Business Banking ....................................................               16.9                 --
                                                                               ----------          ----------
                                                                                 10,258.7             9,479.5
 Less:
     Undisbursed loan funds...........................................               (0.3)                0.1
     Deferred loan (costs) fees.......................................              (26.2)              (13.9)
     Allowance for loan losses........................................              173.1               181.0
     Unearned interest on equity/consumer loans.......................                --                  1.3
     Discount on acquired loans.......................................                4.0                 7.4
                                                                               ----------          ----------
                Total loans receivable................................           10,108.1             9,303.6
                Less: Loans held for sale (see Note 7)................                8.7                13.6
                                                                               ----------          ----------
                Loans receivable held for investment..................          $10,099.4            $9,290.0
                                                                                =========          ==========
</TABLE>

      Certain of California Federal's adjustable loan programs allow the
borrower to make monthly payments which are lower than the amount required to
amortize the loan until its maturity in any particular month. In the event
that the monthly payment is not sufficient to pay the interest accruing during
the month, the deficiency is added to the loan's principal balance ("negative
amortization"). In the event that a loan incurs significant negative
amortization, there is an increased risk that the market value of the
underlying collateral on the loan may be insufficient to fully satisfy the
outstanding principal and interest, should the borrower default.

      At December 31, 1996 and 1995, California Federal's loan portfolio
included $4.8 billion and $4.7 billion, respectively, of loans with the
potential to negatively amortize, of which $0.9 billion and $1.4 billion of
loans has some amount of negative amortization.

      Accrued interest receivable related to loans receivable including loans
held for sale at December 31, 1996 and 1995 totaled $61.0 million and $60.1
million, respectively.


                                     F-69

<PAGE>



      California Federal has pledged certain loans as collateral for advances
from the FHLB, letters of credit, interest rate swaps, and capital lease
obligations. The following table presents the outstanding balance of loans
pledged as collateral at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                      December 31,
                                                       -----------------------------------------
                                                               1996                 1995
                                                               ----                 ----
                                                                 (Dollars in Millions)
<S>                                                          <C>                  <C> 
     Pledged as collateral for:
       Advances from FHLB.......................              $3,895.3             $3,322.1
       Letters of credit from FHLB..............                  23.3                 52.3
       Interest rate swap agreements............                   --                   --
       Capital lease obligations................                   6.6                  8.7
                                                              --------             --------
                                                              $3,925.2             $3,383.1
                                                              ========             ========
</TABLE>

      California Federal's loans are concentrated in (i) loans secured by
residential property of 1-4 units, (ii) loans with collateral located in
California and (iii) loans secured by residential property of five units or
more. The following table shows the concentrations of the gross real estate
secured portfolio by state and property type:

<TABLE>
<CAPTION>

                                                                                          
                                    Residential 1-4                      Equity           
                               -----------------------            --------------------
                                     December 31,                     December 31,        
                               -----------------------            --------------------
State                            1996            1995             1996            1995    
-----                            ----            ----             ----            ----
                                               (Dollars in Millions)                      
<S>                            <C>             <C>              <C>            <C>     
California.................    $7,146.0        $6,288.9          $46.6           $49.5    
Florida....................       389.6           456.4            8.3            11.3    
Nevada.....................       201.0           183.4            2.4             2.9    
Georgia....................        67.5            79.6            0.1             0.1    
New York...................        32.2            34.4            --              --     
Arizona....................        31.4            16.1            --              0.1    
New Jersey.................        33.9            32.5            --              --     
Texas......................        46.3            24.8            --              --     
Connecticut................        30.1            21.0            --              --     
Washington.................        32.6            13.5            --              --     
Colorado...................        35.3            16.4            --              --     
Illinois...................        23.5            11.3            --              0.1    
Other (a)..................       183.7            99.3            --              0.1    
                               --------        --------          -----           -----
                               $8,253.1        $7,277.6          $57.4           $64.1    
                               ========        ========          =====           =====

<CAPTION>

                                                          Income Property             
                              ----------------------------------------------------------------         
                                         Multi-family                    Commercial (b)         
                                         ------------                    --------------
                                         December 31,                     December 31,                   
                                   ------------------------          -----------------------
                                    1996             1995            1996             1995         
                                    ----             ----            ----             ----
                                                     (Dollars in Millions)                         
<S>                               <C>             <C>               <C>            <C>     
California.................       $1,155.0        $1,234.6           $467.0          $512.7               
Florida....................           26.0            31.5              9.6            14.8               
Nevada.....................           36.0            41.7              4.8             6.3               
Georgia....................            7.6             7.9              1.9             2.0               
New York...................            0.1             0.1              --              --                
Arizona....................           14.8            15.3              0.7             1.6               
New Jersey.................            --              --               --              --                
Texas......................            1.6             2.5              --              0.6               
Connecticut................            --              --               --              --                
Washington.................            4.8             4.9              --              --                
Colorado...................            --              --               1.4             1.6               
Illinois...................            0.9             1.1              --              --                
Other (a)..................            2.6             6.6              1.8             2.4               
                                  --------        --------           ------          ------
                                  $1,249.4        $1,346.2           $487.2          $542.0
                                  ========        ========           ======          ======


</TABLE>
----------
      (a) Includes states with aggregate gross real estate loans that are less
than $23 million.

      (b) Includes shopping centers, office buildings and other income property.

     The majority of California Federal's California real estate loans are
secured by property located in Los Angeles, Orange, and San Diego counties.

      At December 31, 1996, the largest amount of loans to a single borrower
totaled $38.5 million. The collateral for the loan is a 225,000-square foot
office building occupied entirely by certain of California Federal's operating
and administrative departments and subject to a lease for the life of the
loan.



                                     F-70

<PAGE>



Impaired and Non-Performing Loans

      California Federal identifies impaired loans through its loan monitoring
process. See Note 1 Summary of Significant Accounting Policies for further
information about California Federal's loan monitoring process. California
Federal stratifies its review procedures by loans that are reviewed on an
individual basis, and those that are treated as homogenous pools. Loans that
are considered to be homogenous are evaluated on the basis of their payment
record and/or on a pool basis. All homogenous loans that are 90 days or more
delinquent or are in foreclosure are automatically placed on non-performing
status. Additionally, homogenous loans that have had a modification of terms
are individually reviewed to determine if they meet the definition of a
troubled debt restructuring.

      Loans that are individually monitored are determined to be impaired if
it is determined that it is probable that California Federal will be unable to
collect the contractual amount of principal and interest owed to California
Federal. California Federal's policy allows for a loan to be designated as
impaired even if the borrower has currently fulfilled his repayment
obligations. Loans that are delinquent 90 days or more, in foreclosure or if
the borrower has filed for bankruptcy are normally designated as impaired. If
a loan is designated as impaired, the loan is either placed on non-accrual
status or designated as a restructured loan and is included as a
non-performing loan. Cash collected on impaired loans on non-accrual status is
generally applied as a reduction to the carrying value of the loan.

     California Federal has identified two types of non-performing loans
within its portfolio: non-accrual loans and restructured loans. The following
table summarizes California Federal's gross non-performing loans by property
type at the dates indicated:

<TABLE>
<CAPTION>
                                                                        December 31,
                                     -----------------------------------------------------------------------------------
                                                         1996                                        1995
                                     ------------------------------------------   --------------------------------------
                                        Non-Accrual    Restructured       Total     Non-Accrual   Restructured     Total
                                        -----------    ------------       -----     -----------   ------------     -----
                                                                     (Dollars in Millions)
<S>                                    <C>              <C>          <C>           <C>             <C>           <C>
Residential 1-4.................        $ 62.1            $1.9          $64.0      $     99.6          $3.0       $102.6
Income property:
  Multi-family.....................       50.5             --            50.5            86.3           0.3         86.6
  Shopping centers.................        3.4             --             3.4             1.3           --           1.3
  Office buildings.................        5.7             --             5.7             8.8           --           8.8
  Hotels/motels....................        --              --             --              --            --           --
  Other income property............        6.0             1.3            7.3             6.8           --           6.8
                                        ------           -----        -------         -------        ------      -------
     Total income property.........       65.6             1.3           66.9           103.2           0.3        103.5
                                        ------           -----        -------         -------        ------      -------
Consumer...........................        1.9             --             1.9             3.5           --           3.5
                                        ------           -----        -------         -------        ------      -------
                                        $129.6            $3.2         $132.8          $206.3          $3.3       $209.6
                                        ======           =====        =======         =======        =====       =======
Interest not recognized............    $  10.3           $  --        $  10.3         $  10.6        $   --      $  10.6
                                       =======           =====        =======         =======        ======      =======
</TABLE>


      For both years ended December 31, 1996 and 1995, interest income of less
than $0.1 million was recorded on restructured loans. This was less than $0.1
million lower than what would have been recorded if the restructured loans had
been performing in accordance with their original contractual terms.



                                     F-71

<PAGE>



      The following table summarizes California Federal's concentration of
gross non-accrual and restructured loans by state as of the dates indicated:

<TABLE>
<CAPTION>
                                                          December 31,
                 ---------------------------------------------------------------------------------------------
                                    Non-Accrual                                   Restructured
                 ---------------------------------------------   ---------------------------------------------
 STATE                     1996                    1995                    1996                   1995
                 ---------------------   ---------------------   --------------------   ----------------------
                                                    (Dollars in Millions)
<S>              <C>           <C>       <C>         <C>        <C>           <C>       <C>         <C>    
California..        117.5        90.6%   $  188.7        91.5%   $    3.2       100.0%   $    3.1       94.0%
Florida ....          6.4         4.9         8.5         4.1         --          --          --         --
Nevada .....          2.1         1.6         3.5         1.7         --          --          0.2        6.0
Georgia ....          0.4         0.4         1.2         0.6         --          --          --         --
Texas ......          --          --          1.0         0.5         --          --          --         --
Arizona ....          --          --          0.4         0.2         --          --          --         --
Other ......          3.2         2.5         3.0         1.4         --          --          --         --
                 --------      ------    --------      ------    --------      ------    --------      -----
                 $  129.6       100.0%   $  206.3       100.0%   $    3.2       100.0%   $    3.3      100.0%
                 ========      ======    ========      ======    ========      ======    ========      =====
</TABLE>


      The following table presents impaired loans with specific allowances and
impaired loans without specific allowances by property type and by the method
that impairment is determined at the dates indicated:
<TABLE>
<CAPTION>
                                                                                    December 31, 1996
                                                                     ----------------------------------------------
                                                                        Gross           Specific              Net
                                                                       Amount           Allowance           Amount
                                                                       ------           ---------           -------
                                                                                  (Dollars in Millions)
<S>                                                                   <C>              <C>                <C>   
Impairment Measured By Individual Review:
Impaired Loans with Specific Allowances:
  Multi-family..................................................       $50.4            $ (6.7)            $ 43.7
  Commercial real estate:
     Office buildings...........................................         5.7              (2.0)               3.7
     Shopping centers...........................................         3.4              (0.2)               3.2
     Industrial.................................................         5.1              (0.4)               4.7
     Other......................................................         0.9              (0.2)               0.7
                                                                      ------            ------              -----
  Total commercial real estate..................................        15.1              (2.8)              12.3
                                                                      ------            ------              -----
Total impaired loans with specific allowances...................        65.5              (9.5)              56.0
                                                                      ------            ------              -----
Impaired Loans without Specific Allowances:
  Residential 1-4...............................................         1.9               --                 1.9
  Commercial real estate........................................         1.4               --                 1.4
                                                                      ------            ------              -----
Total impaired loans without specific allowances................         3.3               --                 3.3
                                                                      ------            ------              -----
Total impaired loans measured by individual review..............        68.8              (9.5)              59.3
                                                                      ------            ------              -----
Impairment Measured on a Pool Basis:
  Residential 1-4...............................................        62.1               --                62.1
  Consumer......................................................         1.9               --                 1.9
                                                                      ------            ------              -----
                                                                        64.0               --                64.0
                                                                      ------            ------             ------
Total impaired loans............................................      $132.8             $(9.5)            $123.3
                                                                      ======            ======             ======
</TABLE>


      California Federal has designated all impaired loans at December 31,
1996 as non-accrual or as a troubled debt restructuring. For all impaired
loans, California Federal evaluates the need for a specific allowance by
comparing the fair value of the related collateral to the net recorded
investment in the loan. For all impaired loans where the fair value of the
related collateral is less than the net recorded investment in the loan,
California Federal allocates a specific allowance equal to the excess of the
net recorded investment in the loan over the fair value of the related
collateral with consideration given to holding and selling costs. All
uncollected interest relating to impaired loans has been fully reversed from
income. At December 31, 1996, California Federal had designated $25.7 million
of loans as impaired that were performing in accordance with their contractual
terms. California Federal applies cash collections from impaired loans as a
reduction of the loan's carrying amount. The average recorded investment in
the impaired loans was $173.8

                                     F-72

<PAGE>


million for the year ended December 31, 1996. During the year ended December
31, 1996, California Federal recognized $2.3 million of interest income on
impaired loans.

     Allowance for Loan Losses

      California Federal's policies for providing the appropriate level of
allowance for loan losses are discussed further in Note 1 Summary of
Significant Accounting Policies.

      The following table presents an analysis of the general and specific
allowances at the dates presented:

<TABLE>
<CAPTION>

                                                  December 31, 1996                    December 31, 1995
                                 -------------------------------------      ---------------------------------------
                                    Specific      General                    Specific       General
                                   Allowance     Allowance      Total        Allowance     Allowance        Total
                                   ---------     ---------      -----        ---------     ---------        -----
                                                              (Dollars in Millions)
<S>                                <C>             <C>          <C>         <C>              <C>           <C>    
Real estate:
  Residential 1-4.............         $ --        $ 45.0       $ 45.0         $ --          $ 45.0        $  45.0
  Income property.............          11.7         96.4        108.1          24.3           90.0          114.3
                                      ------       ------       ------      --------         ------         ------
       Total real estate......          11.7        141.4        153.1          24.3          135.0          159.3
Consumer......................           --          10.0         10.0           --            11.7           11.7
Unallocated...................           --          10.0         10.0           --            10.0           10.0
                                      ------       ------       ------      --------         ------         ------
       Total..................         $11.7       $161.4       $173.1         $24.3         $156.7         $181.0
                                      ======       ======       ======      ========         ======         ======
</TABLE>


                                     F-73

<PAGE>



      Activity in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 is summarized as follows:


<TABLE>
<CAPTION>
                                                                                    1996           1995             1994
                                                                                    ----           ----             ----
                                                                                           (Dollars in Millions)
<S>                                                                               <C>            <C>              <C> 
Balance, January 1,.....................................................           $181.0         $211.6           $254.3
Provision for losses....................................................             41.3           31.8             74.9
Increase in general allowances from acquisitions .......................              0.6            --               --
Charge-offs:
  Real estate:
     Residential 1-4....................................................            (28.1)         (24.8)           (19.5)
     Income property:
       Multi-family.....................................................            (18.4)         (30.2)           (56.1)
       Shopping centers.................................................              --            (4.9)            (0.9)
       Office buildings.................................................             (2.3)          (5.5)           (15.2)
       Hotels/motels....................................................              --             --             (11.6)
       Other income property............................................             (0.6)          (1.6)            (6.2)
                                                                                   ------          -----            -----
          Total income property.........................................            (21.3)         (42.2)           (90.0)
                                                                                   ------          -----            -----
  Total real estate.....................................................            (49.4)         (67.0)          (109.5)
  Commercial banking....................................................              --             --              (6.8)
  Consumer..............................................................             (8.0)          (5.4)            (7.0)
                                                                                   ------          -----            -----
     Total Charge-offs..................................................            (57.4)        ( 72.4)          (123.3)
                                                                                    -----          -----            -----
Recoveries:
  Real estate:
     Residential 1-4....................................................              4.2            3.1              0.9
     Income property:
       Multi-family.....................................................              1.7            5.2              0.9
       Shopping centers.................................................              --             0.1              --
       Office buildings.................................................              0.1            0.4              0.3
       Hotels/motels....................................................              --             --               --
       Other income property............................................              0.1            --               0.4
                                                                                  -------         ------            -----
          Total income property.........................................              1.9            5.7              1.6
                                                                                  -------         ------            -----
  Total real estate.....................................................              6.1            8.8              2.5
  Commercial banking....................................................              --             --               2.1
  Consumer..............................................................              1.5            1.2              1.1
                                                                                 --------        -------           ------
     Total recoveries...................................................              7.6           10.0              5.7
                                                                                 --------        -------           ------
Net charge-offs.........................................................            (49.8)         (62.4)          (117.6)
                                                                                   ------        -------           ------
Balance, December 31,...................................................           $173.1         $181.0           $211.6
                                                                                   ======        =======           ======
</TABLE>


      During the normal course of business, California Federal has securitized
and/or sold certain loans with recourse. Estimated probable loan losses and
related costs of collection and repossession are provided for at the time of
such sales and are periodically reevaluated. California Federal evaluates the
credit risk of loans sold with recourse in the same manner as it reviews its
own portfolio of loans. California Federal has accrued an allowance for
potential future losses on loans sold with recourse. Such allowance is
included with "Other liabilities" on the Consolidated Statements of Financial
Condition.



                                     F-74

<PAGE>



      A summary of the outstanding balance of loans sold with recourse at
December 31, 1996 follows:


<TABLE>
<CAPTION>
                                                                        Residential          Income
                                                                             1-4             Property          Total
                                                                        -----------          --------          -----
                                                                                      (Dollars in Millions)
<S>        <C>                                                              <C>               <C>              <C>   
Loans with original loan to value ratio less than or
  equal to 80%..................................................            $103.1            $232.8           $335.9
Loans with original loan to value ratio greater than 80%
  With PMI......................................................               1.6               --               1.6
  Without PMI...................................................              22.7              25.9             48.6
                                                                            ------            ------           ------
                                                                            $127.4            $258.7           $386.1
                                                                            ======            ======           ======
</TABLE>

      California Federal has obtained credit insurance for $333.1 million of
residential loans sold with recourse not included in the amounts above. The
amount of California Federal's liability on these loans was limited to $2.4
million at December 31, 1996. The insurance was obtained to limit California
Federal's risk of loss on these loans. The fair value of California Federal's
potential obligation for recourse or guarantees on loans sold with recourse at
December 31, 1996 and 1995 was determined to approximate the value of the
liability established by California Federal for the potential cost of such
obligations, which totaled $9.7 million and $11.5 million at December 31, 1996
and December 31, 1995, respectively.

      At December 31, 1996, $3.5 billion of loans owned by others were
serviced by California Federal (virtually all of which were originated by
California Federal) compared to $3.8 billion and $4.5 billion at December 31,
1995 and 1994, respectively.

      Loan servicing fees, which are included as a component of "Fee income"
on the Consolidated Statements of Operations, totaled $10.9 million, $12.4
million, and $14.6 million for the years ended December 31, 1996, 1995 and
1994, respectively.

     Fair Value of Loans Receivable

      The fair value information presented below represents California
Federal's estimate of the fair value of its loans held for investment. The
assumptions inherent in these fair value estimates may be found in Note 21
Fair Value of Financial Instruments.


<TABLE>
<CAPTION>
                                             December 31, 1996                              December 31, 1995
                                   -----------------------------------           -----------------------------------
                                   Book Value (a)           Fair Value           Book Value (a)           Fair Value
                                   --------------           ----------           --------------           ----------
                                                                 (Dollars in Millions)
<S>                                 <C>                    <C>                    <C>                    <C>      
Residential 1-4 loans:
  Fixed.........................    $ 1,511.3              $ 1,524.7              $   994.1              $   996.6
  Adjustable....................      6,755.7                6,863.8                6,295.3                6,293.1
                                    ---------              ---------               --------              ---------
     Total residential 1-4
       loans....................      8,267.0                8,388.5                7,289.4                7,289.7
Multi-family loans..............      1,181.4                1,143.6                1,269.7                1,230.6
Commercial real estate loans....        449.2                  439.6                  494.3                  485.0
Consumer loans..................        184.9                  190.8                  236.6                  240.8
Business banking loans .........         16.9                   17.1                    --                     --
                                    ---------              ---------               --------              ---------
     Total loans held for
       investment...............    $10,099.4              $10,179.6               $9,290.0               $9,246.1
                                    =========              =========               ========              =========
</TABLE>
----------

      (a) Book value is presented net of undisbursed loan funds, discounts,
deferred items and allowances for loan losses.

                                     F-75

<PAGE>





NOTE 9: REAL ESTATE HELD FOR SALE

      California Federal's real estate held for sale is comprised of REO and
REI. A summary of real estate held for sale, net of allowance for losses,
follows:



<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          ------------------------------
                                                                             1996              1995
                                                                             ----              ----
                                                                              (Dollars in Millions)
<S>                                                                         <C>               <C>  
Residential 1-4........................................................      $11.3             $47.3
Multi-family...........................................................        1.2               1.5
Office buildings.......................................................        0.1               0.3
Hotels/motels..........................................................        --                --
Other income property..................................................        0.3               0.4
                                                                             -----             -----
                                                                             $12.9             $49.5
                                                                             =====             =====
</TABLE>


     The following table presents California Federal's real estate held for
  sale by state and property type at December 31, 1996:

<TABLE>
<CAPTION>
                                                              
                                                   Residential   Multi-           Office          Commercial/
                                                    1-4 units    family          Buildings         Industrial       Total
                                                   -----------  -------          ---------        -----------      -------
                                                                          (DOLLARS IN MILLIONS)
<S>                                                   <C>         <C>             <C>                <C>         <C>  
  California...........................               $10.8        $1.2             $0.1                $0.3        $12.4
  Florida..............................                 0.3         --               --                  --           0.3
  New York.............................                 0.2         --               --                  --           0.2
                                                     ------        ----           ------             -------        -----
  Total................................               $11.3        $1.2             $0.1                $0.3        $12.9
                                                      =====        ====           ======             =======        =====

  REO..................................               $ 9.8        $1.2             $0.1                $0.3        $11.4
  REI..................................                 1.5         --               --                  --           1.5
                                                     ------        ----           ------             -------        -----
  Total................................               $11.3        $1.2             $0.1                $0.3        $12.9
                                                      =====        ====           ======             =======        =====
</TABLE>


The operating results of real estate held for sale are summarized below:

<TABLE>
<CAPTION>
                                                                                 Year Ended December 31,
                                                                  ---------------------------------------------------
                                                                         1996              1995             1994
                                                                         ----              ----             ----
                                                                                  (Dollars in Millions)
<S>                                                                 <C>              <C>            <C>    
  (Losses) gains from the sale of real estate and other
    net operating income........................................        $(3.5)           $(15.4)        $ 33.8
  (Provision for) recoveries of losses on real estate...........         (5.0)              7.4          (79.7)
                                                                        -----           -------         ------
                                                                        $(8.5)          $  (8.0)        $(45.9)
                                                                        ======          =======         ======
</TABLE>

            The following table presents the activity in the allowance for
losses on real estate held for sale:


<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                     ------------------------------------------------------
                                                            1996              1995               1994
                                                            ----              ----               ----
                                                                (Dollars in Millions)
<S>                                                        <C>               <C>              <C>    
  Balance, January 1 .........................              $39.1             $95.7            $ 121.6
  (Recoveries of) provision for losses........                5.0              (7.4)              79.7
  Net charge-offs.............................              (33.2)            (49.2)            (105.6)
                                                           ------             -----           --------
  Balance, December 31........................              $10.9             $39.1           $   95.7
                                                            =====             =====           ========
</TABLE>


                                     F-76

<PAGE>





  NOTE 10: FEDERAL HOME LOAN BANK STOCK

     California Federal's investment in Federal Home Loan Bank of San
Francisco ("FHLB") stock at December 31, 1996 and 1995 was $166.8 million and
$135.7 million, respectively. The FHLB provides a central credit facility for
member institutions. As a member of the FHLB system, California Federal is
required to own capital stock in the FHLB in an amount at least equal to the
greater of 1% of the aggregate principal amount of its unpaid home loans, home
purchase contracts and similar obligations at the end of each calendar year,
assuming for such purposes that at least 30% of its assets were home mortgage
loans, or 5% of its advances (borrowings) from the FHLB. California Federal
was in compliance with this requirement at December 31, 1996. The fair value
of California Federal's FHLB stock approximates book value due to California
Federal's ability to redeem such stock with the FHLB at par value.

  NOTE 11: PREMISES AND EQUIPMENT

            Premises and equipment consists of the following:


<TABLE>
<CAPTION>
                                                                                        December 31,
                                                                             ---------------------------------
                                                                                     1996            1995
                                                                                     ----            ----
                                                                                    (Dollars in Millions)
<S>                                                                                 <C>            <C>    
Land...................................................................             $ 11.6         $  12.0
Buildings..............................................................               96.5           103.8
Furniture and equipment................................................               94.7           102.6
                                                                                   -------         -------
                                                                                     202.8           218.4
Less accumulated depreciation..........................................             (143.9)         (147.2)
                                                                                    ------         -------
                                                                                    $ 58.9         $  71.2
                                                                                    ======         =======
</TABLE>


      California Federal has operating lease commitments on certain premises
and equipment. Lease expense, net of sublease income, totaled $25.2 million,
$25.5 million, and $30.7 million for the years ended December 31, 1996, 1995
and 1994, respectively. Sublease income totaled $9.7 million, $9.8 million,
and $10.3 million for the years ended December 31, 1996, 1995 and 1994,
respectively.

            Annual minimum lease commitments at the dates presented were:



<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                           ---------------------------
                                                                               1996            1995
                                                                               ----            ----
                                                                              (Dollars in Millions)
<S>                                                                          <C>            <C>    
Within one year.....................................................         $  21.9        $  22.3
Within two years....................................................            21.2           21.7
Within three years..................................................            23.0           20.2
Within four years...................................................            22.1           23.4
Within five years...................................................            23.4           22.9
Thereafter..........................................................           140.6          160.2
                                                                             -------         ------
                                                                              $252.2         $270.7
                                                                             =======         ======
</TABLE>


NOTE 12: ACCELERATED DISPOSITION OF ASSETS

      During 1994, California Federal completed the accelerated disposition of
$1.3 billion of performing and non-performing assets (the "1994 Bulk Sales").
The assets included in the 1994 Bulk Sales included loans receivable and REO.
The loans receivable were transferred from the portfolio of loans held for
investment to "held for accelerated disposition" as an integral part of
California Federal's 1994 program to raise capital, reduce non-performing
assets and improve operating efficiency. The 1994 Bulk Sales were designed to
reduce California Federal's non-performing assets and reduce California
Federal's exposure to certain performing loans with higher risk profiles than
California Federal wished to retain in its portfolio. In selecting performing
loans for the 1994 Bulk Sales, California Federal considered the credit risk
inherent in the loan, the concentration that certain loans possessed because
of the geographic location of the collateral, the size of the loan and/or the
overall relationship with certain borrowers. A substantial amount of the

                                     F-77

<PAGE>


performing loans sold as part of the 1994 Bulk Sales were classified as
substandard or designated as special mention. California Federal recorded a
$274.8 million loss from the 1994 Bulk Sales. California Federal recorded
$60.4 million of charge-offs, relating to previously established specific
allowances, on loans receivable included in the 1994 Bulk Sales.

NOTE 13: DEPOSITS

      California Federal obtains deposits primarily through a network of full
service branches located in California and Nevada. Deposits obtained by
California Federal are insured by the SAIF of the FDIC up to a maximum of
$100,000 for each depositor.

      A summary of deposit balances and weighted average rates at the dates
indicated follows:


<TABLE>
<CAPTION>
                                                         December 31, 1996               December 31, 1995
                                                  --------------------------       -----------------------------
                                                   Balance             Rate         Balance               Rate
                                                   -------             ----         -------               ----
                                                                        (Dollars in Millions)
<S>                                              <C>                  <C>          <C>                   <C>  
Passbook accounts ............................    $  424.1              2.21%        $509.7                2.22%
Money market accounts ........................     2,072.4              2.94        2,008.4                2.65
Non-interest bearing commercial...............       324.7              --            216.9                 --
                                                  --------                         --------
                                                   2,821.2                          2,735.0
Certificate accounts:
  2.00% to 2.99%..............................        10.6              2.77           16.5                2.86
  3.00% to 3.99% .............................         3.9              3.12           22.5                3.34
  4.00% to 4.99% .............................       146.0              4.73          208.2                4.61
  5.00% to 5.99% .............................     5,123.1              5.53        2,545.3                5.49
  6.00% to 6.99% .............................       538.3              6.35        3,630.4                6.26
  7.00% to 7.99% .............................       274.5              7.08          293.0                7.13
  8.00% to 8.99% .............................         1.1              8.12           23.3                8.45
  9.00% to 9.99% .............................          --              --              2.5                9.29
                                                  --------                         --------
     Total certificate accounts ..............     6,097.5              5.65        6,741.7                5.95
                                                  --------                         --------
                                                  $8,918.7              4.64%      $9,476.7                4.87%
                                                  ========                         ========
</TABLE>


      Deposit maturities are summarized as follows at the dates indicated:


<TABLE>
<CAPTION>
                                                                         December 31,
                                                               --------------------------------
                                                                    1996             1995
                                                                    ----             ----
                                                                    (Dollars in Millions)
<S>                                                               <C>              <C>     
Maturing within one year....................................      $6,522.6         $8,216.6
Maturing after one year and within two years................       1,890.5            946.6
Maturing after two years and within three years.............         360.0            196.2
Maturing after three years and within four years............          68.0             53.6
Maturing after four years and within five years.............          63.4             26.6
Thereafter..................................................          14.2             37.1
                                                                  --------         --------
                                                                  $8,918.7         $9,476.7
                                                                  ========         ========
</TABLE>


                                     F-78

<PAGE>



      Jumbo certificates and other deposit accounts with balances of $100,000
or greater included in the above table had the following remaining contractual
maturities:


<TABLE>
<CAPTION>
                                                                      At December 31,
                                                            -----------------------------------
                                                                  1996              1995
                                                                  ----              ----
                                                                   (Dollars in Millions)
<C>                                                             <C>                 <C>   
3 months or less ..........................................     $  862.3            $789.5
Over 3 months but within 6 months..........................        255.1             247.2
Over 6 months but within 12 months.........................        458.9             369.9
Over 12 months.............................................         67.4             112.2
                                                                --------          --------
                                                                $1,643.7          $1,518.8
                                                                ========          ========
</TABLE>


      At December 31, 1996, California Federal had $254.8 million of brokered
deposits. At December 31, 1995, California Federal had $273.8 million of
brokered deposits. Accrued interest payable on deposits at December 31, 1996
and 1995 was $2.8 million and $10.8 million, respectively, which is included
in "Interest payable" on the Consolidated Statements of Financial Condition.

      On August 4, 1994, California Federal completed the sale of 44 branches
located in Florida and Georgia ("Southeast Division"). At the time of the
sale, the Southeast Division had deposits totaling approximately $3.9 billion.
California Federal received a 4.10% deposit premium from the sale which
contributed to a net gain of $135.0 million recorded from the sale.

      During the second quarter of 1996, California Federal sold six branches
located in San Diego County, California, with deposits totaling approximately
$380 million. The sale of the branches resulted in a net gain of $12.0
million. The $12.0 million gain is included with "Other income" in the
Consolidated Statements of Operations.

      A summary of interest expense by deposit type is summarized in the table
below for the years indicated:



<TABLE>
<CAPTION>
                                                                    At December 31,
                                                    ----------------------------------------------
                                                         1996            1995            1994
                                                         ----            ----            ----
                                                               (Dollars in Millions)
<S>                                                    <C>             <C>             <C>    
Passbook accounts................................      $   9.6         $  11.1         $  14.9
Money market and NOW accounts....................         60.5            55.3            60.2
6-Month certificates.............................         29.9            26.2            27.8
9-Month to 1-Year certificates...................        103.0           133.5           113.5
Other certificates...............................        227.7           215.5           174.4
                                                        ------         -------         -------
                                                        $430.7          $441.6          $390.8
                                                        ======         =======         =======
</TABLE>


      Savings deposit fees, which are included as a component of "Fee income"
in the Consolidated Statements of Operations, totaled $30.5 million, $25.4
million, and $25.2 million for the years ended December 31, 1996, 1995 and
1994, respectively.

NOTE 14: ADVANCES FROM FEDERAL HOME LOAN BANK

      FHLB advances totaling $3,111.0 million at December 31, 1996 and
$2,671.0 million at December 31, 1995, principally adjustable rate, fixed
term, with interest rates ranging from 5.50% to 9.71%, are secured by MBS and
certain mortgage loans aggregating $4.3 billion and $3.6 billion at December
31, 1996 and 1995, respectively. The rates of the FHLB advances primarily
reprice based upon the LIBOR index and therefore are sensitive to its
volatility. Accrued interest payable on FHLB advances was $16.6 million at
both December 31, 1996 and 1995. The accrued interest on FHLB advances is
included with "Interest payable" on the Consolidated Statements of Financial
Condition.

                                     F-79

<PAGE>


      A summary of maturities of FHLB advances and weighted average interest
rates at December 31, 1996 and 1995 follows:


<TABLE>
<CAPTION>
                                                        1996                          1995
                                           ------------------------------  -------------------------
                                               Amount           Rate           Amount           Rate
                                               ------           ----           ------           ----
                                                               (Dollars in Millions)
<S>                                          <C>                 <C>        <C>                 <C>  
Maturing in one year......................   $3,100.0            5.66%      $   880.0           6.16%
Maturing in two years.....................        --             --           1,780.0           5.98
Maturing in three years...................       11.0            9.71             --             --
Maturing in four years....................        --             --              11.0           9.71
Maturing in five years....................        --             --               --             --
                                             --------                        --------
                                             $3,111.0            5.67%       $2,671.0           6.06%
                                             ========                        ========
</TABLE>

      At December 31, 1996, California Federal had credit availability with
the FHLB which allows borrowings up to 35% of California Federal's assets,
subject to the balance of pledged collateral, with terms up to ten years in
the form of FHLB Advances and Letters of Credit.

      During 1995, $1.6 billion of California Federal's FHLB advances,
utilized as a funding source for the sale of the Southeast Division, matured
and $0.3 billion matured in January 1996. Those borrowings bore an interest
rate based upon the one month LIBOR plus 0.27%. When those borrowings matured,
the FHLB offered to renew them. In order to reduce the cost of those
borrowings, California Federal entered into an interest rate swap agreement
which reduces the cost of the advances to approximately the one month LIBOR
plus 0.20%. The interest rate swap agreement was established such that the
index which determines the interest that California Federal receives is
identical to the index that California Federal pays relative to the FHLB
Advances. The notional amount of the swaps totaled $1.5 billion at December
31, 1995 and $1.8 billion at December 31, 1996 and the maturity of the swaps
is identical to that of the FHLB advances. The counterparty to the interest
rate swaps is an internationally recognized broker-dealer.

NOTE 15: SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

      The securities sold under agreements to repurchase ("reverse repurchase
agreements") were collateralized by MBS at both December 31, 1996 and 1995.
The following table provides additional information on the agreements:



<TABLE>
<CAPTION>
                                                                          1996             1995
                                                                          ----             ----
                                                                           (Dollars in Millions)
<S>                                                                      <C>              <C>    
Carrying value of agreements to repurchase........................       $ 978.4          $ 857.3
Carrying value of collateral......................................         975.7            908.9
Market value of collateral........................................         977.8            907.5
Maximum amounts of outstanding agreements
  at any month-end................................................       1,005.4          1,336.8
Average amounts of outstanding agreements.........................       1,042.7          1,098.9
Weighted average interest rate for the year.......................          5.40%            5.91%
Weighted average interest on year end balances....................          6.83%            5.56%
Weighted average maturity of outstanding agreements
  (days)..........................................................           109              148
</TABLE>


                                     F-80

<PAGE>



      The securities collateralizing these agreements are held in the
custodial account of a trustee that is not a party to the agreements until the
maturities of the agreements. For all of the agreements, the dealers have
agreed to resell the identical securities to California Federal. The following
table presents reverse repurchase agreements by counterparty:
<TABLE>
<CAPTION>
               COUNTERPARTY                     December 31, 1996            December 31, 1995
-------------------------------------------     -----------------            -----------------
                                                            (Dollars in Millions)


<S>                                                 <C>                         <C>   
Lehman Brothers............................         $461.3                      $780.9
Bear Stearns...............................          109.8                        76.4
Paine Webber...............................          407.3                         --
                                                    ------                      ------
                                                    $978.4                      $857.3
                                                    ======                      ======
</TABLE>


      Accrued interest related to reverse repurchase agreements at December
31, 1996 and 1995 totaled $1.8 million and $1.2 million, respectively.

NOTE 16: STUDENT LOAN MARKETING ASSOCIATION ADVANCES

      At December 31, 1995, the SLMA Advance totaled $200.0 million and was
secured by MBS with a carrying value of $108.6 million and government
securities with a carrying value of $124.9 million and had a weighted average
interest rate of 5.86%. The SLMA Advance outstanding at December 31, 1995
matured on September 18, 1996.

      Accrued interest related to the SLMA Advance at December 31, 1995
totaled $0.4 million.

NOTE 17: SUBORDINATED DEBENTURES

      California Federal's subordinated debentures consist of (i) a senior
subordinated note, (ii) subordinated debentures issued in connection with the
1992 corporate restructuring and (iii) convertible subordinated debentures.

     Senior Subordinated Note. California Federal has outstanding a $50.0
million, 10.68% unsecured senior subordinated note which is scheduled to
mature on December 22, 1998.

     1992 Subordinated Debentures. On December 16, 1992, California Federal
issued $13.6 million of 10.0% unsecured subordinated debentures due 2003.
California Federal repurchased $0.6 million and $8.7 million of these
debentures during 1996 and 1995, respectively, at no material gain or loss.

     Convertible Subordinated Debentures. The debentures were issued in 1986
by CalFed Inc., California Federal's former holding company, which as a result
of the 1992 corporate restructuring was merged with and into XCF Acceptance
Corporation ("XCF"), a subsidiary of California Federal. The debentures are
unsecured obligations of XCF, bear an annual interest rate of 6.5%, and,
effective January 1, 1996, are convertible into the common stock of Bancorp at
a conversion price of $143.95 per share. The debentures are redeemable at the
option of the holders on February 20, 2000, at 123% of their principal amount.

<TABLE>
<CAPTION>

                                                                                             Date of           Interest
                                                               December 31,                 Maturity             Rate
                                                    ---------------------------------       --------           --------
                                                          1996             1995
                                                          ----             ----
                                                                           (Dollars in Millions)
<S>                                                      <C>              <C>             <C>                 <C>   
Senior Subordinated Note..........................       $50.0            $50.0           Dec. 22, 1998        10.68%
1992 Subordinated Debt............................         4.3              4.9           Jan. 3, 2003         10.00
Convertible Subordinated Debentures...............         2.7              2.7           Feb. 20, 2001         6.50
                                                         -----            -----
                                                         $57.0            $57.6
                                                         =====            =====
</TABLE>


      Accrued interest related to subordinated debentures at December 31, 1996
and 1995 totaled $0.5 million and $0.4 million, respectively.



                                     F-81

<PAGE>





NOTE 18: INTEREST EXPENSE ON BORROWINGS

      Interest expense on borrowings is comprised of the following for the
years indicated:



<TABLE>
<CAPTION>
                                                                                           At December 31,
                                                                            --------------------------------------------
                                                                                 1996           1995            1994
                                                                                 ----           ----            ----
                                                                                        (Dollars in Millions)
<S>                                                                             <C>            <C>             <C>   
Securities sold under agreements to repurchase (short-term)...............      $ 56.3         $ 64.9          $ 68.5
FHLB advances (short-term)................................................        20.2           14.7             7.4
Other.....................................................................         1.0            --              --
                                                                                ------         ------          ------
  Interest expense on short-term borrowings...............................        77.5           79.6            75.9
                                                                                ------         ------          ------
Securities sold under agreements to repurchase (long-term)................         --             --              --
FHLB advances (long-term).................................................       145.4          139.4            76.2
Convertible subordinated debentures.......................................         0.2            0.2             0.2
Subordinated debentures...................................................         0.4            0.7             1.4
SLMA advances (long-term).................................................         8.2           29.2            16.5
Other.....................................................................         5.4            5.4             5.5
                                                                                ------         ------          ------
  Interest expense on long-term borrowings................................       159.6          174.9            99.8
                                                                                ------         ------          ------
Total Interest Expense on Borrowings......................................      $237.1         $254.5          $175.7
                                                                                ======         ======          ======
</TABLE>


NOTE 19: DERIVATIVE FINANCIAL INSTRUMENTS

      California Federal's use of derivative financial instruments is limited
to interest rate exchange agreements. California Federal utilizes interest
rate exchange agreements as an integral part of its asset/liability management
program.

      The primary focus of California Federal's asset/liability management
program is to measure and monitor the sensitivity of net interest income under
varying interest rate scenarios. On a quarterly basis, California Federal
simulates the level of net interest income expected to be earned over a twelve
month period following the date of the simulation. The simulation is based on
a projection of market interest rates at varying levels and estimates the
impact of such market rates on the levels of interest-earning assets and
interest-bearing liabilities during the measurement period. Also, any periodic
or lifetime caps that contractually limit the repricing of any interest
earning asset is considered.

      Based upon the outcome of the simulation analysis, California Federal
may consider the use of interest rate exchange agreements as a means of
reducing the volatility of projected net interest income within certain ranges
of projected changes in interest rates. California Federal evaluates the
effectiveness of entering into any interest rate exchange agreements by
measuring the cost of such agreements in relation to the reduction in net
interest income volatility within an assumed range of interest rates.



                                     F-82

<PAGE>



      The following tables present California Federal's interest rate exchange
agreements which were designated as hedges at December 31, 1996 and December
31, 1995:



<TABLE>
<CAPTION>
                                                                         December 31, 1996
                                      ------------------------------------------------------------------------------------------
                                          Notional                   Weighted              Weighted
                                           Amount                  Average Yield        Average Yield           Description of
       Type of interest rate            (Dollars in    Months to  Due to California      Payable by               Asset or
         exchange agreement              Millions)     Maturity       Federal         California Federal       Liability Hedged
         ------------------              ---------     --------       -------         ------------------       ----------------
<S>                                  <C>                  <C>        <C>                 <C>                  <C>          
Interest rate swap..............     $  370.0               2         5.48%               5.60%                 FHLB Advances
Interest rate swap..............        300.0               3         5.57                5.60                  FHLB Advances
Interest rate swap..............        415.0               4         5.49                5.61                  FHLB Advances
Interest rate swap..............        290.0               5         5.46                5.63                  FHLB Advances
Interest rate swap..............        105.0               6         5.47                5.56                  FHLB Advances
Interest rate swap..............        320.0               7         5.49                5.63                  FHLB Advances
Interest rate swap..............        300.0              11         6.08                5.56                  FHLB Advances
                                     --------
     Total......................     $2,100.0
                                     ========


<CAPTION>
                                                                                       December 31, 1995
                                       ----------------------------------------------------------------------------------------
                                                                     Weighted                                    
                                          Notional                 Average Yield           Weighted
                                           Amount                     Due to            Average Yield           Description of
       Type of interest rate            (Dollars in    Months to     California           Payable by               Asset or
         exchange agreement              Millions)     Maturity       Federal         California Federal       Liability Hedged
         ------------------              ---------     --------       -------         ------------------       ----------------
<S>                                  <C>                  <C>        <C>                 <C>                 <C>          
Interest rate swap...................    $  25.0          5              5.74%            8.77%              FHLB advances
Interest rate swap...................      500.0         10              5.94             5.63               FHLB advances
Interest rate swap...................      100.0          3              5.45             5.94               2-year fixed rate CDs
Interest rate swap...................      100.0          4              7.45             5.75               18-month fixed rate
                                                                                                             CDs
Interest rate swap...................      100.0          3              6.36             5.60               1-year fixed rate CDs
Interest rate swap...................    1,540.0         15              5.83             5.91               FHLB advances (a)
                                        --------
     Total...........................   $2,365.0
                                        ========
</TABLE>

----------

(a)         Please refer to Note 14 Advances from Federal Home Loan Bank for 
            further information about this interest rate swap.

                        The estimated fair value of swaps designated as hedges
at December 31, 1996 and 1995 were gains (losses) of
$11.1million and $7.1 million, respectively.

                        At December 31, 1995, California Federal had an index
amortizing interest rate swap which was designated as held
for trading with a notional balance of $50.0 million, with interest payable at
a variable rate determined by a specified index (three month LIBOR) in
exchange for interest receivable at a fixed rate. On October 9, 1996 the index
amortizing swap was sold. California Federal recorded a gain of $1.2 million
from the sale of the index amortizing swap.

                        At December 31, 1996 and 1995, California Federal was
also a party to an interest rate floor contract maturing
September 1998. In addition, California Federal was a party to an interest
rate floor contract that matured in June 1995. California Federal paid the
counterparties premiums in exchange for cash payments in the event that a
specified index (e.g., 5-year CMT, 1-year CMT) falls below the strike price.
At December 31, 1996, the notional amount of the remaining interest rate floor
was $100.0 million, the strike price was 3.38% and the monthly floating rate
was 5.50%. At December 31, 1995, the notional amount of the interest rate
floors was $100.0 million, the weighted average strike price was 3.38% and the
monthly floating rate was 5.29%. There was no unamortized premium on the
interest rate floors at 

                                     F-83

<PAGE>



December 31, 1996 or 1995. At December 31, 1996 the floating rate
exceeded the strike price by 2.12%. At December 31, 1995 the floating rate
exceeded the strike price by an average of 1.91%.

                        California Federal adheres to credit guidelines when
entering into interest rate exchange agreements in order to
minimize its exposure to credit loss in the event of non-performance by the
counterparties to the agreements. In the event that a counterparty to an
interest rate swap does not perform in accordance with the terms of the
agreement, California Federal would be at risk for the amount of the net
interest receivable due from the counterparty. At December 31, 1996,
California Federal was at risk for $9.6 million of net interest receivable
from its counterparties on its aggregate interest rate exchange portfolio.

NOTE 20: INCOME TAXES

     Income tax expense (benefit) consists of:

<TABLE>
<CAPTION>
                                                                                       At December 31,
                                                                     -----------------------------------------------
                                                                            1996            1995            1994
                                                                            ----            ----            ----
                                                                                (Dollars in Millions)
<S>                                                                       <C>           <C>             <C>     
Current Tax Expense (Benefit):
  Federal.....................................................              $(43.7)       $    --          $     --
  State..........................................................             20.1             0.1               --
                                                                           -------        --------         --------
                                                                             (23.6)            0.1               --
                                                                            ------        --------         --------
Deferred Tax Expense (Benefit):
  Federal........................................................             66.6           (31.4)           (49.0)
  State..........................................................             15.5            (9.6)           (12.3)
                                                                            ------        --------         --------
                                                                              82.1            41.0            (61.3)
Change in valuation allowance for deferred tax asset.............            (73.0)          (41.0)            61.3
                                                                            ------        --------         --------
  Net change in net deferred taxes...............................              9.1             --                --
                                                                          --------        --------         --------
  Total income tax expense (benefit).............................            (14.5)            0.1               --
  Total allocated to continuing operations.......................            (14.5)            0.1            $ 6.3
  Total allocated to Shareholder's Equity........................              --              --              (6.3)
                                                                          --------         -------         --------
     Total tax expense (benefit).................................         $  (14.5)          $ 0.1         $     --
                                                                          ========         =======         ========
</TABLE>












                                     F-84

<PAGE>



      The table below sets forth the significant components of the net
deferred tax asset/liability at December 31, 1996 and December 31, 1995 (as
adjusted and restated for 1995 and prior year tax returns filed through 1996):
<TABLE>
<CAPTION>
                                                                                                December 31,
                                                                                    ---------------------------------
                                                                                            1996             1995
                                                                                            ----             ----
                                                                                           (Dollars in Millions)
<S>                                                                                     <C>              <C>     
Components of the deferred tax asset:
  Bad debt reserve.............................................................           $ (39.0)         $ (53.9)
  Real estate and partnerships.................................................             (10.0)           (34.9)
  Prior year affirmative adjustments, net......................................              (0.2)           (52.3)
  Depreciation.................................................................              (6.0)            (9.1)
  Net operating loss carryforward..............................................             (90.3)           (69.3)
  Alternative minimum tax credit carryforward..................................              (7.1)           (27.7)
  State Income Taxes ..........................................................             (12.0)            (2.2)
  Stock Options ...............................................................              (0.2)            (3.6)
  Other........................................................................             (31.9)            (5.4)
                                                                                         ---------         -------
                                                                                           (196.7)          (258.4)
  Valuation allowance..........................................................              84.8            157.8
                                                                                         --------          -------
     Deferred tax asset, net of valuation allowance............................            (111.9)          (100.6)

Components of the deferred tax liability:
  Loan fees, interest and discount, net........................................              60.4             58.4
  FHLB stock...................................................................              41.0             36.5
  Accrued interest income......................................................              20.0             (3.3)
  Prepaid expense..............................................................               0.9              3.2
  Other........................................................................               5.0             12.1
                                                                                         --------          -------
     Deferred tax liability....................................................             127.3            106.9
                                                                                           ------          -------
     Net deferred tax liability................................................           $  15.4          $   6.3
                                                                                          =======          =======
Net state deferred tax liability...............................................           $  15.4          $   6.3
Net federal deferred tax liability.............................................               --               --
                                                                                          -------          -------
     Net deferred tax liability................................................           $  15.4          $   6.3
                                                                                          =======          =======
</TABLE>



      The change in the valuation allowance from December 31, 1995 relates to
the increase in the net taxable temporary differences not recognized for
current income tax purposes that create future tax benefits and liabilities
and adjustments made in contemplation of settlements related to the ongoing
federal and state examinations (see discussion below). The valuation allowance
of $84.8 million includes $7.6 million related to the $21.8 million balance of
an acquired federal net operating loss expiring in 2002 and 2003 and $70.1
million attributable to California Federal's federal and California tax losses
occuring in 1991 through 1995. To the extent California Federal realizes a tax
benefit not otherwise available as a result of the acquired federal net
operating loss, 65% of the tax benefits may be payable to the FDIC pursuant to
the acquisition agreement.

      California Federal generated net operating losses in 1993, 1994 and 1995
for federal income tax purposes of $22.5 million, $26.3 million and $146.2
million expiring in 2008, 2009 and 2010, respectively. In addition, California
Federal has adjusted net operating loss carryforwards from 1991, 1992, 1993,
1994, 1995 and 1996 for California franchise tax purposes of $2.1 million,
$22.4 million, $26.3 million, $35.0 million, $14.5 million and $27.2 million
expiring in 1998, 1999 and 2000, respectively. The expiration dates of the net
operating loss carryforwards may be accelerated as a result of the Merger. In
addition, California Federal also has alternative minimum tax credit
carryforwards of $2.2 million for federal income tax purposes and $4.9 million
for California franchise tax purposes which have no expiration date.

     On August 20, 1996, the Small Business Job Protection Act ("1996 Act")
was enacted into federal law generally effective for tax years beginning after
1995. One provision of the 1996 Act repealed the reserve method for computing
bad debt deductions for large (over $500 million in assets) savings
institutions for taxable years beginning in 1996. Another provision of the
1996 Act provided that beginning no later than 1998, an institution must
recapture into taxable income over six years the amount of "applicable excess
reserves." An institution's applicable excess reserves is generally the
institution's aggregate tax bad debt reserves at the end of 1995 over the
amount of its "adjusted base year

                                     F-85

<PAGE>

reserves." For taxable years subsequent to 1987, an institution's
adjusted base year reserves are generally the aggregate of its qualifying,
nonqualifying and supplemental tax bad debt reserves at December 31, 1987, the
first two of which being proportionately decreased for any reductions in the
institution's loan portfolio since such date to December 31, 1995. The 1996
Act further provided that an institution must recapture its adjusted base year
reserves if the institution no longer qualifies as a "bank" for federal income
tax purposes or if its tax bad debt reserves are used for the payment of
nontaxable dividends or other distribution (including distributions in
dissolution, liquidation or redemption of stock), generally as such rules
existed prior to the 1996 Act other than certain newly adopted preferred stock
exceptions.

      For federal income tax purposes for taxable years beginning before 1996,
savings institutions that met certain definitional and other tests were
allowed to compute a bad debt deduction based on either the percentage of
taxable income method or the experience method. Prior to the enactment of the
Tax Reform Act of 1986 ("1986 Act"), many qualifying institutions, including
California Federal, used the percentage of taxable income method which
generally resulted in a lower effective federal income tax rate than that
applicable to other types of corporations. However, the 1986 Act reduced the
maximum percent that could be deducted under the percentage of taxable income
method from 40% to 8% for tax years beginning after December 31, 1986; thus,
many qualifying institutions, including California Federal, began to use the
experience method beginning in 1987. For taxable years beginning prior to
1996, the amount by which a qualifying institution's actual tax bad debt
reserves exceeded an allowable offset computed under the experience method
("excess tax bad debt reserves") was, in certain situations involving the
payment of nontaxable dividends or other distributions (including distribution
in dissolution, liquidation or redemption in stock), subject to recapture and
includable in taxable income.

      The consolidated financial statements at December 31, 1996 and 1995 do
not include a potential federal income tax liability of $43.4 million
attributable to California Federal's tax bad debt reserves. Pursuant to the
1996 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 and dividend payments in excess of tax earnings and profits and
other distributions in dissolution, liquidation or redemption of stock,
excluding preferred stock meeting certain conditions.

      A reconciliation of total income tax expense (benefit) and the amount
computed by applying the statutory federal corporate income tax rate to
earnings (loss) from continuing operations before income tax expense (benefit)
follows:

<TABLE>
<CAPTION>
                                                                                       Percent of Pretax Earnings
                                                                           -------------------------------------------------
                                                                                         Year Ended December 31,
                                                                           -------------------------------------------------
                                                                                  1996            1995             1994
                                                                                  ----            ----             ----
<S>                                                                             <C>             <C>             <C>    
Statutory federal corporate income tax rate..........................              35.0%           35.0%           (35.0)%
State tax, net of federal income tax effect..........................              18.6%            0.1              0.7
                                                                                 ------           -----            -----
                                                                                   53.6            35.1            (34.3)
Increase (decrease) resulting from:
  Valuation allowance................................................             (65.2)          (33.5)            34.2
  Bad debt deduction.................................................               --              0.1              3.4
  Stock options......................................................              (2.4)           (1.6)             1.0
  Other, net.........................................................              (0.2)            --               0.1
                                                                                 ------           -----            -----
                                                                                  (14.2)%           0.1%             4.4%
                                                                                  =====           =====            =====
</TABLE>

      During the 1996 fourth quarter, California Federal recorded a net
current tax receivable of $23.6 million, representing the estimated net
recovery of prior years' federal and state taxes. This net tax receivable was
based on recently completed meetings with Internal Revenue Service ("IRS")
representatives whereby agreement was reached on certain tax positions taken
by California Federal. In addition, California Federal also recorded a $41.5
million receivable for the interest related to the net tax refund.

      In August 1996, California Federal received $62.9 million from the IRS
representing a refund of taxes in the amount of $12.4 million and interest
with respect thereto of $50.5 million. This refund was due to the settlement
of an IRS examination for the taxable years 1973 through 1981. Further, the
IRS and the California Franchise Tax Board ("FTB") have completed examinations
of California Federal's consolidated federal income tax returns through 1988
and combined California franchise tax reports through 1989, respectively, and 
have proposed certain adjustments primarily related to timing differences as 
to the recognition of taxable income and expense. California Federal 
previously filed


                                     F-86

<PAGE>


formal protests with both the IRS and the FTB to take exception to these
proposed adjustments and has filed claims for refund to recover its payment of
the assessed federal deficiencies. California Federal currently intends to
pursue most of the positions set forth in its federal and California protests
as well as in its federal refund claims.

      In addition, the IRS has completed its examination of the consolidated
federal income tax returns filed by California Federal's former life insurance
company affiliate, Beneficial Standard Life Insurance Company ("BSLIC"),
through 1989 and in December 1993, assessed certain deficiencies against
BSLIC. In March 1994, California Federal filed a Tax Court petition on behalf
of BSLIC, and in November 1995, the Tax Court rendered its decision affirming
California Federal's position on most of the issues contested by California
Federal on behalf of BSLIC.

      California Federal's current income tax receivables at December 31, 1996
and 1995 were $20.3 million and $7.9 million, respectively.

NOTE 21: FAIR VALUE OF FINANCIAL INSTRUMENTS

      The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of California Federal'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 California Federal'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, credit quality and interest rates, all of which are
subject to change. Since the fair value is estimated as of December 31, 1996
and December 31, 1995, the amounts that will actually be realized or paid at
settlement or maturity of the instruments could be significantly different.

     Cash and Short-Term Investments

      The book value of cash and short-term investments approximates the fair
value of such assets because of the short maturity of such investments.

     Securities Purchased Under Agreements to Resell

      The book value of securities purchased under agreements to resell
approximates the fair value of such securities due to the short term maturity
of such investments.

     Securities Available for Sale and Securities Held to Maturity

      California Federal has utilized market quotes for similar or identical
securities in an actively traded market, where such a market exists, or has
obtained quotes from independent security brokers or dealers to determine the
fair value of its securities available for sale and securities held to
maturity.

     Loans Receivable

      The fair value of loans receivable was computed as follows: (i) for
loans held for sale, quotes were obtained from independent brokers or dealers;
(ii) for performing residential loans held for investment, California Federal
aggregated the loans into pools based upon secondary market requirements for
mortgage-backed securities and utilized market quotes for similar securities;
(iii) for performing consumer, commercial banking and income property loans,
the fair value was determined by a discounted cash flow analysis and (iv) the
fair value of impaired income property loans was determined on an individual
basis, based upon the fair value of the related collateral, reduced by an
estimate of the cost and timing of disposition. For impaired residential 1-4
and consumer loans, fair value was estimated based on a discounted cash flow
analysis, adjusted for California Federal's estimate of excess credit risk.



                                     F-87

<PAGE>



     Deposits

      The fair value of deposits was determined as follows: (i) for demand
deposits, passbook accounts, money market accounts and other deposits
immediately withdrawable, fair value was determined to approximate the amount
payable on demand and (ii) for fixed maturity deposits, the fair value was
estimated by discounting expected cash flows using an average of rates offered
by other institutions combined with California Federal's current offering
rates of term deposits with similar maturities. In accordance with SFAS 107,
no value has been assigned to California Federal's long-term relationships
with its deposit customers (core deposit intangible) since it is not a
financial instrument as defined under SFAS 107.

     Borrowings

      The fair value of California Federal's borrowings was determined as
follows: (i) the fair value of FHLB advances was based upon current rates for
advances with similar terms and maturities; (ii) the fair value of student
loan marketing advances was estimated to approximate the amounts due as the
rates on these borrowings fluctuate with a market index; (iii) the fair value
of reverse repurchase agreements was based upon the current pricing for such
agreements and (iv) the fair value of California Federal's various other
borrowings was based upon alternative borrowing costs.

     Off-Balance Sheet Financial Instruments

      The fair value of California Federal's off-balance sheet financial
instruments was determined as follows: (i) the fair value of interest rate
exchange agreements that do not have an active market was determined by
computing the net present value of the estimated interest due to California
Federal as compared to the estimated interest due to the counterparties of the
interest rate exchange agreements; (ii) the fair value of California Federal's
recourse arrangements on assets sold was determined to approximate the value
of the liability currently recorded for such recourse arrangements; and (iii)
California Federal's standby letters of credit and commitments to originate or
sell loans have terms that are consistent with current market terms.
Therefore, California Federal estimates that the face amount of these
commitments approximates book value.














                                     F-88

<PAGE>



      The following table presents fair value estimates and carrying amounts
for financial instruments at December 31, 1996 and December 31, 1995:

<TABLE>
<CAPTION>

                                                                    December 31, 1996                     December 31, 1995
                                                          ------------------------------------     -------------------------------
                                                               Carrying          Estimated           Carrying          Estimated
                                                                Amount           Fair Value           Amount           Fair Value
                                                               --------          ----------          --------          ----------
                                                                                     (Dollars in Millions)
<S>                                                           <C>                <C>                <C>                 <C>      
FINANCIAL INSTRUMENT ASSETS:
Cash......................................................    $    242.1         $   242.1          $    273.7          $   273.7
Short-term liquid investments.............................          69.0              69.0                74.1               74.1
Securities purchased under agreements to resell...........       1,310.1           1,310.1             1,674.6            1,674.6
Securities available for sale.............................           6.0               6.0               200.3              200.3
Securities held to maturity...............................       1,963.9           1,942.3             2,366.7            2,361.3
Loans receivable held for sale............................           8.7               8.7                13.6               13.8
Loans receivable held for investment (a)..................      10,099.4          10,179.6             9,290.0            9,246.1
Accrued interest receivable and other.....................          78.7              78.7                83.4               98.4
FINANCIAL INSTRUMENT LIABILITIES:
Savings deposits (b)......................................       8,918.7           8,952.4             9,476.7            9,534.6
Advances from Federal Home Loan Banks.....................       3,111.0           3,096.7             2,671.0            2,676.0
Securities sold under agreements to repurchase............         978.4             980.0               857.3              852.2
Student loan marketing association advances...............           --                --                200.0              193.9
Other borrowings..........................................          57.3              62.8                58.1               65.3
Interest payable..........................................          21.7              21.7                29.4               29.4
Other liabilities.........................................         146.4             146.4               140.6              140.6
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:
Interest rate swaps (designated as a hedge)...............           --               11.1                 --                 7.1
Interest rate swaps (designated as held for trading) (c)..           --                --                 (0.3)              (0.3)
Loans sold with recourse (d)..............................          $9.7              $9.7               $11.5              $11.5

</TABLE>
----------

      (a)  Please see Note 8 Loans Receivable Held for Investment for 
           additional detail.

      (b)  The fair value does not include any amount that relates to core
           deposit intangibles, since they are not defined as financial
           instruments under SFAS 107.

      (c)  The estimated fair values represent either a net gain or a net 
           (loss). The net loss has been reflected in the Consolidated 
           Statement of Financial Position as a component of  "other 
           liabilities."

      (d)  These amounts represent California Federal's estimate of its credit
           exposure with respect to loans sold with recourse.


NOTE 22: COMMITMENTS AND CONTINGENCIES

      California Federal is a party to various outstanding commitments and
contingent liabilities in the normal course of business which are not
reflected in the accompanying consolidated financial statements. The following
is a summary of such commitments and contingencies:


                                                      December 31,
                                             ----------------------------
                                                 1996           1995
                                                 ----           ----
                                                (Dollars in Millions)
Standby letters of credit...................    $ 49.8         $ 57.9
Commitments to sell loans...................       5.5           15.7
Commitments to fund fixed rate loans........     189.6          232.0
Commitments to fund adjustable rate loans...      57.8           98.3



      California Federal makes contractual commitments to extend credit, which
are legally binding agreements to lend money to customers at predetermined
interest rates for a specified period of time. California Federal does not
anticipate 

                                     F-89

<PAGE>


any material loss as a result of these transactions. California
Federal applies the same credit standards used in the lending
process when extending these commitments, and periodically reassesses the
customers' creditworthiness through ongoing credit reviews.

      The fair value of California Federal's commitments at December 31, 1996
and 1995 was based upon (i) the contractual terms of the commitment as
compared to market terms, (ii) the period of time that the commitments could
be exercised and (iii) the inherent credit risk of the commitments. The fair
value of California Federal's commitments approximates the amount of the
outstanding commitments at December 31, 1996 and 1995.

      During the second quarter of 1995, California Federal provided an
allowance with respect to certain litigation involving loans made in 1989 and
1990 to California Communities Inc. ("CCI"), a currently inactive subsidiary
of California Federal formerly engaged in real estate development activities.
During the second quarter of 1995, an Orange County, California Superior Court
jury rendered a verdict in which it determined that California Federal was
financially liable for two loans made to CCI by the plaintiff. CCI
subsequently defaulted on the loans. The jury awarded the plaintiff $6.5
million in compensatory damages and punitive damages of $20.0 million against
California Federal and $5.0 million against CCI. California Federal has begun
the process of appealing the judgment. While California Federal believes that
its liability from this litigation, if any, will be less than the amount
awarded by the jury, there can be no assurance that the ultimate outcome of
this litigation will result in an amount less than the amount determined by
the jury and it is possible that California Federal and its subsidiary could
ultimately be found liable for an amount in excess of the allowance that has
been established. The provision for this allowance has been included in 1995
real estate operations.

      California Federal is involved as a defendant in certain legal
proceedings incidental to its business. California Federal has established an
accrual for its estimate of the potential liability that it believes it may be
found liable for. However, it is possible that California Federal's actual
liability may be substantially higher or lower than the amount of the
established allowance. California Federal does not believe that the litigation
to which it is a party, if adversely decided, in the aggregate would have a
material adverse effect upon California Federal.

NOTE 23: SHAREHOLDER'S EQUITY AND REGULATORY CAPITAL

      California Federal's shareholder's equity at December 31, 1996 was
comprised of common stock and 105/8% noncumulative perpetual preferred stock,
Series B. At December 31, 1995, in addition to the common stock and preferred
stock, Series B, the shareholder's equity of California Federal included the 
7 3/4% noncumulative convertible preferred stock, Series A.

     Common Stock

      During the fourth quarter of 1995, California Federal obtained
regulatory and shareholder approval to reorganize into a holding company
structure to provide greater flexibility for meeting future financial and
competitive needs. As a result of the reorganization, on January 1, 1996, each
share of California Federal's common stock was converted into one share of
Bancorp common stock. Consequently, California Federal became a wholly-owned
subsidiary of Bancorp.

     7 3/4% Noncumulative Convertible Preferred Stock, Series A, 
     Par Value $25.00 Per Share

      In March 1993, California Federal issued 3,740,000 shares of 7 3/4%
noncumulative convertible preferred stock at its liquidation preference of
$25.00 per share (the "Preferred Stock, Series A"). The issuance of the
Preferred Stock Series A, resulted in an $89.0 million increase in California
Federal's equity capital, after deducting issue costs of $4.5 million.
Effective January 1, 1996, the Preferred Stock, Series A, was convertible by
the holders into the common stock of Bancorp at any time at a conversion price
of $20.16 per share, subject to adjustment. During the second quarter of 1996
California Federal called for redemption all 3,740,000 shares of the Preferred
Stock, Series A. Except for the conversion of 18,820 shares into 23,336 shares
of the Bancorp's common stock, the Series A shares were redeemed effective
June 14, 1996 at a redemption price of $25.00 per share, plus a dividend of
$0.398264 per share.

                                     F-90

<PAGE>



     10 5/8% Noncumulative Perpetual Preferred Stock, Series B, 
     Par Value $100.00 Per Share

      In March 1994, California Federal issued 1,725,000 shares of 105/8%
noncumulative perpetual preferred stock at its liquidation preference of
$100.00 per share (the "Preferred Stock, Series B"). The issuance of the
Preferred Stock, Series B resulted in an $164.2 million increase in California
Federal's equity capital, after deducting issue costs of $8.3 million. The
Preferred Stock, Series B, is generally not redeemable prior to April 1, 1999.
The Preferred Stock, Series B, is redeemable at the option of California
Federal, in whole or in part, at $105.313 per share on or after April 1, 1999
and prior to April 1, 2000, and at prices decreasing annually thereafter to
the liquidation preference of $100.00 per share on or after April 1, 2003,
plus declared but unpaid dividends. In addition, the Preferred Stock, Series
B, is redeemable at the option of California Federal or its successor or any
acquiring or resulting entity with respect to California Federal on or after
April 1, 1996 and prior to April 1, 1999 in whole, but not in part, in the
event of a change of control of California Federal at $114.50 per share.

     Participation Interests

      During 1995, California Federal registered contingent litigation
recovery participation interests ("Participation Interests") to be issued to
its common shareholders. The Participation Interests represent a right to
receive an amount equal to up to 25.377745% of the cash payment, if any,
actually received by California Federal, resulting from California Federal's
pending goodwill lawsuit against the Federal government. In the lawsuit,
California Federal alleges that the United States breached certain contractual
commitments regarding the computation of its regulatory capital and deprived
California Federal of certain of its property without just compensation in
violation of the United States constitution. California Federal's claims arose
from changes, mandated by FIRREA, with respect to the rules for computing
California Federal's regulatory capital. California Federal's shareholders of
record on July 14, 1995 received one Participation Interest for every ten
shares of common stock owned on the record date. The Participation Interests
were distributed on July 28, 1995 and began trading on the NASDAQ Small Cap
Market under the symbol "CALGZ" on August 1, 1995.

      During 1996, California Federal registered Secondary Contingent
Litigation Recovery Participation Interests ("Secondary Participation
Interests") to be issued to the common shareholders of Bancorp in connection
with the acquisition of Bancorp by Holdings (the "Merger"). One Secondary
Participation Interest was distributed to shareholders for each ten common
shares of Bancorp held at the closing of the Merger which occurred January 3,
1997. The Secondary Participation Interests represent the right to participate
in the cash proceeds, if any, recovered in California Federal's pending
breach-of-contract lawsuit against the Federal government relating to the
phase-out of supervisory goodwill resulting from the enactment of FIRREA in
1989. Each Secondary Participation Interest will entitle the holder to receive
a pro rata portion of 60% of the net distributable cash proceeds, if any, of
California Federal's goodwill lawsuit after (a) payment of expenses, (b) pro
forma taxes, (c) the net cash proceeds distributable to the holders of the
Participation Interests, and (d) the retention of $125 million of net
distributable cash proceeds by First Nationwide. The Secondary Participation
Interests were distributed and began trading on the NASDAQ Small Cap Market
under the symbol "CALGL" in January 1997.





                                     F-91

<PAGE>



     Regulatory Capital

      As a savings institution which is regulated by the OTS, California
Federal is required to comply with the capital requirements of the OTS. The
regulations of the OTS require savings institutions to maintain certain
minimum levels of regulatory capital. An institution that fails to comply with
its regulatory capital requirements must obtain OTS approval of a capital plan
and can be subject to a capital directive and certain restrictions on its
operations. An institution that fails to obtain OTS approval of its capital
plan is deemed to be in an unsafe and unsound condition and could be the
subject of the appointment of a conservator or a receiver. At December 31,
1996, the industry-wide minimum regulatory capital requirements were:

        o Tangible capital of 1.5% of adjusted total assets, consisting
        generally of stockholder's equity, but excluding most intangible
        assets such as goodwill.

        o A leverage ratio requiring core capital of 3.0% of adjusted total
        assets, consisting of tangible capital plus supervisory goodwill
        (certain goodwill arising as a result of the acquisition of troubled
        institutions and regulatory assisted acquisitions).

        o Total risk-based capital consisting of core capital plus certain
        subordinated debt and other capital instruments and general valuation
        allowances on loans receivable equal to 8.0% of the value of
        risk-weighted assets plus off-balance sheet items.

      The table below presents California Federal's capital ratios as compared
to the industry-wide minimum capital requirements at December 31, 1996:

<TABLE>
<CAPTION>
                                    California               Regulatory             Excess
                                     Federal                 Requirement            Capital
                              -------------------       --------------------        -------
                                                (DOLLARS IN MILLIONS)
<S>                           <C>           <C>         <C>            <C>          <C>   
Tangible Capital............  $828.5        5.85%       $212.3         1.50%        $616.2
Core Capital................   828.5        5.85         424.6         3.00          403.9
Risk-based Capital..........   945.2       12.01         630.2         8.00          315.0
</TABLE>



      The OTS has implemented a system requiring regulatory sanctions against
institutions that are not adequately capitalized, with the sanctions growing
more severe the lower the institution's capital. The OTS has established
specific capital ratios for five separate capital categories:
"wellcapitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized" and "critically undercapitalized."

      Under the OTS regulations, an institution is treated as well-capitalized
if its ratio of total capital to risk-weighted assets is 10.0% or more, its
ratio of core capital to risk-weighted assets is 6.0% or more, its ratio of
core capital to total assets is 5.0% or greater and it is not subject to any
order or directive by the OTS to meet a specific capital level.

      At December 31, 1996, (i) California Federal's total risk-based capital
ratio was 12.01%, $158.1 million in excess of "well-capitalized" requirements,
(ii) California Federal's Tier 1 risk-based capital ratio was 10.56%, $357.6
million in excess of "well-capitalized" requirements, and (iii) California
Federal's leverage ratio was 5.85%, $120.7 million in excess of
"well-capitalized" requirements. Therefore, at December 31, 1996, California
Federal met and exceeded all of the requirements of a well-capitalized
institution.

      An institution is undercapitalized if its ratio of total capital to
risk-weighted assets is less than 8.0%, its ratio of core capital to
risk-weighted assets is less than 4.0% or its ratio of core capital to total
assets is less than 4.0% (3.0% if the institution receives the highest rating
on the CAMEL examination rating system). An institution whose capital falls
between the well-capitalized and undercapitalized levels is treated as
adequately capitalized. An institution is treated as significantly
undercapitalized if the above capital ratios are less than 6.0%, 3.0%, or 3.0%
respectively. An institution is treated as critically undercapitalized if its
ratio of tangible equity (core capital, plus cumulative preferred stock, minus
intangible assets other than qualifying supervisory goodwill and certain
purchased mortgage servicing rights) to total assets is equal to or less than
2.0%. The OTS can apply to an institution in a particular capital category the
sanctions that apply to the next lower capital category if the OTS determines, 
after providing the institution notice and opportunity 

                                     F-92

                                  
<PAGE>

for a hearing, that (i) the institution is in an unsafe and unsound
condition, or (ii) the institution received, in its most recent report of
examination, a less than satisfactory rating for asset quality, management,
earnings, or liquidity, and the deficiency has not been corrected. The OTS
cannot, however, use this authority to require an adequately capitalized
institution to file a capital restoration plan, or to subject a significantly
undercapitalized institution to the sanctions applicable to critically
undercapitalized institutions.

      Following is a reconciliation of California Federal's shareholder's
equity to regulatory capital as of December 31, 1996:

<TABLE>
<CAPTION>
                                                                Tangible           Core          Risk-based
                                                                 Capital          Capital          Capital
                                                                --------          -------        ----------
                                                                           (Dollars in Millions)
<S>                                                              <C>              <C>               <C>   
Shareholder's Equity of California Federal...................    $864.9           $864.9            $864.9
Non-allowable capital:
  Intangible assets..........................................     (15.7)           (15.7)            (15.7)
  Investment in non-permissible subsidiaries.................     (20.7)           (20.7)            (20.7)
Tier II capital items:
  Allowable subordinated debt................................       --               --               18.7
  Allowable general valuation allowance on loans
     receivable (limited to 1.25% of risk-weighted
     assets).................................................       --               --               98.0
                                                                 -----            ------            -------
Regulatory capital of California Federal.....................     828.5            828.5             945.2
Bank's minimum regulatory capital requirement................     212.3            424.6             630.2
                                                                 ------           ------            ------
  Excess over minimum regulatory capital requirements........    $616.2           $403.9            $315.0
                                                                 ======           ======            ======
</TABLE>

      California Federal's investments in and extensions of credit to any
subsidiary engaged in activities not permissible for a national bank
("non-includable subsidiaries") must be deducted from capital.

     Restriction on Shareholder's Equity and Dividends

      The payment of dividends, stock repurchases, and other capital
distributions by California Federal are subject to regulation by the OTS. The
OTS requires 30 days prior notice of any capital distribution. On December 5,
1994, the OTS proposed various amendments to its rules on capital
distributions to conform them to the prompt corrective action system
established by the Federal Deposit Insurance Corporation Improvement Act of
1991. Under the proposed regulation, those institutions that have the CAMEL
ratings of 1 or 2 and are not controlled by a holding company would no longer
be required to notify OTS before capital distributions. Most other savings
institutions could make capital distributions upon giving notice to OTS
provided that, following the distribution, the institution would remain at
least adequately capitalized as defined by the prompt corrective action
system. The proposed amendments are pending. Pursuant to statutes, savings
institutions that do not meet their current capital requirements generally may
not make any capital distributions.

     Tax Bad Debt Reserves

      On August 20, 1996, the Small Business Job Protection Act ("1996 Act")
was enacted into federal law generally effective for the tax years beginning
after 1995. Although the 1996 Act repealed the reserve method for computing
bad debt deductions for large savings institutions, it generally retained
prior law regarding recapture of tax bad debt reserves. Under the 1996 Act, a
savings institutions must recapture its adjusted base year reserves if the
institution no longer qualifies as a "bank" for federal income tax purposes or
if its tax bad debt reserves are used to pay nontaxable dividends or make
other distributions in dissolution, liquidation or redemption of stock,
excluding preferred stock meeting certain conditions. Similar to pre-1996
federal tax law, the amount includable in taxable income is equal to the
distribution plus the federal income tax attributable thereto, up to the
aggregate amount of the adjusted base year reserves. At December 31, 1996,
California Federal's adjusted base year reserves were approximately $124
million.

                                     F-93

<PAGE>

      Prior to 1996, federal tax law provided that savings institutions that
met certain definitional and other tests were allowed special bad debt reserve
deductions. If amounts appropriated to these tax bad debt reserves in excess
of an allowable offset computed under the experience method ("excess tax bad
debt reserves") were used for the payment of nontaxable dividends or other
distributions to stockholders (including distributions in dissolution,
liquidation or redemption of stock), an amount will generally be includable in
taxable income up to the aggregate amount of excess tax bad debt reserves. At
December 31, 1995, California Federal's total tax bad debt reserves of
approximately $195 million did not include any amount which may represent
excess tax bad debt reserves.

NOTE 24: EMPLOYEE RETIREMENT BENEFIT PLANS

       Retirement Plans

      California Federal has two defined benefit plans: one covering its
employees ("retirement income plan") and one for the non-employee directors
("outside directors plan"). The outside directors plan was terminated as of
the date of the merger with Holdings, and liquidated for the amount of $1.0
million. Prior to 1995, California Federal had two outside directors plans.
During 1995, one of the outside directors plans was terminated and
subsequently liquidated.

      Effective May 31, 1993, the retirement income plan was frozen and all
accrued benefits became 100% vested. However, credited service will continue
to accrue for purposes of determining eligibility for early retirement (and
the applicable early retirement reduction factors). Effective May 1, 1996 the
plan was also amended to generally allow a vested participant whose
termination of employment occurred before June 1, 1996 and whose benefit was
not eligible to be paid in a lump sum cash distribution, to elect to receive a
severance benefit in a single lump sum payment. The participant was to make
the election and receive the distribution prior to July 31, 1996. This
resulted in a decrease in projected benefit obligation.

      California Federal's funding policy for the retirement income plan is to
contribute an amount equal to the minimum required contribution under the
Employee Retirement Income Security Act of 1974. California Federal from time
to time may increase its contribution beyond the minimum reflecting the tax
and cash position of California Federal and the funded status of the plan.
Additionally, California Federal had a supplemental defined benefit retirement
plan for key employees (the "supplemental plan") which was terminated on
December 31, 1993. California Federal has recorded a liability of $0.1 million
as of December 31, 1996 related to the supplemental plan.

                                     F-94

<PAGE>



      The following tables set forth the funded status of the pension plan and
amounts recognized in California Federal's consolidated statements for the
years indicated:

<TABLE>
<CAPTION>
                                                                                        Retirement Income Plan
                                                                            ---------------------------------------------
                                                                            Accumulated         Assets           Assets
                                                                              Benefits          Exceed           Exceed
                                                                               Exceed        Accumulated      Accumulated
                                                                               Assets          Benefits         Benefits
                                                                            ------------     -----------      -----------
                                                                                1996             1995             1994
                                                                                ----             ----             ----
                                                                                        (Dollars in Millions)
<S>                                                                            <C>            <C>           <C>  
Actuarial present value of benefit obligations:
  Accumulated benefit obligation, including vested
        benefits of $18.4 million in 1996, $34.4 million
        in 1995, $30.9 million in 1994.....................................       $19.3          $35.3         $30.1
                                                                                  =====         ======         =====

  Projected benefit obligation for service rendered to date................       $19.3          $35.3         $30.1
  Plan assets at fair value, primarily listed stock and
        fixed income securities............................................        19.2           35.5          33.3
                                                                                  -----         ------         -----
 Projected benefit obligation greater than (or less than)
        plan assets .......................................................         0.1           (0.2)         (3.2)
  Unrecognized net gain (loss) from past experience
        different from that assumed........................................        (3.9)          (7.7)         (3.3)
  Adjustment required to recognize minimum liability ......................         3.9            --            --
                                                                                  -----          -----         -----
Pension (asset) liability included in other liabilities (assets)...........         0.1          $(7.9)        $(6.5)
                                                                                  =====          =====         =====

Net pension expense included the following components:
   Interest cost on projected benefit obligation...........................       $ 2.0          $ 2.0         $ 2.4
   Actual return on plan assets............................................        (1.9)          (5.7)         (1.5)
   Other, net..............................................................         0.1            3.3          (1.3)
                                                                                  -----          -----         -----
Net periodic pension (income) expense                                               0.2           (0.4)        $(0.4)
   Adjustment for settlement of obligations ...............................         3.9            --            --
                                                                                  -----          -----         -----
Total periodic pension expense, net of adjustment .........................       $ 4.1          $(0.4)        $(0.4)
                                                                                  =====          =====         =====
</TABLE>


      Average assumptions used for all plans were:

<TABLE>
<CAPTION>
                                                                              As of December 31,
                                                            --------------------------------------------------------
                                                                  1996               1995                1994
                                                                  ----               ----                ----
<S>                                                              <C>                <C>                 <C>  
Discount rate.............................................        7.75%              7.25%               8.00%
Rate of increase in compensation levels...................         N/A (a)            N/A (a)             N/A (a)
Expected long-term rate of return on assets...............        8.50%              8.50%               8.50%
</TABLE>

----------

(a)   Not applicable due to a freeze in accrued benefits of the plan.

      The FASB has issued Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions ("SFAS
106"). SFAS 106 became effective for fiscal years beginning after December 15,
1992. SFAS 106 establishes accounting standards for all employers'
postretirement benefits other than pensions; however, it focuses on
postretirement health care benefits. SFAS 106 changes the current practice of
accounting for postretirement benefits on a cash basis by accruing the cost of
these benefits during the years the employee renders the necessary service.
California Federal has a defined benefit postretirement plan which provides
for postretirement medical benefits to eligible retired employees.

                                     F-95

<PAGE>



      The following table sets forth the postretirement benefits plans funded
status and amount recognized in California Federal's consolidated statements
for the years ended December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                                                                                        1996           1995
                                                                                                        ----           ----
                                                                                                       (Dollars in Millions)
<S>                                                                                                   <C>            <C>  
Accumulated Postretirement Benefit Obligation:
  Current Retirees................................................................................      $1.8           $ 2.1
  Current Actives.................................................................................       0.9             1.0
                                                                                                        ----           -----
        Total ....................................................................................       2.7           $ 3.1
                                                                                                        ====           =====

Accumulated Postretirement Benefit Obligation.....................................................      $2.7           $ 3.1
Plan assets at fair value.........................................................................       --              --
                                                                                                        ----           -----
        Excess of accumulated postretirement benefit obligations greater than plan assets.........       2.7             3.1
Unrecognized transition obligation................................................................      (3.8)           (4.0)
Unrecognized net gain.............................................................................       3.7             3.1
                                                                                                        ----           -----
        Net postretirement benefit liability included in other liabilities........................      $2.6            $2.2
                                                                                                        ====           =====

Net Periodic Postretirement Benefit Cost:
  Service cost....................................................................................      $0.2             0.2
  Interest cost...................................................................................       0.2             0.3
  Amortization of transition obligation...........................................................       0.2             0.2
  Other, net......................................................................................      (0.2)           (0.2)
                                                                                                        ----           -----
        Net periodic postretirement benefit cost..................................................      $0.4           $ 0.5
                                                                                                        ----           -----

Effect of one percent increase in trend rates:
  Service and interest cost.......................................................................      $0.1           $ 0.1
                                                                                                        ----           -----
  Accumulated postretirement benefit obligation...................................................      $0.3           $ 0.4
                                                                                                        ----           -----
</TABLE>


      The cost of inflation for health care and medical costs of plan
participants (the "health care trend rate") was assumed to start at 11.0% for
1996, and gradually trend downward over 10 years to 6%. The assumed discount
rate, in determining postretirement benefits, was 7.75% and 7.25% at December
31, 1996 and 1995, respectively. At December 31, 1996 and 1995, there were no
plan assets related to this plan.


                                     F-96

<PAGE>



Investment Plus Plan

      The Investment Plus Plan (the "Plan") is a defined contribution plan
that is available to substantially all employees. The Plan is a qualified plan
under Section 401(k) of the Internal Revenue Code. Employee contributions are
voluntary, as employees may elect to defer from one to ten percent of
compensation, exclusive of overtime, bonuses or other special payments
("qualifying compensation"). Participants vest immediately in their own
contributions and they vest in California Federal's contributions based 
on years of service. Up to 4% of participants' contributions are matched 
by California Federal on a schedule that is determined by the participants' 
years of service with California Federal. The table below presents California 
Federal's matching contributions as determined by the participants' 
years of service.

<TABLE>
<CAPTION>

                                                                      Bank's Matching
                                                                      of Participants'          Participants'
                                                                      Contributions up          Vesting in the
                                                                     to 4% of Qualified             Bank's
                        Years of Service                                Compensation             Contribution
                        ----------------                             ------------------          ------------
<S>                                                                     <C>                         <C>
At least 3 months but less than 2 years.........................           125%                         0%
At least 2 years but less than 3 years..........................           125                         25
At least 3 years but less than 4 years..........................           125                         50
At least 4 years but less than 5 years..........................           125                         75
At least 5 years, but less than 10 years........................           150                        100
10 or more years................................................           200                        100
</TABLE>


      California Federal's contributions may be made without regard to current
or accumulated profits, provided that the Plan is designed to qualify as a
profit sharing plan for purposes of Section 401(a), et seq. of the Internal
Revenue Code. For the years ended December 31, 1996, 1995 and 1994, California
Federal's pre-tax Plan expense was $4.0 million, $3.9 million and $4.2
million, respectively. As of the date of the merger with First Nationwide
Holdings Inc., the Company contributions of all active participants became
100% vested.

NOTE 25: QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                       Quarter Ended
                                                           -----------------------------------------------------------------------
                                                                 March 31,      June 30,     September 30,   December 31,
                                                                   1996           1996           1996            1996
                                                                   ----           ----           ----            ----
                                                                                   (Dollars in Millions)
<S>                                                               <C>            <C>             <C>            <C>  
Interest income........................................            $256.9         $252.1          $252.6         $253.7
Interest expense..........................................          171.6          163.5           166.5          166.2
                                                                   ------         ------          ------         ------
Net interest income.......................................           85.3           88.6            86.1           87.5
Provision for loan losses.................................           10.2           10.2            10.4           10.5
Other income..............................................           15.8           27.9 (a)        18.2           58.1 (c)
Other expenses............................................           60.8           61.6           117.6 (b)       84.3
Income tax expense (benefit)..............................           --              0.1            --            (14.6)(d)
                                                                   ------         ------          ------          -----
Net earnings (loss).......................................          $30.1          $44.6           (23.7)         $65.4
                                                                   ======         ======          ======          =====
<FN>
-------------------

(a)   The increase in other income during the second quarter of 1996 represents the $12.0 million gain on the sale of six
      branches in San Diego.

(b)   The increase in other expenses during the third quarter of 1996 resulted from the accrual of $58.1 million for a one-
      time special SAIF assessment.

(c)   Other income increased during the fourth quarter of 1996 as a result of a $42.2 million income tax refund.

(d)   The income tax benefit for the fourth quarter of 1996 resulted from adjustments to prior years income taxes.

</TABLE>


                                     F-97

<PAGE>

<TABLE>
<CAPTION>
                                                                          QUARTER ENDED
                                      -------------------------------------------------------------------------------------
                                            MARCH 31,              JUNE 30,           SEPTEMBER 30,         DECEMBER 31,
                                              1995                  1995                  1995                 1995
                                              ----                  ----                  ----                 ----
                                                                      (DOLLARS IN MILLIONS)
<S>                                       <C>                   <C>                   <C>                  <C>   
Interest income......................       $245.6                $252.1                $249.9               $260.4
Interest expense.....................        172.8                 175.7                 170.0                177.6
                                            ------                ------                ------               ------
Net interest income..................         72.8                  76.4                  79.9                 82.8
Provision for loan losses............          8.3                   8.6                   7.6                  7.3
Other income.........................         14.5                  14.3                  21.5 (A)             13.2
Other expenses.......................         64.3                  60.3                  61.9                 63.4
Income tax expense...................          --                    0.1                   --                   --
                                             -----                 -----                ------               ------
Net earnings.........................        $14.7                 $21.7                 $31.9                $25.3
                                             =====                 =====                ======               ======
<FN>
--------------

(A)   Other income increased during the third quarter of 1995 as a result of $6.8 million of gains on the sale of $729.3
      million of securities held for sale.

</TABLE>

      NOTE 26: SUBSEQUENT EVENTS

            On July 29, 1996 Bancorp, the parent company of California
Federal, announced that it had entered into a definitive merger agreement with
Holdings, the parent company of First Nationwide Bank, A Federal Savings Bank
("First Nationwide"), pursuant to which on January 3, 1997, Holdings acquired
100% of the outstanding stock of Cal Fed and California Federal. The aggregate
consideration paid consisted of approximately $1.2 billion in cash and the
issuance of litigation interest owned by Cal Fed. The terms of the merger
agreement provided for each Bancorp stockholder to receive a cash payment of
$23.50 per common share plus a new security (see "Secondary Participation
Interests" below).

      During 1996, California Federal registered Secondary Participation
Interests to be issued to the common shareholders of Bancorp in connection
with Merger. One Secondary Participation Interest was distributed to
shareholders for each ten common shares of Bancorp held at the closing of the
Merger which occurred January 3, 1997. The Secondary Participation Interests
represent the right to participate in the cash proceeds, if any, recovered in
California Federal's pending breach-of-contract lawsuit against the federal
government relating to the phase-out of supervisory goodwill resulting from
the enactment of FIRREA in 1989. Each Secondary Participation Interest will
entitle the holder to receive a pro rata portion of 60 percent of the net
distributable cash proceeds, if any, of California Federal's goodwill lawsuit
after (a) payment of expenses, (b) pro forma taxes, (c) the net cash proceeds
distributable to the holders of the Participation Interests, and (d) the
retention of $125 million of net distributable cash proceeds by First
Nationwide. In January 1997, the Secondary Participation Interests were
distributed and began trading on the NASDAQ under the symbol "CALGL."


                                     F-98
<PAGE>

                           EXHIBIT INDEX

      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.)

      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)).


<PAGE>



     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.)

     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.)


<PAGE>



     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 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.)

    10.11 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")).

    10.12 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.)

    10.13 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.)

    10.14 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.)

    10.15 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)).

    10.16 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.)

    10.17 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.)


<PAGE>




    10.18 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.)

    10.19 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.)

    10.20 Employment Agreement between First Nationwide Bank, A Federal
          Savings Bank, 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)).

    10.21 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)).

    10.22 Special Bonus Agreement, dated as of November 25, 1996, by and
          between the Registrant and Carl B. Webb.

    10.23 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.)

    10.24 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.)

    10.25 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.)

    10.26 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.)

    10.27 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.)

    10.28 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,


<PAGE>



          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.)

    10.29 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.)

    10.30 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.)

    10.31 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.)

    10.32 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.)

    10.33 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.)

    10.34 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)).

    10.35 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)).

    10.36 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)).

    10.37 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)).

    10.38 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)).


<PAGE>


    10.39 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)).

    10.40 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)).

    10.41 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)).

    10.42 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)).

     12.1 Statement regarding the computation of ratio of earnings to fixed
          charges 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.

     23.2 Consent of KPMG Peat Marwick LLP, Independent Auditors of
          California Federal Bank, A Federal Savings Bank.

     24.1 Power of Attorney executed by Ronald O. Perelman.

     24.2 Power of Attorney executed by Howard Gittis.

     27.1 Financial Data Schedule.