<PAGE>

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

                                    FORM 10-Q

(Mark one)

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


For the quarterly period ended         September 30, 1999
                              ------------------------------------------------

                                       or

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

For the transition period from          N/A      to        N/A
                              -------------------  ---------------------------

Commission File Number:                     333 - 64597
                       -------------------------------------------------------

                           Golden State Holdings Inc.
------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Delaware                                       95-4669792
-----------------------------------------------------------------------------
(State or other jurisdiction of         (I.R.S. Employer Identification No.)
 incorporation or organization)


       135 Main Street, San Francisco, CA                94105
------------------------------------------------------------------------------
(Address of principal executive offices)              (Zip Code)


                                  415-904-1100
------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

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

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. X Yes   No
                                         ---   ---
     The number of shares  outstanding of registrant's  $1.00 par value common
stock, as of the close of business on October 31, 1999: 1,000 shares.





                               Page 1 of 47 pages
                            Exhibit index on page: 46


<PAGE>


                           GOLDEN STATE HOLDINGS INC.
                     THIRD QUARTER 1999 REPORT ON FORM 10-Q
                                TABLE OF CONTENTS

                                                                       PAGE NO.
 PART I. FINANCIAL INFORMATION                                         --------
         ---------------------
   Item 1. Consolidated Financial Statements

           Unaudited Consolidated Balance Sheets

           September 30, 1999 and December 31, 1998............................3

           Unaudited Consolidated Statements of Income

           Nine months ended September 30, 1999 and 1998.......................4

           Unaudited Consolidated Statements of Income

           Three months ended September 30, 1999 and 1998......................5

           Unaudited Consolidated Statements of Comprehensive Income

           Nine months ended September 30, 1999 and 1998.......................6

           Unaudited Consolidated Statements of Comprehensive Income (Loss)

           Three months ended September 30, 1999 and 1998......................7

           Unaudited Consolidated Statement of Stockholder's Equity

           Nine months ended September 30, 1999................................8

           Unaudited Consolidated Statements of Cash Flows

           Nine months ended September 30, 1999 and 1998.......................9

           Notes to Unaudited Consolidated Financial Statements...............11

  Item 2.  Management's Discussion and Analysis of

           Financial Condition and Results of Operations......................18

  Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........44

PART II.   OTHER INFORMATION

  Item 1.  Legal Proceedings..................................................45

  Item 2.  Changes in Securities..............................................45

  Item 3.  Defaults Upon Senior Securities....................................45

  Item 4.  Submission of Matters to a Vote of Security Holders................45

  Item 5   Other Information..................................................45

  Item 6   Exhibits and Reports on Form 8-K...................................46

  Signatures..................................................................47


                                     Page 2
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                           Consolidated Balance Sheeets
                    September 30, 1999 and December 31, 1998
                                   (Unaudited)
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                  September 30,        December 31,
                                      Assets                                          1999                 1998
                                      ------                                          ----                 ----
<S>                                                                              <C>                  <C>
     Cash and amounts due from banks                                             $    468,584         $    854,954
     Interest-bearing deposits in other banks                                              53               52,671
     Short-term investment securities                                                  73,947               60,325
                                                                                 ------------         ------------
            Cash and cash equivalents                                                 542,584              967,950


     Securities available for sale, at fair value                                   1,106,469              770,747
     Securities held to maturity                                                      213,892              250,964
     Mortgage-backed securities available for sale, at fair value                  13,735,096           12,947,992
     Mortgage-backed securities held to maturity                                    2,265,838            2,770,913
     Loans held for sale, net                                                         819,383            2,366,583
     Loans receivable, net                                                         32,468,353           30,280,944
     Investment in Federal Home Loan Bank ("FHLB") System                           1,139,687            1,000,147
     Premises and equipment, net                                                      305,626              310,572
     Foreclosed real estate, net                                                       45,545               80,068
     Accrued interest receivable                                                      315,415              317,455
     Intangible assets (net of accumulated amortization of $166,503
          at September 30, 1999 and $113,709 at December 31, 1998)                    874,418              923,598
     Mortgage servicing rights                                                      1,229,515              943,581
     Other assets                                                                     684,318              866,422
                                                                                  -----------          -----------
              Total assets                                                        $55,746,139          $54,797,936
                                                                                  ===========          ===========



            Liabilities, Minority Interest and Stockholder's Equity
            -------------------------------------------------------

     Deposits                                                                     $23,696,055          $24,647,488
     Securities sold under agreements to repurchase                                 5,963,925            4,238,395
     Borrowings                                                                    22,969,455           22,375,557
     Other liabilities                                                                882,003            1,210,802
                                                                                  -----------          -----------
              Total liabilities                                                    53,511,438           52,472,242
                                                                                  -----------          -----------


     Commitments and contingencies                                                         --                   --

     Minority interest                                                                500,000              593,438

     Stockholder's equity:
          Common stock, $1.00 par value, 1,000 shares authorized,
              issued and outstanding                                                        1                    1
           Additional paid-in capital                                               1,511,932            1,512,061
           Accumulated other comprehensive (loss) income                             (199,498)               6,151
           Retained earnings (substantially restricted)                               422,266              214,043
                                                                                  -----------          -----------
              Total stockholder's equity                                            1,734,701            1,732,256
                                                                                  -----------          -----------
              Total liabilities, minority interest and stockholder's equity       $55,746,139          $54,797,936
                                                                                  ===========          ===========
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.




                                     Page 3
<PAGE>


                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                  Nine Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                          Nine Months Ended September 30,
                                                                                          ------------------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                      <C>                 <C>
Interest income:
     Loans receivable                                                                    $  1,721,858        $ 1,169,834
     Mortgage-backed securities available for sale                                            645,539            294,174
     Mortgage-backed securities held to maturity                                              137,810             80,025
     Loans held for sale                                                                       95,958             85,070
     Securities available for sale                                                             57,466             40,445
     Securities held to maturity                                                                9,053              2,727
     Interest-bearing deposits in other banks                                                   3,851             23,009
     Dividends on FHLB stock                                                                   43,143             22,463
                                                                                         ------------        -----------
         Total interest income                                                              2,714,678          1,717,747
                                                                                         ------------        -----------
Interest expense:
     Deposits                                                                                 667,387            545,734
     Securities sold under agreements to repurchase                                           188,085            106,386
     Borrowings                                                                               967,102            541,397
                                                                                         ------------        -----------
         Total interest expense                                                             1,822,574          1,193,517
                                                                                         ------------        -----------
         Net interest income                                                                  892,104            524,230
     Provision for loan losses                                                                 10,000             30,000
                                                                                         ------------        -----------
         Net interest income after provision for loan losses                                  882,104            494,230
                                                                                         ------------        -----------
Noninterest income:
     Loan servicing fees, net                                                                 108,358            106,070
     Customer banking fees and service charges                                                138,820             79,475
     Gain on sale of loans, net                                                                25,385             49,989
     Gain on sale of assets, net                                                               18,296                235
     Gain on sale of branches, net                                                              2,343            108,825
     Other income                                                                              23,982             17,003
                                                                                         ------------        -----------
         Total noninterest income                                                             317,184            361,597
                                                                                         ------------        -----------

Noninterest expense:
     Compensation and employee benefits                                                       299,202            200,679
     Occupancy and equipment                                                                  104,918             65,114
     Loan expense                                                                              29,249             33,863
     Professional fees                                                                         39,758             30,811
     Marketing                                                                                 24,081             12,009
     Data processing                                                                           17,784             10,274
     Savings Association Insurance Fund deposit insurance premium                              10,817              7,840
     Foreclosed real estate operations, net                                                    (5,068)            (6,024)
     Merger and integration costs                                                               7,747             31,917
     Amortization of intangible assets                                                         52,794             36,380
     Other expense                                                                            112,142             74,381
                                                                                         ------------        -----------
         Total noninterest expense                                                            693,424            497,244
                                                                                         ------------        -----------

Income before income taxes, minority interest and extraordinary item                          505,864            358,583
Income tax expense (benefit)                                                                  151,681           (143,106)
Minority interest: provision in lieu of income tax expense                                     79,005                 --
Minority interest: other                                                                       28,338             82,020
                                                                                         ------------        -----------
     Income before extraordinary item                                                         246,840            419,669
Extraordinary item - loss on early extinguishment of debt, net of tax                              --             80,007
                                                                                         ------------        -----------
     Net income                                                                               246,840            339,662
Preferred stock dividends                                                                          --                578
                                                                                         ------------        -----------
     Net income available to common stockholder                                          $    246,840        $   339,084
                                                                                         ============        ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                     Page 4
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                 Three Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                  (in thousands)
<TABLE>
<CAPTION>

                                                                                          Three Months Ended September 30,
                                                                                          -------------------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                      <C>                 <C>
Interest income:
     Loans receivable                                                                    $    587,080        $   408,494
     Mortgage-backed securities available for sale                                            221,923            115,645
     Mortgage-backed securities held to maturity                                               41,910             32,592
     Loans held for sale                                                                       28,266             26,840
     Securities available for sale                                                             19,399             12,159
     Securities held to maturity                                                                2,750              1,155
     Interest-bearing deposits in other banks                                                   1,551             21,438
     Dividends On FHLB Stock                                                                   14,959              7,901
                                                                                         ------------        -----------
         Total interest income                                                                917,838            626,224
                                                                                         ------------        -----------

Interest expense:
     Deposits                                                                                 223,329            190,532
     Securities sold under agreements to repurchase                                            80,475             49,337
     Borrowings                                                                               326,942            201,052
                                                                                         ------------        -----------
         Total interest expense                                                               630,746            440,921
                                                                                         ------------        -----------
         Net interest income                                                                  287,092            185,303
     Provision for loan losses                                                                     --             10,000
                                                                                         ------------        -----------
         Net interest income after provision for loan losses                                  287,092            175,303
                                                                                         ------------        -----------

Noninterest income:
     Loan servicing fees, net                                                                  38,068             34,707
     Customer banking fees and service charges                                                 47,453             28,278
     Gain on sale of loans, net                                                                 4,932             13,865
     Gain on sale of assets, net                                                                3,187                416
     Gain on sale of branches, net                                                              2,343            108,911
     Other income                                                                               7,163              5,248
                                                                                         ------------        -----------
         Total noninterest income                                                             103,146            191,425
                                                                                         ------------        -----------

Noninterest expense:
     Compensation and employee benefits                                                        97,417             73,105
     Occupancy and equipment                                                                   36,874             23,785
     Loan expense                                                                               7,109             10,363
     Professional fees                                                                         12,594             11,242
     Marketing                                                                                  6,887              2,142
     Data processing                                                                            5,802              3,877
     Savings Association Insurance Fund deposit insurance premium                               3,384              2,786
     Foreclosed real estate operations, net                                                    (3,000)              (886)
     Merger and integration costs                                                                  --             31,054
     Amortization of intangible assets                                                         17,626             13,151
     Other expense                                                                             33,983             24,929
                                                                                         ------------        -----------
         Total noninterest expense                                                            218,676            195,548
                                                                                         ------------        -----------

Income before income taxes, minority interest and extraordinary item                          171,562            171,180
Income tax (benefit) expense                                                                   (3,033)            78,028
Minority interest: provision in lieu of income tax expense                                     79,005                 --
Minority interest: other                                                                        8,431             36,406
                                                                                         ------------        -----------
     Income before extraordinary item                                                          87,159             56,746
 Extraordinary item - loss on early extinguishment of debt, net of tax                             --             80,007
                                                                                         ------------        -----------
     Net income (loss) available to common stockholder                                   $     87,159        $   (23,261)
                                                                                         ============        ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements.


                                     Page 5
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
                  Nine Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                  (in thousands)
<TABLE>
<CAPTION>

                                                                                          Nine Months Ended September 30,
                                                                                          ------------------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                          <C>             <C>
      Net income                                                                             $  246,840      $  339,662

      Other comprehensive (loss) income, net of tax:
             Unrealized holding (loss) gain on securities available for sale:
                 Unrealized holding (loss) gain arising during the period                      (204,906)          6,654
                 Less: reclassification adjustment for gain included
                        in net income                                                              (743)           (536)
                                                                                             ----------      ----------
             Other comprehensive (loss) income                                                 (205,649)          6,118
                                                                                             ----------      ----------
      Comprehensive income                                                                   $   41,191      $  345,780
                                                                                             ==========      ==========
</TABLE>

      See accompanying notes to unaudited consolidated financial statements.

































                                     Page 6
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
             Consolidated Statements of Comprehensive Income (Loss)
                 Three Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                  (in thousands)
<TABLE>
<CAPTION>

                                                                                          Three Months Ended September 30,
                                                                                          -------------------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                          <C>              <C>
      Net income (loss)                                                                      $ 87,159         $(23,261)

      Other comprehensive (loss) income, net of tax:
             Unrealized holding (loss) gain on securities available for sale:
                 Unrealized holding (loss) gain arising during the period                     (43,571)          13,150
                 Less: reclassification adjustment for (gain) loss included in
                         net income                                                              (549)              29
                                                                                             --------         --------
              Other comprehensive (loss) income                                               (44,120)          13,179
                                                                                             --------         --------

      Comprehensive income (loss)                                                            $ 43,039         $(10,082)
                                                                                             ========         ========
</TABLE>

      See accompanying notes to unaudited consolidated financial statements.





























                                     Page 7
<PAGE>


                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholder's Equity
                      Nine Months Ended September 30, 1999
                                   (Unaudited)
                                  (in thousands)
<TABLE>
<CAPTION>



                                                                                Accumulated       Retained
                                                                 Additional        Other          Earnings         Total
                                                      Common       Paid-in     Comprehensive   (Substantially   Stockholder's
                                                       Stock       Capital     Income (loss)     Restricted)       Equity
                                                       -----       -------     ------------      ----------        ------
<S>                                                     <C>      <C>             <C>              <C>            <C>
     Balance at December 31, 1998                       $ 1      $1,512,061      $   6,151        $214,043       $1,732,256

     Net income                                          --              --             --         246,840          246,840
     Change in unrealized holding gain (loss)
         on securities available for sale                --              --       (205,649)             --         (205,649)
     Golden State Acquisition - see note 2               --         (12,380)            --              --          (12,380)
     Adjustment to initial dividend of tax
         benefits to parent due to deconsolidation       --              --             --          66,383           66,383
     Impact of Golden State restricted common
         stock                                           --             238             --              --              238
     Dividends to parent                                 --              --             --        (105,000)        (105,000)
     Contribution from parent                            --          10,000             --              --           10,000
     Tax benefit on exercise of stock options            --           2,013             --              --            2,013
                                                        ---      ----------      ---------        --------       ----------

     Balance at September 30, 1999                      $ 1      $1,511,932      $(199,498)       $422,266       $1,734,701
                                                        ===      ==========      =========        ========       ==========
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.





















                                     Page 8
<PAGE>


                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Nine Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                          Nine Months Ended September 30,
                                                                                          ------------------------------
                                                                                                1999             1998
                                                                                                ----             ----
<S>                                                                                         <C>             <C>
Cash flows from operating activities:
Net income                                                                                  $   246,840     $   339,662
Adjustments to reconcile  net income to net cash provided by (used in) operating
   activities:
   Amortization of intangible assets                                                             52,794          36,380
   Amortization (accretion) of purchase accounting premiums and
       discounts, net                                                                             8,902          (7,633)
   Accretion of discount on borrowings                                                              756              --
   Amortization of mortgage servicing rights                                                    157,782          92,003
   Provision for loan losses                                                                     10,000          30,000
   Gain on sale of assets, net                                                                  (18,296)           (235)
   Gain on sale of branches, net                                                                 (2,343)       (108,825)
   Gain on sale of foreclosed real estate                                                       (10,494)        (11,331)
   Loss on sale of loans, net                                                                   147,013          88,514
   Capitalization of originated mortgage servicing rights                                      (172,398)       (138,503)
   Extraordinary loss on early extinguishment of debt, net                                           --          80,007
   Depreciation and amortization of premises and equipment                                       27,324          17,364
   Amortization of deferred debt issuance costs                                                   5,456           5,340
   FHLB stock dividends                                                                         (43,143)        (22,463)
   Purchases and originations of loans held for sale                                         (7,217,334)     (6,391,601)
   Net proceeds from the sale of loans held for sale                                          8,509,343       6,354,361
   Decrease (increase) in other assets                                                          235,332        (161,187)
   Decrease (increase) in accrued interest receivable                                             2,040         (10,131)
   Decrease in other liabilities                                                               (151,213)       (300,358)
   Amortization of deferred compensation expense-Golden State restricted stock                      238              --
   Minority interest                                                                             28,338          82,020
                                                                                            -----------     -----------
      Net cash provided by (used in) operating activities                                   $ 1,816,937     $   (26,616)
                                                                                            -----------     -----------
</TABLE>


   See accompanying notes to unaudited consolidated financial statements.


                                                                    (Continued)
















                                     Page 9
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (continued)
                  Nine Months Ended September 30, 1999 and 1998
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                          Nine Months Ended September 30,
                                                                                          ------------------------------
                                                                                               1999              1998
                                                                                               ----              ----
<S>                                                                                       <C>             <C>
Cash flows from investing activities:
       Nevada Purchase                                                                    $   458,943     $         --
       Golden State Acquisition                                                                    --          792,132
       Cal Fed Acquisition                                                                         --           58,386
       GSAC Acquisition                                                                            --          (13,577)
       Purchases of securities available for sale                                            (791,952)        (531,774)
       Proceeds from maturities of securities available for sale                              390,328          803,296
       Purchases of securities held to maturity                                               (27,527)            (897)
       Proceeds from maturities of securities held to maturity                                 64,855            2,263
       Purchases of mortgage-backed securities available for sale                          (4,140,171)      (6,096,235)
       Principal payments on mortgage-backed securities available for sale                  3,088,120        1,921,973
       Proceeds from sales of mortgage-backed securities available for sale                   193,732           13,703
       Principal payments on mortgage-backed securities held to maturity                      504,968          289,026
       Proceeds from sales of loans                                                            16,820            8,433
       Net (increase) decrease in loans receivable                                         (2,386,785)       1,255,430
       Purchases of FHLB stock, net                                                           (98,517)         (79,459)
       Purchases of premises and equipment                                                    (74,929)         (51,223)
       Proceeds from disposal of premises and equipment                                        47,002           19,228
       Proceeds from sales of foreclosed real estate                                          114,938          121,785
       Purchases of mortgage servicing rights                                                (289,922)         (68,203)
       Proceeds from sales of mortgage servicing rights                                        30,616               --
                                                                                          -----------     ------------
           Net cash flows used in investing activities                                     (2,899,481)      (1,555,713)
                                                                                          -----------     ------------


Cash flows from financing activities:
       Branch Sales                                                                           (69,340)      (1,267,517)
       Net decrease in deposits                                                            (1,420,256)        (735,108)
       Proceeds from additional borrowings                                                 22,388,086       17,098,354
       Principal payments on borrowings                                                   (21,751,828)     (14,845,668)
       Net increase in securities sold under agreements to repurchase                       1,725,530        1,464,311
       GS Escrow Merger                                                                            --        1,970,285
       Bank Preferred Stock Tender Offers                                                     (97,621)        (227,345)
       Debt Tender Offers                                                                        (253)        (879,879)
       Redemption of FN Holdings Preferred Stock                                                   --          (25,000)
       Dividends on FN Holdings Preferred Stock                                                    --             (471)
       Dividends on common stock                                                             (105,000)        (109,247)
       Dividends paid to minority stockholders, net of taxes                                  (24,153)         (83,725)
       Tax benefit on exercise of stock options                                                 2,013               --
       Capital contribution from parent                                                        10,000               --
                                                                                          -----------     ------------
           Net cash flows provided by financing activities                                    657,178        2,358,990
                                                                                          -----------     ------------

Net change in cash and cash equivalents                                                      (425,366)         776,661
Cash and cash equivalents at beginning of period                                              967,950          412,311
                                                                                          -----------     ------------
Cash and cash equivalents at end of period                                                $   542,584     $  1,188,972
                                                                                          ===========     ============
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.




                                    Page 10
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

(1)    BASIS OF PRESENTATION

       The  accompanying   unaudited   consolidated  financial  statements  were
prepared in accordance with generally accepted accounting principles for interim
financial  information and the  requirements  of Regulation S-X,  Article 10 and
therefore  do not include  all  disclosures  necessary  for  complete  financial
statements.  In the opinion of management,  all adjustments  have been made that
are necessary for a fair  presentation of the financial  position and results of
operations  and  cash  flows  as of and  for the  periods  presented.  All  such
adjustments are of a normal recurring nature.  The results of operations for the
three and nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the entire fiscal year or any other interim
period.  Certain  amounts for the three and nine month periods in the prior year
have been reclassified to conform with the current period's presentation.

       Golden  State  Holdings  Inc.  ("GS  Holdings"  or  the  "Company")  is a
subsidiary  of Golden State  Bancorp Inc.  ("Golden  State").  GS Holdings was a
newly formed subsidiary of First Nationwide Holdings Inc. ("FN Holdings"), which
was formed to acquire  all of the assets of FN  Holdings,  including  all of the
voting  common stock of  California  Federal  Bank, A Federal  Savings Bank (the
"Bank"),  as part of the  Golden  State  Acquisition  (as  defined  herein).  GS
Holdings is a holding company whose only significant  asset is all of the common
voting stock of the Bank and, therefore,  activities for the consolidated entity
are primarily carried out by the Bank and its operating subsidiaries.

       The accompanying unaudited consolidated financial statements include the
accounts of GS  Holdings,  the Bank and the Bank's  wholly  owned  subsidiaries.
Unless the context  otherwise  indicates,  "GS Holdings" or "Company"  refers to
Golden State Holdings Inc. as the surviving entity after the consummation of the
Golden State Acquisition (as defined herein),  and as the surviving  corporation
in the GS Escrow Merger for periods after the GS Escrow Merger. On September 11,
1998,  Glendale Federal Bank,  Federal Savings Bank ("Glendale  Federal") merged
with and into the Bank  pursuant  to the Glen Fed  Merger (as  defined  herein).
Unless the context otherwise indicates, "California Federal" or "Bank" refers to
California  Federal Bank, A Federal Savings Bank, as the surviving  entity after
the consummation of the Glen Fed Merger.

       Minority  interest  represents  amounts  attributable  to  (i)  the  Bank
Preferred  Stock that had not been  acquired by GS Holdings,  (ii) the Preferred
Stock  ("REIT  Preferred   Stock")  of  California   Federal  Preferred  Capital
Corporation,  a wholly owned  subsidiary of the Bank,  and (iii) that portion of
stockholders'  equity  of  Auto  One  Acceptance  Corporation  ("Auto  One"),  a
subsidiary of the Bank, attributable to 20% of its common stock.

       All  significant   intercompany   balances  and  transactions  have  been
eliminated  in  consolidation.  These  financial  statements  should  be read in
conjunction with the consolidated  financial  statements of GS Holdings included
in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1998. All terms used but not defined  elsewhere herein have meanings ascribed to
them in the Company's Annual Report on Form 10-K.

       As GS Holdings'  common stock is wholly owned by Golden  State,  earnings
per share data is not presented.

(2)    ACQUISITIONS AND DIVESTITURES

       GOLDEN STATE ACQUISITION

       On September 11, 1998, First Nationwide  (Parent)  Holdings Inc. ("Parent
Holdings") and Hunter's  Glen/Ford Ltd.  ("Hunter's  Glen") completed the merger
with Golden State, the publicly traded parent company of Glendale Federal,  in a
tax-free exchange of shares (the "Golden State Merger"), accounted for under the
purchase  method of accounting.  Pursuant to the Golden State Merger  agreement,
(i) FN  Holdings  contributed  all of its  assets  (including  all of the voting
common  stock of  California  Federal) to GS Holdings  (the "FN  Holdings  Asset
Transfer"), (ii) Parent Holdings, which then owned all of the common stock of FN
Holdings  as a  result  of the  extinguishment  of the  Hunter's  Glen  minority
interest,  merged with and into Golden State, which indirectly owned 100% of the
common stock of Glendale Federal,  (iii) FN Holdings merged with and into Golden
State  Financial  Corporation,  which owned all of the common  stock of Glendale
Federal (the "FN Holdings Merger", and together with the Golden



                                    Page 11
<PAGE>


                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

State Merger, the "Holding Company  Mergers"),  and (iv) Glendale Federal merged
with and into California Federal (the "Glen Fed Merger").  The FN Holdings Asset
Transfer,  the Holding  Company  Mergers and the Glen Fed Merger are referred to
collectively as the "Golden State Acquisition."

       At September 11, 1998, Glendale Federal had total assets of approximately
$18.9  billion and  deposits of $11.3  billion and  operated 181 branches and 26
loan offices in California.

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

       Merger and integration costs associated with the Golden State Acquisition
totalled $7.7 million for the nine months ended  September  30, 1999,  including
severance for terminated  California Federal employees,  expenses for California
Federal branch  closures,  and conversion and  consolidation  costs,  as well as
transition  expenses for duplicate  personnel,  facilities and computer  systems
during the integration  period.  No such expenses were incurred during the third
quarter of 1999.

       During the third  quarter of 1999,  the Company  recorded  fair value and
other adjustments to reduce intangible assets in the Golden State Acquisition by
$16.6 million, $18.1 million and $12.4 million related to (i) previously accrued
severance  and  contract  termination  costs (which had not been  utilized  upon
completion of the integration plan), (ii) a "true-up" adjustment of the deferred
tax asset and (iii) the purchase price, respectively.

       OTHER ACQUISITIONS AND DIVESTITURES

       On February 4, 1998, Auto One acquired 100% of the partnership  interests
in Gulf States Acceptance Company, a Delaware limited  partnership  ("GSAC") and
its general partner, Gulf States Financial Services,  Inc., a Texas corporation.
GSAC was liquidated and its assets and liabilities  were transferred to Auto One
(the "GSAC  Acquisition").  The aggregate  consideration paid in connection with
the GSAC  Acquisition  was  approximately  $13.6  million plus 250 shares of the
common stock of Auto One, par value $1.00 per share, representing a 20% interest
in Auto One. This interest is reflected in the  Company's  consolidated  balance
sheet as minority interest.

       On September 11, 1998, the Bank  consummated the sale of its Florida bank
franchise  (consisting  of 24 branches  with  deposits of $1.4 billion) to Union
Planters Bank of Florida, a wholly owned subsidiary of Union Planters Corp. (the
"Florida Branch Sale").

       On April 16, 1999, the Bank acquired  twelve retail  branches  located in
Nevada with deposits of approximately  $543 million from Norwest Bank, Nevada, a
subsidiary  of Norwest  Corporation,  and Wells Fargo Bank,  N.A.  (the  "Nevada
Purchase").  Intangible assets of $50.7 million were recorded in connection with
this  acquisition,  principally  representing  the deposit  premium  paid in the
transaction.

       During April 1999, First Nationwide  Mortgage  Corporation  ("FNMC") sold
servicing rights for approximately 49,000 loans with an unpaid principal balance
of approximately $2.0 billion,  recognizing a pre-tax gain of $16.3 million (the
"Servicing Sale").

(3)    CASH, CASH EQUIVALENTS, AND STATEMENTS OF CASH FLOWS

       Cash paid for interest on deposits and other interest-bearing liabilities
during the nine months  ended  September  30, 1999 and 1998 was $1.7 billion and
$1.2 billion, respectively.

       During  the nine  months  ended  September  30,  1999,  noncash  activity
consisted   of   transfers  of  $227.1   million   from  loans   receivable   to
mortgage-backed  securities  upon the  securitization  of  certain of the Bank's
single-family  loans,  transfers of $108.1  million from loans held for sale (at
lower of cost or market) to loans receivable, transfers


                                    Page 12
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

of $81.0  million from loans  receivable  and loans held for sale to  foreclosed
real estate and $8.4  million of loans made to  facilitate  sales of real estate
owned.

       Noncash  activity  during the nine months ended  September  30, 1999 also
included (i) a reduction of $18.9  million in previously  accrued  severance and
contract  termination  costs, (ii) an $18.1 million "true-up"  adjustment of the
deferred tax asset and $12.4 million in purchase  price  adjustments  related to
the Golden State  Acquisition,  (iii) an increase of $238 thousand in additional
paid-in  capital  reflecting  the  impact  of  56,908  shares  of  Golden  State
restricted  common stock issued during the quarter and (iv) an increase of $66.4
million in retained earnings related to an adjustment of the initial dividend of
tax  benefits  due to parent  upon the  Company's  deconsolidation  from its tax
reporting group as a result of the Golden State Acquisition.

       During  the nine  months  ended  September  30,  1998,  noncash  activity
consisted of transfers of $85.3 million from loans receivable to foreclosed real
estate,  $5.9 million of loans made to  facilitate  sales of real estate  owned,
transfers  of $3.2 million from loans held for sale (at lower of cost or market)
to  mortgage-backed  securities  available  for sale and $1.9 billion from loans
receivable   to   mortgage-backed   securities   held  to   maturity   upon  the
securitization of certain of the Company's  multi-family loans. Noncash activity
also included a $267.9 million dividend related to the Company's deconsolidation
from its tax reporting  group as a result of the Golden State  Acquisition,  the
issuance of  additional FN Holdings  Preferred  Stock  through  Preferred  Stock
dividends of $0.6 million,  and the retirement of FN Holdings Preferred Stock of
$25.0 million.

(4)    SEGMENT REPORTING

       Since the Company  derives a  significant  portion of its  revenues  from
interest  income,  and interest  expense is the most  significant  expense,  the
segments are reported below using net interest income.  Because the Company also
evaluates performance based on noninterest income and noninterest expense goals,
these measures of segment profit and loss are also  presented.  The Company does
not allocate income taxes to the segments.

<TABLE>
<CAPTION>
                                       NINE MONTHS ENDED SEPTEMBER 30,           THREE MONTHS ENDED SEPTEMBER 30,
                                    -------------------------------------      ------------------------------------
                                    Community       Mortgage                   Community     Mortgage
                                     Banking         Banking        Total       Banking       Banking       Total
                                     -------         -------        -----       -------       -------       -----
                                                                      (in thousands)
<S>                                 <C>            <C>            <C>          <C>           <C>          <C>
Net interest income: (1)
1999                                $ 936,198      $  40,562      $ 976,760    $ 297,816     $ 16,710     $ 314,526
1998                                  559,624         36,286        595,910      197,720       13,606       211,326

Noninterest income: (2)
1999                                $ 189,278      $ 164,678      $ 353,956    $  68,077     $ 46,701     $ 114,778
1998                                  228,353        156,417        384,770      147,397       52,465       199,862

Noninterest expense: (3)
1999                                $ 564,563      $ 132,341      $ 696,904    $ 178,943     $ 40,893     $ 219,836
1998                                  377,363        123,361        500,724      151,768       44,940       196,708
</TABLE>

----------------------
  (1)  Includes  $84.7  million  and $71.7  million  for the nine  months  ended
       September 30, 1999 and 1998, respectively, in earnings credit provided to
       FNMC by the Bank, primarily for custodial bank account balances generated
       by FNMC.  Also includes  $184.9  million and $140.5  million for the nine
       months  ended  September  30,  1999 and 1998,  respectively,  in interest
       income and expense on  intercompany  loans.  Includes  $27.4  million and
       $26.0  million for the three  months ended  September  30, 1999 and 1998,
       respectively,  in earnings credit provided to FNMC by the Bank, primarily
       for  custodial  bank account  balances  generated by FNMC.  Also includes
       $60.8 million and $46.4 million for the three months ended  September 30,
       1999  and  1998,   respectively,   in  interest  income  and  expense  on
       intercompany loans.

                                              (Footnotes continued on next page)




                                    Page 13
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

  (2)  Includes  $36.8  million  and $23.2  million  for the nine  months  ended
       September  30, 1999 and 1998,  respectively,  in  intercompany  servicing
       fees.  Includes $11.6 million and $8.4 million for the three months ended
       September  30, 1999 and 1998,  respectively,  in  intercompany  servicing
       fees.
  (3)  Includes $3.5 million in  each of the nine-month periods  ended September
       30, 1999 and 1998 in  intercompany  noninterest  expense.  Includes  $1.2
       million in each of the  three-month  periods ended September 30, 1999 and
       1998 in intercompany noninterest expense.

       The  following  reconciles  the above table to the  amounts  shown on the
consolidated  financial statements for the nine and three months ended September
30, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                                   NINE MONTHS ENDED SEPTEMBER 30,    THREE MONTHS ENDED SEPTEMBER 30,
                                                   ------------------------------     -------------------------------
                                                       1999              1998             1999             1998
                                                       ----              ----             ----             ----
<S>                                                <C>               <C>              <C>               <C>
Net interest income:
Total net interest income for reportable
   segments                                        $  976,760        $  595,910       $  314,526        $  211,326
Elimination of intersegment net interest income       (84,656)          (71,680)         (27,434)          (26,023)
                                                   ----------        ----------       ----------        ----------
     Total                                         $  892,104        $  524,230       $  287,092        $  185,303
                                                   ==========        ==========       ==========        ==========

Noninterest income:
Total noninterest income for reportable segments   $  353,956        $  384,770       $  114,778        $  199,862
Elimination of intersegment servicing fees            (36,772)          (23,173)         (11,632)           (8,437)
                                                   ----------        ----------       ----------        ----------
     Total                                         $  317,184        $  361,597       $  103,146        $  191,425
                                                   ==========        ==========       ==========        ==========

Noninterest expense:
Total noninterest expense for reportable
   segments                                        $  696,904        $  500,724       $  219,836        $  196,708
Elimination of intersegment expense                    (3,480)           (3,480)          (1,160)           (1,160)
                                                   ----------        ----------       ----------        ----------
     Total                                         $  693,424        $  497,244       $  218,676        $  195,548
                                                   ==========        ==========       ==========        ==========
</TABLE>

(5)    REDEMPTION OF FN HOLDINGS NOTES

       On May 15,  1999,  GS  Holdings  redeemed  the  remaining  $225  thousand
aggregate  principal  amount  of the FN  Holdings  12 1/4%  Senior  Notes for an
aggregate  redemption  price,  including  accrued  interest  payable,  of $252.6
thousand. The premium paid in connection with such redemption was not material.

(6)    REFINANCING TRANSACTIONS

       On August 6, 1998,  GS Escrow  Corp.  ("GS  Escrow"),  an affiliate of GS
Holdings,  issued $2 billion in debt  securities,  referred  to as the GS Escrow
Notes. The GS Escrow Notes were issued to fund, in part, the cash tender offers,
discussed below, that occurred following the Golden State Acquisition.  Deferred
issuance  costs of $38.6 million  related to the GS Escrow Notes are included in
Golden State's other assets and are being amortized over the life of such notes.

       On August 17, 1998, FN Holdings  commenced  cash tender offers (the "Bank
Preferred Stock Tender Offers") for each of the Bank's two outstanding series of
Bank  Preferred  Stock,  which  together  had  a  total  aggregate   liquidation
preference of $473.2 million.  During the third quarter of 1998,  607,711 shares
of the 10 5/8%  Preferred  Stock and 1,432,937  shares of the 11 1/2%  Preferred
Stock were purchased for an aggregate purchase price of $227.3 million.  The net
tender  premiums and expenses paid in connection  with the Bank Preferred  Stock
Tender Offers  totalled  $19.5  million and are  reflected as minority  interest
expense on the  Company's  consolidated  statements  of income for the three and
nine months ended September 30, 1998.

       On September 14, 1998, GS Holdings  commenced  cash tender offers for the
FN Holdings Notes, which had an aggregate  principal amount of $915 million.  On
September 17, 1998, GS Holdings  purchased  $735.8 million  aggregate  principal
amount of the FN  Holdings  Notes for an  aggregate  purchase  price,  including
accrued interest payable,  of $902.5 million.  The after-tax tender premiums and
expenses paid in connection  with the Debt Tender Offers  totalled $80.0 million
and are  reflected as an  extraordinary  loss,  net of taxes,  on the  Company's
consolidated



                                    Page 14
<PAGE>


                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

statements of income for the three and nine months ended September 30, 1998.

       For additional information regarding the Refinancing Transactions,  refer
to note 5 of the "Notes to Consolidated  Financial  Statements" in the Company's
1998 Form 10-K.

(7)    ACCRUED TERMINATION AND FACILITIES COSTS

       In connection  with the Golden State  Acquisition,  the Company  recorded
liabilities   resulting  from  (i)  branch   consolidations   due  to  duplicate
facilities;  (ii) employee  severance and termination  benefits due to a planned
reduction in force; and (iii) expenses  incurred under a contractual  obligation
to  terminate  services  provided  by  outside  service  providers  (principally
relating to data processing expenses).  The merger and integration plan relative
to the Golden State  Acquisition was in place on September 11, 1998.  Certain of
these costs were included in the  allocation  of purchase  price and others were
recognized in net income.  The table below reflects a summary of the activity in
the  liability  for the costs  related to such plan since  December 31, 1998 (in
thousands):
<TABLE>
<CAPTION>


                                                                 Severance and
                                                 Branch           Termination          Contract
                                             Consolidations         Benefits          Termination          Total
                                             --------------         --------          -----------          -----
<S>                                            <C>                  <C>                 <C>              <C>
Balance at December 31, 1998                   $ 29,870             $ 33,480            $ 11,815         $ 75,165
       Additional liabilities recorded            2,322                  --                   --            2,322
       Charges to liability account              (3,648)              (3,626)             (8,499)         (15,773)
                                               --------             --------            --------         --------
Balance at March 31, 1999                        28,544               29,854               3,316           61,714
       Additional liabilities recorded            2,573                   --                  --            2,573
       Charges to liability account              (3,873)                  --                (821)          (4,694)
                                               --------             --------            --------         --------
Balance at June 30, 1999                         27,244               29,854               2,495           59,593
       Additional liabilities recorded            4,356                   56                  --            4,412
       Charges to liability account              (3,911)                (458)               (203)          (4,572)
       Reversal of accrual                           --              (16,641)             (2,267)         (18,908)
                                               --------             --------            --------         --------
Balance at september 30, 1999                  $ 27,689             $ 12,811            $     25         $ 40,525
                                               ========             ========            ========         ========
</TABLE>

(8)    INCOME TAXES

       In  connection  with the Golden State Merger on September  11, 1998,  the
Company deconsolidated from the Mafco Group. As a result, only the amount of the
net operating  losses ("NOLs") of the Company not utilized by the Mafco Group on
or before  December  31,  1998 are  available  to offset  taxable  income of the
Company thereafter.

       Based  upon the actual  filing of the Mafco  Group and GS  Holdings  1998
consolidated  federal  income tax returns  during the third quarter of 1999, tax
benefits of $79.0 million were recognized. The tax benefit is fully offset by an
increase in minority  interest  expense,  since  under the Golden  State  Merger
agreement,  the tax benefits  from any NOLs and other tax  attributes  of Parent
Holdings and its subsidiaries are retained by First Gibraltar and Hunter's Glen.

       In  addition,  the Company  recorded an  adjustment  of $66.4  million to
reduce the initial dividend of tax benefits to parent due to its deconsolidation
from the Mafco  Group,  which was  recorded as an increase to retained  earnings
during the third quarter of 1999.

(9)    MINORITY INTEREST

       On April 1, 1999,  GS  Holdings  redeemed  all of the  remaining  607,299
outstanding shares of the Bank's 10 5/8% Preferred Stock not already owned by it
for $105.313 per share,  for a total  redemption  price of $63.9  million.  This
transaction  reduced  minority  interest  by  $60.7  million  on  the  Company's
consolidated  balance sheet and resulted in a charge of $3.2 million to minority
interesst expense.



                                    Page 15
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

       On September 1, 1999, GS Holdings  redeemed all of the remaining  318,341
outstanding shares of the Bank's 11 1/2% Preferred Stock not already owned by it
for $105.75  per share,  for a total  redemption  price of $33.7  million.  This
transaction  reduced  minority  interest  by  $31.8  million  on  the  Company's
consolidated  balance sheet and resulted in a charge of $1.8 million to minority
interest expense.

       During the third  quarter  of 1999,  minority  interest  expense of $79.0
million was recorded  based upon changes to  estimated  pre-merger  tax benefits
retained  by Parent  Holdings.  This  amount  was fully  offset by an income tax
benefit in the same period. See note 8.

(10)   STOCKHOLDER'S EQUITY

       Cash dividends on the FN Holdings  Preferred  Stock totalled $0.5 million
during the nine months ended  September 30, 1998.  As the FN Holdings  Preferred
Stock was redeemed in 1998,  there were no preferred  dividends  during the nine
months ended  September  30, 1999.  Dividends  on common stock  totalled  $105.0
million and $377.1 million  during the nine months ended  September 30, 1999 and
1998,  respectively.  The 1998 amount  included  $267.9  million  related to the
Company's deconsolidation from its tax reporting group as a result of the Golden
State Merger.

       During  the  third  quarter  of 1999,  the  Company  received  a  capital
contribution  from its parent of $10.0  million.  In addition,  the Company also
recorded an adjustment to the purchase price in the Golden State  Acquisition of
$12.4 million. See note 2.

       During the third  quarter of 1999,  the Company  recorded a $66.4 million
increase in retained  earnings  representing an adjustment to reduce the initial
dividend of tax benefits to parent upon the Company's  deconsolidation  from its
tax reporting group on September 11, 1998. See note 8.

(11)   EXECUTIVE AND STOCK COMPENSATION

       In   connection   with  the  Golden  State   Acquisition,   the  Bank  is
administering  stock option  plans that  provided for the granting of options of
Golden State Common Stock to employees and directors.  Upon the  consummation of
the merger on September 11, 1998,  substantially all options  outstanding became
exercisable.  All pre-merger  stock option plans have expired as to the granting
of  additional  options.  During the three and nine months ended  September  30,
1999, a total of 149,226 and 506,243 options,  respectively,  were exercised and
57,500 and 230,000 options, respectively, expired under these plans.

       On May 17, 1999,  the Golden State  Bancorp Inc.  Omnibus Stock Plan (the
"Stock Plan") was approved,  providing for the granting of stock options,  stock
appreciation  rights and  restricted  stock to employees of Golden State and its
subsidiaries,  non-employee directors and to consultants who provide significant
services to Golden State. The total number of shares available for grant through
March 15,  2009 under the Stock Plan is  7,000,000  shares,  which may be issued
from treasury or from authorized but unissued shares.

       On May 18, 1999,  Golden  State  granted to its  employees  non-qualified
stock options  equivalent to 1,293,000  shares of its common stock at a price of
$23.50 per share under the Stock  Plan.  During the three  month  period  ending
September 30, 1999, Golden State granted additional  non-qualified stock options
equivalent to 59,000 shares of common stock at a price of $23.50 per share under
the Stock  Plan.  These  shares  generally  vest over three  years in  one-third
increments on the anniversary of the grant date. The options generally expire 10
years from the date of grant. No compensation cost was recognized by the Company
for these stock  options  during the three and nine months ended  September  30,
1999, in accordance with the intrinsic value accounting  methodology  prescribed
in Accounting  Principles  Board Opinion No. 25,  ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES,  whereby  compensation  expense to employees is determined based upon
the excess,  if any, of the market price of Golden  State's  common stock at the
measurement date over the exercise price of the award.


                                    Page 16
<PAGE>


                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements

       At September  30, 1999,  options to exercise an  equivalent  of 2,609,544
shares remained outstanding under all plans.

       On May 17, 1999,  the Golden State  Bancorp Inc.  Executive  Compensation
Plan (ECP) was approved,  providing for  performance-based  incentive  awards to
senior executives of the Company.  Awards may be paid in cash; however up to 50%
may be payable in restricted stock granted under the Stock Plan discussed above.

       On July 19, 1999, the Company awarded to certain of its employees  56,908
shares of restricted stock. The market value on the date of the award was $22.38
per share. These shares generally vest over two years in one-half  increments on
the  anniversary  of the grant  date,  based upon the  continued  service of the
employee.  The  compensation  expense  related to this award is  recognized on a
straight line basis over the vesting period for each tranche of the award with a
corresponding increase to additional paid-in capital.  During the three and nine
months ended  September  30,  1999,  $0.2  million in  compensation  expense was
recognized related to such award.

(12)   NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS

       In June 1998,  the FASB issued SFAS No. 133,  ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS AND HEDGING  ACTIVITIES  ("SFAS No. 133").  SFAS No. 133 establishes
standards for derivative  instruments and for hedging  activities,  and requires
that an entity  recognize all derivatives as either assets or liabilities in the
balance sheet and measure those  instruments at fair value.  Under SFAS No. 133,
an entity that elects to apply hedge  accounting is required to establish at the
inception of the hedge the method it will use for assessing the effectiveness of
the  hedging  derivative  and  the  measurement  approach  for  determining  the
ineffective aspect of the hedge.

     SFAS No. 133 applies to all  entries  and amends SFAS No. 107,  DISCLOSURES
ABOUT FAIR VALUES OF  FINANCIAL  INSTRUMENTS,  to include in  Statement  107 the
disclosure  provisions about  concentrations  of credit risk from Statement 105.
SFAS  No.  133  supersedes  FASB  Statements  No.  80,  ACCOUNTING  FOR  FUTURES
CONTRACTS,  No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL  INSTRUMENTS WITH
OFF-BALANCE SHEET RISK AND FINANCIAL  INSTRUMENTS WITH  CONCENTRATIONS OF CREDIT
RISK, and No. 119,  DISCLOSURE ABOUT DERIVATIVE  FINANCIAL  INSTRUMENTS AND FAIR
VALUE OF  FINANCIAL  INSTRUMENTS.  SFAS No. 133 also  nullifies  or modifies the
consensuses  reached in a number of issues addressed by the Emerging Issues Task
Force.

       SFAS No.  133,  as amended by SFAS No.  137,  ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS  AND HEDGING  ACTIVITIES -- DEFERRAL OF THE  EFFECTIVE  DATE OF FASB
STATEMENT NO. 133 - AN AMENDMENT OF FASB STATEMENT NO. 133, is effective for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  2000.  Initial
application  of this  statement  should be as of the  beginning  of an  entity's
fiscal quarter; on that date, hedging  relationships must be designated anew and
documented pursuant to the provisions of this statement.  Earlier application of
all of the provisions of SFAS No. 133 is encouraged, but is permitted only as of
the  beginning  of any  fiscal  quarter  that  begins  after  issuance  of  this
statement.  SFAS No.  133  should  not be  applied  retroactively  to  financial
statements of prior  periods.  Management has  established a  multi-disciplinary
task  force to  assess  the  statement's  effect on the  Company's  consolidated
financial statements and to coordinate its implementation.





                                    Page 17
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

       THE STATEMENTS  CONTAINED IN THIS REPORT ON FORM 10-Q THAT ARE NOT PURELY
HISTORICAL ARE  FORWARD-LOOKING  STATEMENTS WITHIN THE MEANING OF SECTION 27A OF
THE  SECURITIES  ACT OF 1933 AND SECTION 21E OF THE  SECURITIES  EXCHANGE ACT OF
1934,  INCLUDING STATEMENTS  REGARDING THE COMPANY'S  EXPECTATIONS,  INTENTIONS,
BELIEFS OR STRATEGIES REGARDING THE FUTURE.  FORWARD-LOOKING  STATEMENTS INCLUDE
THE COMPANY'S STATEMENTS REGARDING LIQUIDITY, PROVISION FOR LOAN LOSSES, CAPITAL
RESOURCES  AND  ANTICIPATED  EXPENSE  LEVELS  IN  "MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS".  IN ADDITION,  IN
THOSE AND OTHER PORTIONS OF THIS DOCUMENT,  THE WORDS  "ANTICIPATE",  "BELIEVE",
"ESTIMATE", "EXPECT", "INTEND", AND OTHER SIMILAR EXPRESSIONS, AS THEY RELATE TO
THE   COMPANY  OR  THE   COMPANY'S   MANAGEMENT,   ARE   INTENDED   TO  IDENTIFY
FORWARD-LOOKING  STATEMENTS.  SUCH  STATEMENTS  REFLECT THE CURRENT VIEWS OF THE
COMPANY  WITH  RESPECT  TO FUTURE  EVENTS  AND ARE  SUBJECT  TO  CERTAIN  RISKS,
UNCERTAINTIES AND ASSUMPTIONS. IT IS IMPORTANT TO NOTE THAT THE COMPANY'S ACTUAL
RESULTS COULD DIFFER  MATERIALLY  FROM THOSE  DESCRIBED  HEREIN AS  ANTICIPATED,
BELIEVED,  ESTIMATED OR EXPECTED.  AMONG THE FACTORS THAT COULD CAUSE RESULTS TO
DIFFER  MATERIALLY  ARE: (I) CHANGES IN LEVELS OF MARKET  INTEREST  RATES,  (II)
CHANGES IN THE  CALIFORNIA  ECONOMY OR  CALIFORNIA  REAL  ESTATE  VALUES,  (III)
CHANGES  IN THE LEVEL OF  MORTGAGE  LOAN  PREPAYMENTS,  (IV)  CHANGES IN FEDERAL
BANKING LAWS AND REGULATIONS,  (V) DIFFICULTIES,  DELAYS, OR UNANTICIPATED COSTS
RELATED  TO  ADDRESSING  YEAR 2000  ISSUES,  INCLUDING  THOSE  ARISING  FROM THE
COMPANY'S  CUSTOMERS AND SUPPLIERS,  (VI) ACTIONS BY THE COMPANY'S  COMPETITORS,
AND (VII) THE RISKS  DESCRIBED  IN THE "RISK  FACTORS"  SECTION  INCLUDED IN THE
REGISTRATION  STATEMENT ON FORM S-1 FILED BY THE COMPANY WITH THE SECURITIES AND
EXCHANGE  COMMISSION  ON SEPTEMBER  29, 1998 (FILE NO.  333-64597)  AND DECLARED
EFFECTIVE ON NOVEMBER 12, 1998. THE COMPANY  ASSUMES NO OBLIGATION TO UPDATE ANY
SUCH FORWARD-LOOKING STATEMENT.

OVERVIEW

       The  principal  business  of GS  Holdings,  through  California  Federal,
consists of (i) operating  retail deposit branches that provide retail consumers
and small  businesses  with deposit  products  such as demand,  transaction  and
savings  accounts;  investment  products  such as mutual  funds,  annuities  and
insurance;  and (ii) mortgage  banking  activities,  including  originating  and
purchasing  1-4 unit  residential  loans for sale to  various  investors  in the
secondary market and servicing loans for itself and others.  To a lesser extent,
the  Company   originates  and/or  purchases  certain  commercial  real  estate,
commercial and consumer  loans for  investment.  Revenues are derived  primarily
from  interest  earned on loans,  interest  received  on  government  and agency
securities  and  mortgage-backed  securities,  gains on sales of loans and other
investments  and fees received in  connection  with loan  servicing,  securities
brokerage and other customer service transactions. Expenses primarily consist of
interest on customer  deposit  accounts,  interest on  short-term  and long-term
borrowings,  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.

       NET INCOME

       GS Holdings  reported net income for the nine months ended  September 30,
1999 of $246.8  million  compared  with net  income of  $339.7  million  for the
corresponding period in 1998. Net income for the nine months ended September 30,
1999 includes a $16.3 million pre-tax gain from the Servicing Sale, $5.0 million
in minority  interest  expense  related to the  redemption of the Bank Preferred
Stock and a $2.3 million pre-tax gain from the sale of branches. Net income on a
core basis,  excluding these items,  totalled $241.0 million for the nine months
ended  September  30, 1999.  Net income for the nine months ended  September 30,
1998 includes (i) a $250 million reduction of the valuation allowance related to
the Company's  deferred tax asset,  (ii) a $108.9 million  pre-tax gain from the
Florida  Branch  Sale,  (iii)  $31.9  million  in merger and  integration  costs
(including severance, conversion and consolidation costs) incurred in connection
with the Golden State  Acquisition,  (iv) an $80 million  extraordinary  loss on
early  extinguishment  of debt,  net and (v) $19.5 million in minority  interest
expense related to the Bank Preferred Stock Tender Offers. Without consideration
of these items,  net income for the nine months ended  September  30, 1998 would
have been $144.7 million.

       GS Holdings  reported net income for the three months ended September 30,
1999  of  $87.2  million  compared  with  net  loss  of  $23.3  million  for the
corresponding  period in 1998.  Net income for the three months ended  September
30, 1999  includes  $1.8  million in minority  interest  expense  related to the
redemption of the 11 1/2% Bank Preferred  Stock and a $2.3 million  pre-tax gain
from the sale of branches. Net income on a core basis, excluding


                                    Page 18
<PAGE>

these two items, totalled $87.6 million for the three months ended September 30,
1999. The net loss for the three months ended  September 30, 1998 includes (i) a
$108.9 million  pre-tax gain from the Florida Branch Sale, (ii) $31.1 million in
merger and integration costs (including severance,  conversion and consolidation
costs)  incurred in connection with the Golden State  Acquisition,  (iii) an $80
million  extraordinary loss on early  extinguishment of debt, net and (iv) $19.5
million in minority  interest expense related to the Bank Preferred Stock Tender
Offers.  Without  consideration  of these items, net income for the three months
ended September 30, 1998 would have been $31.2 million.

       FINANCIAL CONDITION

       During the nine months  ended  September  30,  1999,  consolidated  total
assets  increased  $0.9 billion,  to $55.7  billion from December 31, 1998,  and
total liabilities increased from $52.5 billion to $53.5 billion.

       During the nine months ended  September  30, 1999,  stockholder's  equity
increased $2.4 million to $1.7 billion.  The increase in stockholder's equity is
principally  the net result of $246.8  million in net income for the  period,  a
$66.4  million  adjustment  to reduce the initial  dividend  of tax  benefits to
parent due to deconsolidation, a $10.0 million contribution from parent and $2.0
million from the  exercise of stock  options,  partially  offset by a $205.6 net
unrealized loss on securities available for sale, $105.0 million in common stock
dividends  and a $12.4  million  reduction in the  purchase  price of the Golden
State Acquisition. See note 10.

       The  unrealized  loss on  securities  available  for sale is  primarily a
result of a decline  in the value of the  Company's  mortgage-backed  securities
available  for sale due to an increase in Treasury  yields and wider  spreads on
private label collateralized mortgage obligations. This unrealized loss reflects
general  declines in the prices of fixed-rate  instruments  during the year as a
consequence  of rising  interest  rates,  which led to a slowing  of  prepayment
expectations and extended the expected lives of the mortgage-related  securities
in the  portfolio.  This  unrealized  loss  represents  a  decline  in the total
mortgage-backed  securities  available  for  sale  portfolio  of less  than  2%.
However,  this adjustment does not take into account market changes in the value
of  borrowings  or  deposits.  At  September  30,  1999,  the  market  valuation
adjustment  of the  offsetting  borrowings  would  have been a  positive  $197.5
million. This does not include any increase in the value of deposits.

       GS Holdings'  non-performing assets,  consisting of non-performing loans,
net of  purchase  accounting  adjustments,  foreclosed  real  estate,  net,  and
repossessed  assets,  decreased to $219 million at September  30, 1999  compared
with $310  million  at  December  31,  1998.  Total  non-performing  assets as a
percentage  of the Bank's total assets  decreased to 0.39% at September 30, 1999
from 0.57% at December 31, 1998.

       YEAR 2000

       The Year 2000 remediation process for existing  mission-critical  systems
was  completed  in the  first  quarter  of  1999,  as  well as the  testing  and
certification of these systems and  applications.  In addition,  during February
and  March  of  1999,  the  Company  participated  in  industry-wide  Year  2000
integration testing sponsored by the Mortgage Bankers  Association.  The Company
has also  assessed  risks  related to the  potential  failure of material  third
parties to be ready for the year 2000.

       The  contingency  plan for the critical  supply  vendors was completed in
mid-February  1999 and  contingency  plans were completed for all other material
service  providers  by June 30,  1999.  The Y2K weekend  (January 1 and 2, 2000)
support plan for applications maintained in-house was completed by September 30,
1999.  In addition,  contingency  plans for critical  business  areas to address
liquidity,  customer  communications,  operations issues and potential  failures
surrounding the Year 2000 event were completed by September 30, 1999.

       It is  currently  expected  that costs  related  to making the  Company's
computer  systems,  applications  and facilities  Year 2000 compliant will total
approximately  $17.6 million over the years 1997 to 2000. Of this amount,  $15.9
million has been incurred  since the inception of the Year 2000 project  through
September  30,  1999.  Noninterest  expense for the three and nine months  ended
September  30,  1999  included  approximately  $1.5  million  and $6.1  million,
respectively, in connection with the Company's Year 2000 efforts.


                                    Page 19
<PAGE>

       For  additional  information  regarding  the Year  2000  issue,  refer to
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Year 2000" in the Company's 1998 Form 10-K.

RESULTS OF OPERATIONS

       NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER
       30, 1998

       The  following  table  sets forth  information  regarding  the  Company's
consolidated  average balance sheets,  together with the total dollar amounts of
interest income and interest expense and the weighted average interest rates for
the periods  presented.  Average  balances are calculated on a daily basis.  The
information presented represents the historical activity of the Company.
<TABLE>
<CAPTION>

                                                                   Nine Months Ended September 30, 1999
                                                                   ------------------------------------
                                                                   Average                      Average
                                                                   Balance       Interest         Rate
                                                                   -------       --------         ----
                                                                          (dollars in millions)
<S>                                                                <C>           <C>              <C>

ASSETS

Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)         $ 1,571       $   70           5.97%
     Mortgage-backed securities available for sale                  13,623          645           6.32
     Mortgage-backed securities held to maturity                     2,471          138           7.44
     Loans held for sale, net                                        1,939           96           6.60
     Loans receivable, net                                          31,427        1,722           7.31
     FHLB stock                                                      1,100           43           5.24
                                                                   -------       ------
         Total interest-earning assets                              52,131        2,714           6.94
Noninterest-earning assets                                           3,748       ------
                                                                   -------
         Total assets                                              $55,879
                                                                   =======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                      $24,104          667           3.70
     Securities sold under agreements to repurchase (3)              4,826          188           5.14
     Borrowings (3)                                                 23,469          967           5.51
                                                                   -------       ------
         Total interest-bearing liabilities                         52,399        1,822           4.65
Noninterest-bearing liabilities                                      1,210       ------
Minority interest                                                      551
Stockholder's equity                                                 1,719
                                                                   -------
         Total liabilities, minority interest
            and stockholder's equity                               $55,879
                                                                   =======
Net interest income                                                              $  892
                                                                                 ======
Interest rate spread                                                                              2.29%
                                                                                                 =====
Net interest margin                                                                               2.27%
                                                                                                 =====

Return on average assets                                                                          0.59%
                                                                                                 =====
Return on average common equity                                                                  19.14%
                                                                                                 =====
Return on average total equity                                                                   19.14%
                                                                                                 =====
Average equity to average assets                                                                  3.08%
                                                                                                 =====
</TABLE>




                                    Page 20
<PAGE>
<TABLE>
<CAPTION>

                                                                    Nine Months Ended September 30, 1998
                                                               --------------------------------------------
                                                               Average                              Average
                                                               Balance         Interest              Rate
                                                               -------         --------              ----
                                                                          (dollars in millions)
<S>                                                            <C>                <C>                <C>
ASSETS

Interest-earning assets (1):

     Securities and interest-bearing deposits in banks (2)     $ 1,180            $   66             7.48%
     Mortgage-backed securities available for sale               6,661               294             5.89
     Mortgage-backed securities held to maturity                 1,396                80             7.64
     Loans held for sale, net                                    1,585                85             7.16
     Loans receivable, net                                      20,089             1,170             7.77
     FHLB Stock                                                    519                22             5.78
                                                               -------            ------
         Total Interest-earning Assets                          31,430             1,717             7.29
                                                                                  ------
Noninterest-earning Assets                                       3,315
                                                               -------
         Total Assets                                          $34,745
                                                               =======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:

     Deposits                                                  $16,670               546             4.38
     Securities sold under agreements to repurchase              2,510               106             5.59
     Borrowings (3)                                             11,669               541             6.20
                                                               -------            ------
         Total interest-bearing liabilities                     30,849             1,193             5.17
                                                                                  ------
Noninterest-bearing liabilities                                  1,497
Minority interest                                                  966
Stockholder's Equity                                             1,433
                                                               -------
         Total liabilities, minority interest
            and stockholder's equity                           $34,745
                                                               =======
Net interest income                                                               $  524
                                                                                  ======
Interest rate spread                                                                                 2.12%
                                                                                                    =====
Net interest margin                                                                                  2.21%
                                                                                                    =====

Return on average assets                                                                             1.30%
                                                                                                    =====
Return on average common equity                                                                     31.69%
                                                                                                    =====
Return on average total equity                                                                      31.60%
                                                                                                    =====
Average equity to average assets                                                                     4.12%
                                                                                                    =====
</TABLE>

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







                                    Page 21
<PAGE>

       The following table presents certain information of the Company regarding
changes in interest  income and interest  expense 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) volume
(changes in average outstanding  balances multiplied by the prior period's rate)
and (ii) rate (changes in average interest rate multiplied by the prior period's
volume).  Changes  attributable  to both  volume  and rate have  been  allocated
proportionately.
<TABLE>
<CAPTION>

                                                                Nine Months Ended September 30, 1999 vs.1998
                                                                        Increase (Decrease) Due To
                                                                --------------------------------------------
                                                                  Volume           Rate                 Net
                                                                  ------           ----                 ---
                                                                              (in millions)
<S>                                                               <C>               <C>                <C>
INTEREST INCOME:

     Securities and interest-bearing deposits in banks            $   10            $ (6)              $  4
     Mortgage-backed securities available for sale                   327              24                351
     Mortgage-backed securities held to maturity                      60              (2)                58
     Loans held for sale, net                                         17              (6)                11
     Loans receivable, net                                           617             (65)               552
     FHLB stock                                                       23              (2)                21
                                                                  ------            ----               ----
               Total                                               1,054             (57)               997
                                                                  ------            ----               ----

INTEREST EXPENSE:

     Deposits                                                        185             (64)               121
     Securities sold under agreements to repurchase                   90              (8)                82
     Borrowings                                                      479             (53)               426
                                                                  ------            ----               ----
               Total                                                 754            (125)               629
                                                                  ------            ----               ----
                     Change in net interest income                $  300            $ 68               $368
                                                                  ======            ====               ====
</TABLE>



       The volume  variances in total interest income and total interest expense
for the nine  months  ended  September  30, 1999  compared to the  corresponding
period in 1998 are largely due to the  additional  volume  related to the Golden
State Acquisition, increased purchases of mortgage-backed securities funded with
FHLB advances and the  assumption of debt  securities  from the GS Escrow Merger
(the "GS Holdings Notes"),  partially offset by $1.4 billion in deposits sold in
the Florida  Branch Sale and borrowings  repurchased as part of the  Refinancing
Transactions.  The  positive  total rate  variance of $68  million is  primarily
attributed to the lower cost of funds on deposits,  lower interest rates paid on
new  borrowings  (including  the  Refinancing  Transactions),  the lower costing
liabilities  assumed  in the  Golden  State  Acquisition,  premium  amortization
associated with prepayments of variable-rate  mortgage-backed securities in 1998
and higher  market  rates on  mortgage-backed  securities  purchased in 1999 and
1998,  partially offset by prepayments of higher rate  interest-earning  assets,
primarily loans, in 1999.

       INTEREST  INCOME.  Total  interest  income was $2.7  billion for the nine
months ended  September  30, 1999,  an increase of $996.9  million from the nine
months ended  September  30, 1998.  Total  interest-earning  assets for the nine
months  ended  September  30, 1999  averaged  $52.1  billion,  compared to $31.4
billion  for the  corresponding  period  in 1998,  primarily  as a result of the
Golden State Acquisition.  The yield on total interest-earning assets during the
nine months ended  September 30, 1999 decreased to 6.94% from 7.29% for the nine
months ended  September 30, 1998,  primarily due to  prepayments  of higher rate
loans which were replaced with lower yielding  originations and the repricing of
variable-rate loans, partially offset by purchases of mortgage-backed securities
and additions from the Golden State  Acquisition of  mortgage-backed  securities
with higher market yields.

       GS Holdings  earned $1.7 billion of interest  income on loans  receivable
for the nine months ended September 30, 1999, an increase of $552.0 million from
the  nine  months  ended  September  30,  1998.  The  average  balance  of loans
receivable  was $31.4  billion for the nine months  ended  September  30,  1999,
compared to $20.1 billion for the same period in 1998. The weighted average rate
on loans  receivable  decreased to 7.31% for the nine months ended September 30,
1999 from 7.77% for the nine months ended  September 30, 1998,  primarily due to
comparatively

                                    Page 22
<PAGE>

lower market rates in 1999.  The increase in the average volume is primarily due
to the  addition  of  $14.6  billion  in  loans  acquired  in the  Golden  State
Acquisition.

       GS Holdings  earned  $96.0  million of interest  income on loans held for
sale for the nine months ended  September 30, 1999, an increase of $10.9 million
from the nine months ended September 30, 1998. The average balance of loans held
for sale was $1.9  billion for the nine months  ended  September  30,  1999,  an
increase of $354 million from the  comparable  period in 1998,  primarily due to
increased  originations  and longer  holding  periods for jumbo loans during the
nine months ended  September 30, 1999.  The weighted  average rate on loans held
for sale  decreased to 6.60% for the nine months ended  September  30, 1999 from
7.16% for the nine months ended  September 30, 1998,  primarily due to declining
market rates.

       Interest  income on  mortgage-backed  securities  available  for sale was
$645.5  million for the nine months ended  September  30,  1999,  an increase of
$351.4  million  from the nine months  ended  September  30,  1998.  The average
portfolio balances increased $7.0 billion, to $13.6 billion, for the nine months
ended  September  30, 1999  compared to the same  period in 1998.  The  weighted
average  yield on these  assets  increased  from 5.89% for the nine months ended
September 30, 1998 to 6.32% for the nine months ended  September  30, 1999.  The
increase  in the volume  and the  weighted  average  yield is  primarily  due to
premium amortization associated with prepayments of variable-rate  securities in
1998, purchases of mortgage-backed securities and additions of $2.4 billion from
the Golden State Acquisition with higher market yields.

       Interest income on mortgage-backed securities held to maturity was $137.8
million for the nine  months  ended  September  30,  1999,  an increase of $57.8
million from the nine months ended  September  30, 1998.  The average  portfolio
balance  increased  $1.1  billion,  to $2.5  billion,  for the nine months ended
September 30, 1999 compared to the same period in 1998,  primarily attributed to
the addition of $1.9 billion of the Bank's  multi-family  loans securitized with
FNMA  with a  weighted  average  rate of 7.39%  during  September  of 1998.  The
weighted  average  rates for the nine months ended  September  30, 1999 and 1998
were 7.44% and 7.64%, respectively.

       Interest  income on  securities  and  interest-bearing  deposits in other
banks was $70.4  million  for the nine  months  ended  September  30,  1999,  an
increase of $4.2  million  from the nine months ended  September  30, 1998.  The
average  portfolio balance increased from $1.2 billion for the nine months ended
September 30, 1998 to $1.6 billion for the nine months ended September 30, 1999.
The decrease in the  weighted  average rate from 7.48% for the nine months ended
September  30, 1998 to 5.97% for the nine  months  ended  September  30, 1999 is
primarily due to a decline in market interest rates, as well as $19.8 million in
interest  income  received in September 1998 on a $193.0 million  federal income
tax refund related to Old California Federal.

       Dividends  on FHLB stock were $43.1  million  for the nine  months  ended
September  30,  1999,  an increase of $20.7  million  from the nine months ended
September 30, 1998,  due to an increase in the amount of such stock owned by the
Company as a result of an increase in borrowings  under FHLB advances as well as
the Golden State  Acquisition.  The average balance  outstanding during the nine
months  ended  September  30, 1999 and 1998 was $1.1  billion  and $.5  billion,
respectively. The weighted average rate on FHLB stock decreased to 5.24% for the
nine  months  ended  September  30,  1999 from 5.78% for the nine  months  ended
September 30, 1998, reflecting lower dividends declared by the FHLB.

       INTEREST  EXPENSE.  Total interest  expense was $1.8 billion for the nine
months ended  September  30, 1999,  an increase of $629.1  million from the nine
months  ended  September  30,  1998.  The  increase is  primarily  the result of
additional   borrowings  under  FHLB  advances,   the  additional  deposits  and
borrowings  assumed in the Golden  State  Acquisition,  deposits  assumed in the
Nevada  Purchase and the net impact of the Refinancing  Transactions,  including
the assumption of the GS Holdings Notes.

       Interest expense on customer deposits,  including brokered deposits,  was
$667.4  million for the nine months ended  September  30,  1999,  an increase of
$121.7  million  from the nine months  ended  September  30,  1998.  The average
balance of customer  deposits  outstanding  increased from $16.7 billion for the
nine months ended  September 30, 1998 to $24.1 billion for the nine months ended
September 30, 1999. The increase in the average balance is primarily a result of
$11.3  billion in deposits  assumed in the Golden State  Acquisition,  partially
offset by $1.4  billion in deposits  sold in the Florida  Branch  Sale,  both of
which occurred in the third quarter of 1998. In

                                    Page 23
<PAGE>

addition,  $543  million in deposits at an average cost of 3.71% were assumed in
the Nevada  Purchase,  which was consummated in April 1999. The overall weighted
average cost of deposits  declined to 3.70% for the nine months ended  September
30, 1999 from 4.38% for the nine months ended September 30, 1998,  primarily due
to lower market interest rates and a change in the Bank's certificate of deposit
pricing  strategy,  as  well  as the  higher  average  balances  of  lower  rate
transaction  accounts  in 1999  compared  to 1998 and the lower cost of funds on
deposits assumed in the Golden State Acquisition and the Nevada Purchase.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled  $188.1  million for the nine  months  ended  September  30,  1999,  an
increase of $81.7  million from the nine months ended  September  30, 1998.  The
average  balance of such borrowings for the nine months ended September 30, 1999
and 1998 was $4.8  billion  and $2.5  billion,  respectively;  such  increase is
primarily  attributed  to the Golden State  Acquisition.  The  weighted  average
interest rate on these instruments  decreased to 5.14% for the nine months ended
September  30, 1999 from 5.59% for the nine months  ended  September  30,  1998,
primarily  due to a decrease in market rates on new  borrowings in 1999 compared
to 1998.

       Interest  expense on  borrowings  totalled  $967.1  million  for the nine
months ended  September  30, 1999,  an increase of $425.7  million from the nine
months ended  September 30, 1998. The average  balance  outstanding for the nine
months ended  September 30, 1999 and 1998 was $23.5  billion and $11.7  billion,
respectively.  The weighted average interest rate on these instruments decreased
to 5.51% for the nine months  ended  September  30, 1999 from 6.20% for the nine
months ended September 30, 1998,  primarily due to lower prevailing market rates
in 1999 and the net impact of the  Refinancing  Transactions.  The higher volume
includes the net impact of the Refinancing Transactions and the addition of $5.4
billion in FHLB advances assumed in the Golden State Acquisition, as well as the
increase  in FHLB  advances  used  to  fund  the  purchases  of  mortgage-backed
securities and to fund the sale of deposits in the Florida Branch Sale.

       NET INTEREST INCOME.  Net interest income was $892.1 million for the nine
months ended  September  30, 1999,  an increase of $367.9  million from the nine
months  ended  September  30,  1998,   primarily  due  to  an  increase  in  net
interest-earning  assets  resulting  from the Golden  State  Acquisition  and an
increase in the net interest margin. The interest rate spread increased to 2.29%
for the nine  months  ended  September  30,  1999 from 2.12% for the nine months
ended September 30, 1998,  primarily as a result of maturities and repayments of
higher rate  interest-bearing  liabilities being replaced with  interest-bearing
liabilities  having  comparatively  lower  rates.  The effect of lower  rates on
liabilities  was partially  offset by lower yielding assets  replenishing  asset
run-off in a declining rate environment.

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan servicing fees,  customer  banking fees, and gains on sales of assets,  was
$317.2  million for the nine months ended  September 30, 1999,  representing  an
increase  of $62.1  million  from the nine  months  ended  September  30,  1998,
excluding non-recurring gains on the sale of branches in each of the periods.

       Loan servicing fees, net of amortization  of mortgage  servicing  rights,
were $108.4  million for the nine months ended  September 30, 1999,  compared to
$106.1 million for the nine months ended  September 30, 1998. The  single-family
residential  loan servicing  portfolio,  excluding  loans serviced for the Bank,
increased from $69.3 billion at September 30, 1998 to $72.3 billion at September
30, 1999.  Incremental loan servicing fees were partially offset by amortization
related to higher average MSR (as defined herein) basis in the nine months ended
September 30, 1999.  Servicing  rights  purchased in bulk  transactions in prior
years with lower average MSR basis are being  replaced  with current  production
which more closely  approximates  market rates which,  when combined with recent
higher  prepayment  speeds,  results  in a decline in the  average  yield on the
portfolio.

       Customer  banking  fees were $138.8  million  for the nine  months  ended
September 30, 1999 compared to $79.5 million for the nine months ended September
30, 1998.  The increase is primarily  attributed  to the impact of revenues from
the retail  banking  operations  acquired in the Golden  State  Acquisition  and
deposits assumed in the Nevada  Purchase,  partially offset by the impact of the
Florida Branch Sale. In addition,  management has placed  increased  emphasis on
transaction  account  growth  since  the  Golden  State  Acquisition,  which has
generated additional fee income.



                                    Page 24
<PAGE>

       Gain on sale of loans  totalled  $25.4  million for the nine months ended
September  30,  1999,  a decrease of $24.6  million  from the nine months  ended
September 30, 1998. The decrease includes  adjustments of $11.4 million recorded
during  the second and third  quarters  of 1999 to reflect  the lower of cost or
market valuation on residential loans held for sale during the nine months ended
September 30, 1999. In addition, gains attributed to early payoffs of commercial
loans with  unamortized  discounts  were $3.7 million higher in 1998 compared to
1999. During the nine months ended September 30, 1999,  California  Federal sold
$8.7 billion in single-family  mortgage loans originated for sale with servicing
rights retained as part of its ongoing mortgage banking  operations  compared to
$6.3 billion of such sales for the corresponding period in 1998.

       Net gain on sale of assets  totalled  $18.3  million  for the nine months
ended  September  30,  1999,  an increase of $18.1  million from the nine months
ended September 30, 1998, primarily attributed to the Servicing Sale.

       Net gain on sale of branches  was $2.3  million for the nine months ended
September 30, 1999 compared to $108.8  million for the same period in 1998.  The
gain in 1999 relates to the sale of the Eureka and Ukiah branches (with deposits
of $70.1 million) to Humboldt Bank. The gain in 1998 is primarily  attributed to
the Florida Branch Sale in the third quarter.

       Other  noninterest  income was $24.0  million for the nine  months  ended
September 30, 1999 compared to $17.0 million for the nine months ended September
30, 1998. The increase in 1999 is primarily attributed to the receipt of a sales
and use tax refund and an increase in disbursement float income.

       NONINTEREST EXPENSE. Total noninterest expense was $693.4 million for the
nine months ended September 30, 1999, an increase of $196.2 million  compared to
the nine months ended  September 30, 1998. The variance  between the two periods
is primarily attributed to the Golden State Acquisition. Noninterest expense for
the nine months ended September 30, 1999 included  increases of $98.5 million in
compensation,  $39.8  million  in  occupancy  and  equipment,  $16.4  million in
goodwill amortization  attributed to the Golden State Acquisition and the Nevada
Purchase,  and an additional  $37.8 million in other  noninterest  expense,  all
primarily  as a result of the Golden State  Acquisition.  These  increases  were
partially  offset by a $24.2 million  decrease in merger and  integration  costs
incurred in  connection  with the Golden State  Acquisition,  as the majority of
these costs were incurred in 1998.

       Compensation  and employee  benefits  expense was $299.2  million for the
nine months ended September 30, 1999, an increase of $98.5 million from the nine
months ended  September  30, 1998.  The increase is primarily  attributed to the
Golden State Acquisition.

       Occupancy and equipment  expense was $104.9 million and $65.1 million for
the nine months ended September 30, 1999 and 1998,  respectively.  This increase
reflects the effects of the Golden State  Acquisition as well as $8.6 million of
adjustments  in 1999 to previously  established  accruals for vacant  facilities
that are not expected to be recurring.

       Loan expense was $29.2  million for the nine months ended  September  30,
1999, a decrease of $4.6 million from the nine months ended  September 30, 1998.
The  decrease  is  primarily  attributed  to an  increase  in  FAS  91  deferred
origination costs due to higher loan production  activity during the nine months
ended September 30, 1999 compared to the same period in 1998.

       Professional  fees were  $39.8  million  and $30.8  million  for the nine
months  ended  September  30,  1999 and 1998,  respectively.  The  increase  was
primarily a result of the Golden State Acquisition.

       Marketing expense was $24.1 million and $12.0 million for the nine months
ended  September 30, 1999 and 1998,  respectively.  The increase was primarily a
result of the Golden State Acquisition.

       Data  processing  fees  were  $17.8  million  for the nine  months  ended
September  30,  1999,  an increase of $7.5  million  from the nine months  ended
September 30, 1998. The increase is primarily attributed to expenses incurred in
connection with the Year 2000 project.



                                    Page 25
<PAGE>

       Merger and integration  costs were $7.7 million and $31.9 million for the
nine  months  ended  September  30,  1999 and 1998,  respectively,  representing
transition expenses, which include severance, conversion and consolidation costs
incurred in connection with the Golden State  Acquisition.  The majority of such
costs  were  incurred  in 1998 and  management  does  not  expect  to incur  any
significant additional merger and integration costs from this transaction.

       Amortization  of intangible  assets was $52.8 million for the nine months
ended  September  30,  1999,  an increase of $16.4  million from the nine months
ended  September  30, 1998,  primarily  attributed  to the goodwill  recorded in
connection with the Golden State Acquisition and the Nevada Purchase.

       Other  noninterest  expense was $112.1  million in 1999 compared to $74.4
million in 1998, primarily attributed to increased operations as a result of the
Golden  State  Acquisition.  In  addition,  results  for the nine  months  ended
September  30, 1999 include $6.2 million in operating  expenses  related to back
office support; such charges are not expected to be recurring.

       PROVISION FOR INCOME TAX. During the nine months ended September 30, 1999
and 1998,  GS  Holdings  recorded  income tax  expense of $151.7  million and an
income tax  benefit of $143.1  million,  respectively.  GS  Holdings'  effective
Federal tax rate was 22% and (51)%  during the nine months ended  September  30,
1999 and 1998, respectively, while its statutory Federal tax rate was 35% during
both periods.  For the period ended  September 30, 1999, the difference  between
the  effective  and  statutory  rates was  primarily  the result of  adjustments
related to pre-merger tax benefits, in the form of net operating loss carryovers
and other items,  which are retained by the previous  owners of FN Holdings.  To
the extent these tax benefits are recognized, there is a reduction in income tax
expense, which is offset by an increase in minority interest:  provision in lieu
of income tax expense.  Accordingly,  during the nine months ended September 30,
1999,  a tax  benefit  of $79.0  million  was  recognized,  and a  corresponding
increase to minority interest was recorded. These adjustments resulted from 1998
tax filings late in the third  quarter of 1999.  For the nine month period ended
September 30, 1998, the difference between the effective and statutory rates was
primarily  the result of a $250  million  reduction  in the  deferred  tax asset
valuation allowance. GS Holdings' effective state tax rate was 8% and 11% during
the nine months ended September 30, 1999 and 1998, respectively.

       MINORITY INTEREST.  Minority interest for the nine months ended September
30,  1999  includes  a  $79.0  million   provision  in  lieu  of  income  taxes,
representing  pre-merger  tax  benefits  retained by the  previous  owners of FN
Holdings (see note 8), and $5.0 million in net premiums paid in connection  with
the  redemption of the Bank  Preferred  Stock.  Dividends on the Bank  Preferred
Stock that had not been  acquired by GS Holdings  and the REIT  Preferred  Stock
totalling  $1.8  million and $34.2  million,  respectively,  were also  recorded
during the nine months ended September 30, 1999.  Minority  interest relative to
the REIT Preferred Stock is reflected net of related income tax benefit of $14.4
million,  which will inure to the  Company as a result of the  deductibility  of
such  dividends  for income tax  purposes.  The  reduction in minority  interest
relative to the Bank  Preferred  Stock reflects the impact of the $380.7 million
in Bank  Preferred  Stock  purchased  by GS  Holdings  in  connection  with  the
Refinancing  Transactions  in the third and fourth  quarters of 1998, as well as
the $60.7 million  redeemed on April 1, 1999 and the $31.8  million  redeemed on
September 1, 1999.  Minority  interest for the nine months ended  September  30,
1999 also includes a $1.7 million benefit reversal  representing that portion of
Auto One's loss attributable to the 20% interest in the common stock of Auto One
that was issued as part of the GSAC Acquisition.

       Minority  interest for the nine months ended  September 30, 1998 includes
$19.5  million in net  premiums and expenses  paid in  connection  with the Bank
Preferred Stock Tender Offers.  During the nine months ended September 30, 1998,
minority interest  includes  dividends on the Bank Preferred Stock, and the REIT
Preferred  Stock of $37.7  million,  and $34.2 million,  respectively.  Minority
interest relative to the REIT Preferred Stock is reflected net of related income
tax benefit of $7.7 million,  which will inure to the Company as a result of the
deductibility of such dividends for income tax purposes.  Minority interest also
includes a $1.7  million  benefit  representing  that portion of Auto One's loss
attributable to the 20% interest in the common stock of Auto One that was issued
as part of the GSAC Acquisition.



                                    Page 26
<PAGE>

       THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER
       30, 1998

       The  following  table  sets forth  information  regarding  the  Company's
consolidated  average balance sheets,  together with the total dollar amounts of
interest income and interest expense and the weighted average interest rates for
the periods  presented.  Average  balances are calculated on a daily basis.  The
information presented represents the historical activity of the Company.
<TABLE>
<CAPTION>

                                                                Three Months Ended September 30, 1999
                                                                -------------------------------------
                                                                 Average                      Average
                                                                 Balance         Interest       Rate
                                                                 -------         --------       ----
                                                                          (dollars in millions)
<S>                                                              <C>                <C>         <C>
ASSETS

Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)       $ 1,623            $ 24        5.84%
     Mortgage-backed securities available for sale                13,918             222        6.38
     Mortgage-backed securities held to maturity                   2,303              42        7.28
     Loans held for sale, net                                      1,635              28        6.91
     Loans receivable, net                                        32,390             587        7.25
     FHLB stock                                                    1,137              15        5.22
                                                                 -------            ----
         Total interest-earning assets                            53,006             918        6.92
                                                                                    ----
Noninterest-earning assets                                         3,245
                                                                 -------
         Total assets                                            $56,251
                                                                 =======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                    $24,060             223        3.68
     Securities sold under agreements to repurchase (3)            5,840              80        5.39
     Borrowings (3)                                               23,292             328        5.57
                                                                 -------            ----
         Total interest-bearing liabilities                       53,192             631        4.70
                                                                                    ----
Noninterest-bearing liabilities                                    1,091
Minority interest                                                    518
Stockholder's equity                                               1,450
                                                                 -------
         Total liabilities, minority interest
           and  stockholder's equity                             $56,251
                                                                 =======
Net interest income                                                                 $287
                                                                                    ====
Interest rate spread                                                                            2.22%
                                                                                               =====
Net interest margin                                                                             2.20%
                                                                                               =====

Return on average assets                                                                        0.62%
                                                                                               =====
Return on average common equity                                                                20.99%
                                                                                               =====
Return on average total equity                                                                 20.99%
                                                                                               =====
Average equity to average assets                                                                2.95%
                                                                                               =====
</TABLE>



                                    Page 27
<PAGE>
<TABLE>
<CAPTION>

                                                                  Three Months Ended September 30, 1998
                                                               ------------------------------------------
                                                               Average                            Average
                                                               Balance           Interest          Rate
                                                               -------           --------          ----
                                                                          (dollars in millions)
<S>                                                            <C>                  <C>             <C>
ASSETS

Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)     $ 1,375              $ 35            10.11%
     Mortgage-backed securities available for sale               8,554               116             5.41
     Mortgage-backed securities held to maturity                 1,713                32             7.60
     Loans held for sale, net                                    1,455                27             7.38
     Loans receivable, net                                      21,361               408             7.67
     FHLB stock                                                    569                 8             5.50
                                                               -------              ----
         Total interest-earning assets                          35,027               626             7.15
                                                                                    ----
Noninterest-earning assets                                       5,265
                                                               -------
         Total assets                                          $40,292
                                                               =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY


Interest-bearing liabilities:
     Deposits                                                  $17,999               190             4.20
     Securities sold under agreements to repurchase              3,459                49             5.58
     Borrowings                                                 12,913               202             6.18
                                                               -------              ----
         Total interest-bearing liabilities                     34,371               441             5.09
                                                                                    ----
Noninterest-bearing liabilities                                  3,575
Minority interest                                                  949
Stockholder's equity                                             1,397
                                                               -------
         Total liabilities, minority interest
            and stockholder's equity                           $40,292
                                                               =======
Net interest income                                                                 $185
                                                                                    ====
Interest rate spread                                                                                 2.06%
                                                                                                    =====
Net interest margin                                                                                  2.16%
                                                                                                    =====

Return on average assets                                                                            (0.23)%
                                                                                                    =====
Return on average common equity                                                                     (6.66)%
                                                                                                    =====
Return on average total equity                                                                      (6.66)%
                                                                                                    =====
Average equity to average assets                                                                     3.47%
                                                                                                    =====
</TABLE>
  -------------------
  (1)  Non-performing  assets are  included  in  the  average  balances  for the
       periods indicated.
  (2)  The  information   presented   includes   securities  held  to  maturity,
       securities  available  for sale and  interest-bearing  deposits  in other
       banks.
  (3)  Interest and average rate include the impact of interest rate swaps.









                                    Page 28
<PAGE>

       The following table presents certain information of the Company regarding
changes in interest  income and interest  expense 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) volume
(changes in average outstanding  balances multiplied by the prior period's rate)
and (ii) rate (changes in average interest rate multiplied by the prior period's
volume).  Changes  attributable  to both  volume  and rate have  been  allocated
proportionately.
<TABLE>
<CAPTION>

                                                                 Three Months Ended September 30, 1999 vs. 1998
                                                                            Increase (Decrease) Due to
                                                                 ----------------------------------------------
                                                                 Volume                 Rate                Net
                                                                 ------                 ----                ---
                                                                                   (in millions)
<S>                                                              <C>                    <C>                <C>
INTEREST INCOME:
     Securities and interest-bearing deposits in banks           $  7                   $(18)              $(11)
     Mortgage-backed securities available for sale                 82                     24                106
     Mortgage-backed securities held to maturity                   11                     (1)                10
     Loans held for sale, net                                       3                     (2)                 1
     Loans receivable, net                                        199                    (20)               179
     FHLB stock                                                     7                     --                  7
                                                                 ----                   ----               ----
              Total                                               309                    (17)               292
                                                                 ----                   ----               ----
INTEREST EXPENSE:

     Deposits                                                      52                    (19)                33
     Securities sold under agreements to repurchase                33                     (2)                31
     Borrowings                                                   144                    (18)               126
                                                                 ----                   ----               ----
              Total                                               229                    (39)               190
                                                                 ----                   ----               ----
                  Change in net interest income                  $ 80                   $ 22               $102
                                                                 ====                   ====               ====
</TABLE>
       The volume  variances in total interest income and total interest expense
for the three  months ended  September  30, 1999  compared to the  corresponding
period in 1998 are largely due to the  additional  volume  related to the Golden
State Acquisition, increased purchases of mortgage-backed securities funded with
FHLB advances, the deposits assumed in the Nevada Purchase and the assumption of
the GS Holdings Notes,  partially offset by $1.4 billion in deposits sold in the
Florida  Branch  Sale  and  borrowings  repurchased  as part of the  Refinancing
Transactions.  The  positive  total rate  variance of $22  million is  primarily
attributed  to  lower  interest  rates  paid on new  borrowings  (including  the
Refinancing  Transactions),  the  lower  cost of funds on  deposits,  the  lower
costing liabilities assumed in the Golden State Acquisition, higher market rates
on  mortgage-backed   securities   purchased  in  1999  and  1998,  and  premium
amortization  associated  with  prepayments  of  variable-rate   mortgage-backed
securities   in  1998,   partially   offset  by   prepayments   of  higher  rate
interest-earning assets, primarily loans, in 1999.

       INTEREST  INCOME.  Total interest income was $917.8 million for the three
months ended  September 30, 1999,  an increase of $291.6  million from the three
months ended  September 30, 1998.  Total  interest-earning  assets for the three
months  ended  September  30, 1999  averaged  $53.0  billion,  compared to $35.0
billion  for the  corresponding  period  in 1998,  primarily  as a result of the
Golden State Acquisition.  The yield on total interest-earning assets during the
three  months  ended  September  30, 1999  decreased to 6.92% from 7.15% for the
three months ended  September 30, 1998,  primarily due to  prepayments of higher
rate  loans  which  were  replaced  with  lower  yielding  originations  and the
repricing   of   variable-rate   loans,   partially   offset  by   purchases  of
mortgage-backed  securities and additions  from the Golden State  Acquisition of
mortgage-backed securities with higher market yields.

       GS Holdings earned $587.1 million of interest income on loans  receivable
for the three months ended  September  30, 1999,  an increase of $178.6  million
from the three months ended  September  30, 1998.  The average  balance of loans
receivable  was $32.4  billion for the three  months ended  September  30, 1999,
compared to $21.4 billion for the same period in 1998. The weighted average rate
on loans receivable  decreased to 7.25% for the three months ended September 30,
1999 from 7.67% for the three months ended September 30, 1998, primarily due to


                                    Page 29
<PAGE>

comparatively  lower  market  rates in 1999.  The  increase  in the average
volume is primarily  due to the addition of $14.6  billion in loans  acquired in
the Golden State Acquisition.

       GS Holdings  earned  $28.3  million of interest  income on loans held for
sale for the three months ended  September 30, 1999, an increase of $1.4 million
from the three months ended  September  30, 1998.  The average  balance of loans
held for sale was $1.6 billion for the three months ended September 30, 1999, an
increase of $180 million from the  comparable  period in 1998,  primarily due to
increased  originations  and longer  holding  periods for jumbo loans during the
three months ended  September 30, 1999. The weighted  average rate on loans held
for sale  decreased to 6.91% for the three months ended  September 30, 1999 from
7.38% for the three months ended September 30, 1998.

       Interest  income on  mortgage-backed  securities  available  for sale was
$221.9  million for the three months ended  September  30, 1999,  an increase of
$106.3  million  from the three  months ended  September  30, 1998.  The average
portfolio  balances  increased  $5.4 billion,  to $13.9  billion,  for the three
months  ended  September  30,  1999  compared  to the same  period in 1998.  The
weighted average yield on these assets increased from 5.41% for the three months
ended September 30, 1998 to 6.38% for the three months ended September 30, 1999.
The increase in the volume and the weighted  average  yield is primarily  due to
purchases of  mortgage-backed  securities and additions of $2.4 billion from the
Golden State  Acquisition  with higher market yields,  and premium  amortization
associated with prepayments of variable rate securities in 1998.

       Interest income on mortgage-backed  securities held to maturity was $41.9
million for the three  months  ended  September  30,  1999,  an increase of $9.3
million from the three months ended  September 30, 1998.  The average  portfolio
balance  increased  $590 million,  to $2.3  billion,  for the three months ended
September 30, 1999 compared to the same period in 1998,  primarily attributed to
the addition of $1.9 billion of the Bank's  multi-family  loans securitized with
FNMA with a weighted  average rate of 7.39% during  September 1998. The weighted
average rates for the three months ended  September 30, 1999 and 1998 were 7.28%
and 7.60%, respectively.

       Interest  income on  securities  and  interest-bearing  deposits in other
banks was $23.7  million  for the three  months  ended  September  30,  1999,  a
decrease of $11.1 million from the three months ended  September  30, 1998.  The
average portfolio balance increased from $1.4 billion for the three months ended
September  30, 1998 to $1.6  billion for the three months  ended  September  30,
1999. The decrease in the weighted average rate from 10.11% for the three months
ended  September 30, 1998 to 5.84% for the three months ended September 30, 1999
is primarily due to $19.8 million in interest  income received in September 1998
on a $193.0 million federal income tax refund related to Old California Federal.

       Dividends  on FHLB stock were $15.0  million for the three  months  ended
September  30,  1999,  an increase of $7.1  million  from the three months ended
September 30, 1998,  due to an increase in the amount of such stock owned by the
Company as a result of an increase in borrowings  under FHLB advances as well as
the Golden State Acquisition.  The average balance  outstanding during the three
months  ended  September  30, 1999 and 1998 was $1.1  billion  and $.6  billion,
respectively. The weighted average rate on FHLB stock decreased to 5.22% for the
three  months  ended  September  30, 1999 from 5.50% for the three  months ended
September 30, 1998, reflecting lower dividends declared by the FHLB.

       INTEREST EXPENSE. Total interest expense was $630.7 million for the three
months ended  September 30, 1999,  an increase of $189.8  million from the three
months  ended  September  30,  1998.  The  increase is  primarily  the result of
additional   borrowings  under  FHLB  advances,   the  additional  deposits  and
borrowings  assumed in the Golden  State  Acquisition,  deposits  assumed in the
Nevada  Purchase and the net impact of the Refinancing  Transactions,  including
the assumption of the GS Holdings Notes.

       Interest expense on customer deposits,  including brokered deposits,  was
$223.3  million for the three months ended  September  30, 1999,  an increase of
$32.8  million  from the three  months ended  September  30,  1998.  The average
balance of customer  deposits  outstanding  increased from $18.0 billion for the
three  months  ended  September  30, 1998 to $24.0  billion for the three months
ended  September  30, 1999.  The increase in the average  balance is primarily a
result of $11.3  billion in deposits  assumed in the Golden  State  Acquisition,
partially  offset by $1.4 billion in deposits  sold in the Florida  Branch Sale,
both of which occurred in the third quarter of 1998. In


                                    Page 30
<PAGE>

addition,  $543  million in deposits at an average cost of 3.71% were assumed in
the Nevada  Purchase,  which was consummated in April 1999. The overall weighted
average cost of deposits  declined to 3.68% for the three months ended September
30, 1999 from 4.20% for the three months ended September 30, 1998, primarily due
to lower market interest rates and a change in the Bank's certificate of deposit
pricing  strategy,  as  well  as the  higher  average  balances  of  lower  rate
transaction  accounts  in 1999  compared  to 1998 and the lower cost of funds on
deposits assumed in the Golden State Acquisition.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled  $80.5  million for the three  months  ended  September  30,  1999,  an
increase of $31.1 million from the three months ended  September  30, 1998.  The
average balance of such borrowings for the three months ended September 30, 1999
and 1998 was $5.8  billion  and $3.5  billion,  respectively;  such  increase is
primarily  attributed  to the Golden State  Acquisition.  The  weighted  average
interest rate on these instruments decreased to 5.39% for the three months ended
September  30, 1999 from 5.58% for the three  months ended  September  30, 1998,
primarily  due to a decrease in market rates on new  borrowings in 1999 compared
to 1998.

       Interest  expense on  borrowings  totalled  $326.9  million for the three
months ended  September 30, 1999,  an increase of $125.9  million from the three
months ended September 30, 1998. The average  balance  outstanding for the three
months ended  September 30, 1999 and 1998 was $23.3  billion and $12.9  billion,
respectively.  The weighted average interest rate on these instruments decreased
to 5.57% for the three months ended  September 30, 1999 from 6.18% for the three
months ended September 30, 1998,  primarily due to lower prevailing market rates
in 1999 and the net impact of the  Refinancing  Transactions.  The higher volume
includes the net impact of the Refinancing Transactions and the addition of $5.4
billion in FHLB advances assumed in the Golden State Acquisition, as well as the
increase  in FHLB  advances  used  to  fund  the  purchases  of  mortgage-backed
securities and to fund the sale of deposits in the Florida Branch Sale.

       NET INTEREST INCOME. Net interest income was $287.1 million for the three
months ended  September 30, 1999,  an increase of $101.8  million from the three
months ended September 30, 1998. The interest rate spread increased to 2.22% for
the three months ended  September 30, 1999 from 2.06% for the three months ended
September 30, 1998, primarily as a result of maturities and repayments of higher
rate   interest-bearing   liabilities   being  replaced  with   interest-bearing
liabilities  having  comparatively  lower  rates.  The effect of lower  rates on
liabilities  was partially  offset by lower yielding assets  replenishing  asset
run-off in a declining rate environment.

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan servicing fees,  customer  banking fees, and gains on sales of assets,  was
$103.1 million for the three months ended  September 30, 1999,  representing  an
increase of $18.3  million  from the three  months  ended  September  30,  1998,
excluding non-recurring gains on the sale of branches in each of the periods.

       Loan servicing fees, net of amortization  of mortgage  servicing  rights,
were $38.1 million for the three months ended  September  30, 1999,  compared to
$34.7 million for the three months ended  September 30, 1998. The  single-family
residential  loan servicing  portfolio,  excluding  loans serviced for the Bank,
increased from $69.3 billion at September 30, 1998 to $72.3 billion at September
30, 1999.  Incremental loan servicing fees were partially offset by amortization
related to higher  average MSR basis in the three  months  ended  September  30,
1999.  Servicing rights purchased in bulk transactions in prior years with lower
average MSR basis are being replaced with current production, which more closely
approximates  market rates which,  when combined  with recent higher  prepayment
speeds, results in a decline in the average yield on the portfolio.

       Customer  banking  fees were $47.5  million  for the three  months  ended
September  30,  1999  compared  to $28.3  million  for the  three  months  ended
September  30,  1998.  The  increase is  primarily  attributed  to the impact of
revenues  from the  retail  banking  operations  acquired  in the  Golden  State
Acquisition and deposits assumed in the Nevada Purchase, partially offset by the
impact of the Florida Branch Sale. In addition,  management has placed increased
emphasis on transaction account growth since the Golden State Acquisition, which
has generated additional fee income.



                                    Page 31
<PAGE>

       Gain on sale of loans  totalled  $4.9  million for the three months ended
September  30,  1999,  a decrease of $8.9  million  from the three  months ended
September 30, 1998. The decrease includes an adjustment of $2.6 million recorded
during  the  third  quarter  of 1999 to  reflect  the  lower  of cost or  market
valuation on residential  loans held for sale during the quarter ended September
30, 1999. In addition,  gains  attributed  to early payoffs of commercial  loans
with  unamortized  discounts  were $3.1 million higher in 1999 compared to 1998.
During the three months ended September 30, 1999,  California  Federal sold $2.9
billion in  single-family  mortgage  loans  originated  for sale with  servicing
rights retained as part of its ongoing mortgage banking  operations  compared to
$1.8 billion of such sales for the corresponding period in 1998.

       Net gain on sale of assets  totalled  $3.2  million for the three  months
ended  September  30,  1999,  an increase of $2.8  million from the three months
ended September 30, 1998.

       Net gain on sale of branches  was $2.3 million for the three months ended
September 30, 1999 compared to $108.9  million for the same period in 1998.  The
gain in 1999 relates to the sale of the Eureka and Ukiah branches (with deposits
of $70.1 million) to Humboldt Bank. The gain in 1998 is primarily  attributed to
the Florida Branch Sale in the third quarter.

       NONINTEREST EXPENSE. Total noninterest expense was $218.7 million for the
three months ended September 30, 1999, an increase of $23.1 million  compared to
the three months ended September 30, 1998. The variance  between the two periods
is primarily attributed to the Golden State Acquisition. Noninterest expense for
the three months ended September 30, 1999 included increases of $24.3 million in
compensation, $13.1 million in occupancy and equipment, $4.5 million in goodwill
amortization attributed to the Golden State Acquisition and the Nevada Purchase,
and an additional $9.1 million in other noninterest  expense, all primarily as a
result of the Golden State Acquisition.  This increase was partially offset by a
decline of $31.1  million in merger and  integration  costs  incurred in 1998 in
connection with the Golden State Acquisition.

       Compensation  and  employee  benefits  expense was $97.4  million for the
three months ended  September  30, 1999,  an increase of $24.3  million from the
three months ended  September 30, 1998. The increase is primarily  attributed to
the Golden State Acquisition.

       Occupancy and  equipment  expense was $36.9 million and $23.8 million for
the three months ended September 30, 1999 and 1998, respectively.  This increase
reflects the effects of the Golden State Acquisition, as well as $3.8 million of
adjustments in 1999 to previously established accruals for vacant facilities.

       Merger and  integration  costs were $31.1  million  for the three  months
ended  September  30, 1998,  representing  transition  expenses,  which  include
severance,  conversion and  consolidation  costs incurred in connection with the
Golden State Acquisition.  Such costs were not incurred during the third quarter
of 1999.

       Amortization of intangible  assets was $17.6 million for the three months
ended  September  30,  1999,  an increase of $4.5  million from the three months
ended  September  30, 1998,  primarily  attributed  to the goodwill  recorded in
connection with the Golden State Acquisition and the Nevada Purchase.

       Other  noninterest  expense was $34.0  million in 1999  compared to $24.9
million in 1998, primarily attributed to increased operations as a result of the
Golden State Acquisition.

       PROVISION  FOR INCOME TAX.  During the three months ended  September  30,
1999 and 1998,  GS Holdings  recorded an income tax benefit of $3.0  million and
income tax  expense  of $78.0  million,  respectively.  GS  Holdings'  effective
Federal tax rate was (9)% and 38% during the three  months ended  September  30,
1999 and 1998, respectively, while its statutory Federal tax rate was 35% during
both periods.  For the period ended  September 30, 1999, the difference  between
the  effective  and  statutory  rates was  primarily  the result of  adjustments
related to pre-merger tax benefits, in the form of net operating loss carryovers
and other items,  which are retained by the previous  owners of FN Holdings.  To
the extent these tax benefits are recognized, there is a reduction in income tax
expense, which is offset by an increase in minority interest:  provision in lieu
of income tax expense. Accordingly,  during the three months ended September 30,
1999,  a tax  benefit  of $79.0  million  was  recognized,  and a  corresponding
increase to minority interest was recorded. These adjustments resulted from 1998
tax filings late in

                                    Page 32
<PAGE>

the third  quarter  of 1999.  For the  period  ended  September  30,  1998,  the
difference  between the effective and statutory  rates was primarily a result of
nondeductible  goodwill  amortization for both periods.  GS Holdings'  effective
state tax rate was 8% during the three months ended September 30, 1999 and 1998.

       MINORITY INTEREST. Minority interest for the three months ended September
30,  1999  includes  a  $79.0  million   provision  in  lieu  of  income  taxes,
representing  pre-merger  tax  benefits  retained by the  previous  owners of FN
Holdings (see note 8), and $1.8 million in net premium paid in  connection  with
the  redemption  of the Bank's 11 1/2%  Preferred  Stock.  Dividends on the REIT
Preferred  Stock  totalling  $11.4 million were also  recorded  during the three
months  ended  September  30,  1999.  Minority  interest  relative  to the  REIT
Preferred  Stock is reflected net of related income tax benefit of $4.8 million,
which  will  inure to the  Company  as a  result  of the  deductibility  of such
dividends for income tax purposes.  The reduction in minority  interest relative
to the Bank  Preferred  Stock  reflects the impact of the $380.7 million in Bank
Preferred  Stock  purchased by GS Holdings in  connection  with the  Refinancing
Transactions  in the third and  fourth  quarters  of 1998,  as well as the $60.7
million redeemed on April 1, 1999 and the $31.8 million redeemed on September 1,
1999.

       Minority  interest for the three months ended September 30, 1998 includes
$19.5  million in net  premiums and expenses  paid in  connection  with the Bank
Preferred Stock Tender Offers. During the three months ended September 30, 1998,
minority  interest also includes  dividends on the Bank Preferred  Stock and the
REIT Preferred Stock  totalling  $11.2 million and $11.4 million,  respectively.
Minority  interest  relative to the REIT  Preferred  Stock is  reflected  net of
related income tax benefit of $4.8 million, which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.  Minority
interest also includes a $1.0 million benefit  representing that portion of Auto
One's loss attributable to the 20% interest in the common stock of Auto One that
was issued as part of the GSAC Acquisition.

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 losses inherent in the loan  portfolio.  The allowance for loan losses
is  increased  by  provisions  for loan losses as well as by  balances  acquired
through  acquisitions and is decreased by charge-offs  (net of recoveries).  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.
See --"Problem and Potential Problem Assets" for a discussion of the methodology
used in determining  the adequacy of the allowance for loan losses.  The Company
recorded  provisions  for loan losses of $10 million and $30 million  during the
nine months ended  September  30, 1999 and 1998,  respectively,  and $10 million
during the three months ended  September 30, 1998. In light of continued  strong
credit  performance  and the continued  strength of the  California  real estate
market,  the existing  allowance for loan losses was considered  adequate and no
loan loss provision was recorded in the third quarter of 1999.

       The decrease in the  provision  for loan losses during the nine and three
month periods  ended  September 30, 1999 compared to the same periods in 1998 is
the result of management's evaluation of the adequacy of the allowance based on,
among other things,  past loan loss  experience  and known and inherent risks in
the portfolio, evidenced in part by the continued decline in the Company's level
of non-performing  assets. In addition,  management's periodic evaluation of the
adequacy of the allowance for loan losses considers potential adverse situations
that have occurred but are not yet known that may affect the borrower's  ability
to repay, the estimated value of underlying collateral and economic conditions.








                                    Page 33
<PAGE>

Activity in the allowance for loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
                                             Nine Months Ended September 30,        Three Months Ended September 30,
                                             ------------------------------         -------------------------------
                                                 1999              1998                 1999               1998
                                                 ----              ----                 ----               ----
     <S>                                       <C>               <C>                  <C>                <C>
     Balance - beginning of period             $588,533          $418,674             $578,369           $420,665
        Purchases & acquisitions, net                --           169,454                   --            169,454
        Provision for loan losses                10,000            30,000                   --             10,000
        Charge-offs                             (30,919)          (38,650)              (9,436)           (18,147)
        Recoveries                                3,839             3,304                1,850                810
        Reclassifications                          (670)               --                   --                 --
                                               --------          --------             --------           --------
     Balance - end of period                   $570,783          $582,782             $570,783           $582,782
                                               ========          ========             ========           ========
</TABLE>
       Although  management  believes  that the  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.

PROBLEM AND POTENTIAL PROBLEM ASSETS

       The  Company  considers a loan to be impaired  when,  based upon  current
information  and events,  it is "probable" that it will be unable to collect all
amounts due (I.E.,  both  principal and interest)  according to the  contractual
terms of the loan agreement.  Any insignificant delay 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
that exhibit,  among other  characteristics,  high LTV ratios, low debt-coverage
ratios or other indications that the borrowers are experiencing increased levels
of financial difficulty. In addition, loans collectively reviewed for impairment
by the Company include all  single-family  loans,  business  banking loans under
$100,000 and  performing  multi-family  and  commercial  real estate loans under
$500,000, excluding loans which have entered the work-out process.

       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   Company   bases   the    measurement   of
collateral-dependent  impaired loans on the fair value of the loan's collateral.
The amount,  if any, by which the  recorded  investment  of the loan exceeds the
measure of the  impaired  loan's  value is  recognized  by recording a valuation
allowance.  Large groups of smaller balance  homogeneous  loans are collectively
evaluated for impairment.

       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.   Upon
disposition of an impaired loan, loss of principal,  if any, is recorded through
a charge-off to the allowance for loan losses.

       At September 30, 1999, the carrying  value of loans that were  considered
to be  impaired  totalled  $126.2  million  (of  which  $22.4  million  were  on
non-performing status). The average recorded investment in impaired loans during
the nine and three month  periods  ended  September  30, 1999 was  approximately
$141.0 million and $126.6  million,  respectively.  For the nine and three month
periods ended  September 30, 1999,  Golden State  recognized  interest income on
those  impaired  loans of $7.0  million and $2.2  million,  respectively,  which
included  $1.6  million  and $0.6  million,  respectively,  of  interest  income
recognized  using the cash basis  method of income  recognition.  The  following
table  presents  the carrying  amounts of the  Company's  non-performing  loans,
foreclosed real estate,  repossessed  assets,  troubled debt  restructurings and
impaired  loans as of the dates  indicated.  These  categories  are not mutually
exclusive; certain loans are included in more than one classification. Purchased
auto loans are reflected as non-performing,  impaired or restructured using each
individual loan's contractual unpaid principal balance.



                                    Page 34
<PAGE>
<TABLE>
<CAPTION>
                                                                        September 30, 1999
                                                       -----------------------------------------------------
                                                       Non-performing           Impaired        Restructured
                                                       --------------           --------        ------------
                                                                              (in millions)
<S>                                                         <C>                  <C>                <C>
Real Estate:
     1-4 unit residential                                   $143                 $ --               $ 3
     5+ unit residential                                       7                   36                 5
     Commercial and other                                     10                   71                19
     Land                                                     --                    1                --
     Construction                                             --                   --                --
                                                            ----                 ----               ---
       Total real estate                                     160                  108                27
Non-real estate                                               11                   18                --
                                                            ----                 ----               ---
       Total loans                                           171 (a)             $126 (b)           $27
                                                                                 ====               ===
Foreclosed real estate, net                                   45
Repossessed assets                                             3
                                                            ----
       Total non-performing assets                          $219
                                                            ====
</TABLE>

<TABLE>
<CAPTION>
                                                                         December 30, 1998
                                                       -----------------------------------------------------
                                                       Non-performing           Impaired        Restructured
                                                       --------------           --------        ------------
                                                                             (in millions)
<S>                                                         <C>                  <C>                <C>
Real Estate:
     1-4 unit residential                                   $190                 $ --               $ 4
     5+ unit residential                                      16                   55                 9
     Commercial and other                                     10                   78                19
     Land                                                     --                    1                --
     Construction                                              1                    1                --
                                                            ----                 ----               ---
       Total real estate                                     217                  135                32
Non-real estate                                                9                   --                --
                                                            ----                 ----               ---
       Total loans                                           226 (a)             $135 (b)           $32
                                                                                 ====               ===
Foreclosed real estate, net                                   80
Repossessed assets                                             4
                                                            ----
       Total non-performing assets                          $310
                                                            ====
</TABLE>
  --------------
  (a)  Includes loans securitized with recourse on non-performing status of $1.7
       million and $6.0  million at  September  30, 1999 and  December 31, 1998,
       respectively,  and loans held for sale on non-performing  status of $10.0
       million and $17.0  million at  September  30, 1999 and December 31, 1998,
       respectively.
  (b)  Includes  $22.4  million  and $32.5  million of  non-performing  loans at
       September  30, 1999 and December 31, 1998,  respectively.  Also  includes
       $17.0  million and $16.4  million of loans  classified  as troubled  debt
       restructurings at September 30, 1999 and December 31, 1998, respectively.

       There were no accruing  loans  contractually  past due 90 days or more at
September 30, 1999 or December 31, 1998.

       The Company's  non-performing  assets,  consisting  of nonaccrual  loans,
repossessed assets and foreclosed real estate, net, decreased to $219 million at
September  30, 1999,  from $310  million at December  31,  1998.  Non-performing
assets  as a  percentage  of the  Bank's  total  assets  decreased  to  0.39% at
September 30, 1999, from 0.57% at December 31, 1998.

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

                                    Page 35
<PAGE>

functions,  the Company has a specialized  credit risk management  group that is
charged  with the  development  of credit  policies and  performing  credit risk
analyses for all asset portfolios.

       The  following  table  presents  non-performing  real  estate  assets  by
geographic region of the country as of September 30, 1999:
<TABLE>
<CAPTION>
                                                                                 Total
                                     Non-performing        Foreclosed       Non-performing
                                       Real Estate        Real Estate,        Real Estate      Geographic
                                     Loans, Net (2)          Net (2)            Assets        Concentration
                                     --------------         --------            ------        -------------
                                                               (dollars in millions)
     <S>                                <C>                   <C>                <C>              <C>
     Region:
         California                     $ 18                  $ 6                $ 24              11%
         Northeast (1)                    97                   28                 125              61
         Other regions                    45                   11                  56              28
                                        ----                  ---                ----             ---
              Total                     $160                  $45                $205             100%
                                        ====                  ===                ====             ===
</TABLE>
  -----------------
  (1)  Consists of Connecticut,  Massachusetts,  New Hampshire,  New Jersey, New
       York, Pennsylvania, Rhode Island, Delaware, Maine, and Vermont.
  (2)  Net of purchase accounting adjustments.

       At September 30, 1999,  the Company's  largest  non-performing  asset was
approximately  $4.0  million,  and it had three  non-performing  assets  over $2
million in size with balances averaging approximately $2.9 million. At September
30, 1999, the Company had 1,301 non-performing  assets below $2 million in size,
including 1,223 non-performing 1-4 unit residential assets.

       An  allowance  is  maintained  to  absorb  losses  inherent  in the  loan
portfolio.  The adequacy of the allowance is periodically evaluated and is based
on past loan loss  experience,  known and inherent risks in the loan  portfolio,
adverse  situations that have occurred but are not yet known that may affect the
borrower's  ability to repay,  the estimated value of underlying  collateral and
economic conditions.  Management's methodology for assessing the adequacy of the
allowance  includes the  evaluation  of the following  three key  elements:  the
formula  allowance,  specific  allowances for  identified  problem loans and the
unallocated allowance.

       The formula  allowance is determined by applying loss factors against all
non-impaired  loans. Loss factors may be adjusted for significant  factors that,
in management's  judgment,  affect the collectibility of the portfolio as of the
evaluation  date.  Loss factors are  calculated  based on migration  models that
estimate the probability that loans will become delinquent and ultimately result
in foreclosure,  and the rates of loss that have been  experienced on foreclosed
loans. The foreclosure  migration and loss severity rates are then averaged over
the  past  eight  years  in order to  capture  experience  across a period  that
management believes  approximates a business cycle. A contingency factor is then
added to provide for the modeling risk associated with imprecision in estimating
inherent loan losses.

       The  specific   allowances  are  established  against  individual  loans,
including  impaired  loans in  accordance  with  SFAS  No.  114,  ACCOUNTING  BY
CREDITORS FOR IMPAIRMENT OF A LOAN, for which management has performed  analyses
and concluded that there is a high  probability that loss will be incurred based
on delinquency status or determination that borrower cash flow is inadequate for
debt repayment.  The amount of specific allowance is determined by an estimation
of collateral deficiency,  including  consideration of costs that will likely be
incurred through the disposal of any repossessed collateral.

       The  unallocated  allowance is established  for inherent losses which may
not have been identified through the more objective processes used to derive the
formula and  specific  portions of the  allowance.  The  unallocated  portion is
necessarily  more  subjective and requires a high degree of management  judgment
and  experience.  Management  has  identified  several  factors  that impact the
potential for credit losses that are not considered in either the formula or the
specific  allowance  segments.  These factors consist of industry and geographic
loan  concentrations,  changes in the  composition  of loan  portfolios  through
acquisitions and new business strategies, changes in underwriting processes, and
trends in problem loan and loss recovery rates.


                                    Page 36
<PAGE>

       At September  30, 1999,  the  allowance for loan losses was $571 million,
consisting of a $371 million formula allowance, a $37 million specific allowance
and a $163 million unallocated allowance.

       Although the loan loss  allowance has been  allocated by type of loan for
internal  valuation  purposes,  all such  allowance  is available to support any
losses which may occur,  regardless of type, in the Company's loan portfolio.  A
summary of the activity in the total  allowance  for loan losses by loan type is
as follows:
<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, 1998                        $251                 $278                   $60              $589
     Provision for loan losses                       --                    4                     1                 5
     Charge-offs                                     (5)                  (2)                   (4)              (11)
     Recoveries                                      --                   --                     1                 1
     Reclassification                                --                   --                    (1)               (1)
                                                   ----                 ----                   ---              ----
Balance - March 31, 1999                            246                  280                    57               583
     Provision for loan losses                        2                    1                     2                 5
     Charge-offs                                     (5)                  (3)                   (3)              (11)
     Recoveries                                      --                   --                     1                 1
                                                   ----                 ----                   ---              ----
Balance - June 30, 1999                             243                  278                    57               578
     Provision for loan losses                       --                   --                    --                --
     Charge-offs                                     (4)                  (1)                   (4)               (9)
     Recoveries                                      --                    1                     1                 2
                                                   ----                 ----                   ---              ----
Balance - September 30, 1999                       $239                 $278                   $54              $571
                                                   ====                 ====                   ===              ====
</TABLE>
       The  ratio  of  allowance  for loan  losses  to  non-performing  loans at
September 30, 1999 and December 31, 1998 was 333.8% and 256.8%, respectively.

ASSET AND LIABILITY MANAGEMENT

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

       GS Holdings,  through the Bank,  actively pursues  investment and funding
strategies intended to minimize the sensitivity of its earnings to interest rate
fluctuations.  The Company measures the interest rate sensitivity of its balance
sheet  through gap and duration  analysis,  as well as net  interest  income and
market  value  simulation,   and,  after  taking  into  consideration  both  the
variability  of rates  and the  maturities  of  various  instruments,  evaluates
strategies which may reduce the sensitivity of its earnings to interest rate and
market  value   fluctuations.   An  important   decision  is  the  selection  of
interest-bearing liabilities and the generation of interest-earning assets which
best match relative to interest rate changes.  In order to reduce  interest rate
risk by increasing the percentage of interest  sensitive assets, the Company has
continued its emphasis on the  origination of adjustable  rate mortgage  ("ARM")
products for its portfolio.  Where possible, the Company seeks to originate real
estate and other loans that reprice  frequently  and that on the whole adjust in
accordance  with the  repricing  of its  liabilities.  At  September  30,  1999,
approximately 76% of the Company's loan portfolio consisted of ARMs.


                                    Page 37
<PAGE>

       ARMs have,  from time to time,  been  offered  with low initial  interest
rates as marketing inducements.  In addition,  most ARMs are 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 below their
contractual margin over existing market rates.  Since repricing  liabilities are
typically  not  subject  to  such  interest  rate  adjustment  constraints,  the
Company's net interest  margin would most likely be negatively  impacted in this
situation.  Certain ARMs now offered by the Company have a fixed monthly payment
for a given  period,  with any  changes  as a result  of market  interest  rates
reflected in the unpaid principal balance through negative amortization.

       One of the  most  important  sources  of the  Bank'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 exceed interest rate sensitive liabilities,  while the opposite
results in a negative gap.  During a period of rising interest rates, a negative
gap would tend to adversely affect net interest income, and a positive gap would
tend to result in an increase in net interest  income,  while the opposite would
tend to occur in a period of falling rates.

       The  following  table  sets  forth the  projected  maturities  based upon
contractual  maturities as adjusted for  projected  prepayments  and  "repricing
mechanisms"  (provisions  for  changes  in the  interest  rates  of  assets  and
liabilities).  Prepayment rates are assumed in each period on substantially  all
of the Company's loan portfolio based upon expected loan prepayments.  Repricing
mechanisms on the Company's  assets are subject to  limitations  such as caps on
the  amount  that  interest  rates and  payments  on its loans may  adjust  and,
accordingly,  such  assets  may not  respond  in the same  manner or to the same
extent to changes in interest rates as the Company's  liabilities.  In addition,
the  interest  rate   sensitivity  of  the  Company's   assets  and  liabilities
illustrated in the table would vary substantially if different  assumptions were
used or if actual  experience  differed  from the  assumptions  set  forth.  The
Company's  estimated  interest rate  sensitivity gap at September 30, 1999 is as
follows:














                                    Page 38
<PAGE>

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

Securities held to maturity, interest-bearing
    deposits in other banks and short-term
    investment securities (1)(2)                         $   203       $    (1)   $   86         $   --     $   288
Securities available for sale (3)                          1,107            --        --             --       1,107
Mortgage-backed securities
    available for sale (3)                                13,735            --        --             --      13,735
Mortgage-backed securities
    held to maturity (1)(4)                                2,222            15        27             --       2,264
Loans held for sale, net (3)(5)                              809            --        --             --         809
Loans receivable, net (1)(6)                              18,156        10,510     4,214             --      32,880
Investment in FHLB                                         1,140            --        --             --       1,140
                                                         -------       -------    ------         ------     -------
       Total interest-earning assets                      37,372        10,524     4,327             --      52,223
Noninterest-earning assets                                    --            --        --          3,523       3,523
                                                         -------       -------    ------         ------     -------
                                                         $37,372       $10,524    $4,327         $3,523     $55,746
                                                         =======       =======    ======         ======     =======

INTEREST-BEARING LIABILITIES:

Deposits (7)                                             $20,775       $ 2,911    $   10         $   --     $23,696
Securities sold under agreements to
    repurchase (1)                                         5,964            --        --             --       5,964
FHLB advances (1)                                          9,274        11,477        --             --      20,751
Other borrowings (1)                                         363           963       892             --       2,218
                                                         -------       -------    ------         ------     -------
       Total interest-bearing liabilities                 36,376        15,351       902             --      52,629
Noninterest-bearing liabilities                               --            --        --            882         882
Minority interest                                             --            --        --            500         500
Stockholder's equity                                          --            --        --          1,735       1,735
                                                         -------       -------    ------         ------     -------
                                                         $36,376       $15,351    $  902         $3,117     $55,746
                                                         =======       =======    ======         ======     =======

Gap before interest rate swap agreements                 $   996       $(4,827)   $3,425                    $  (406)
Interest rate swap agreements                              2,100        (1,500)     (600)                        --
                                                         -------       -------    ------                    -------
Gap                                                      $ 3,096       $(6,327)   $2,825                    $  (406)
                                                         =======       =======    ======                    =======

Cumulative gap                                           $ 3,096       $(3,231)   $ (406)                   $  (406)
                                                         =======       =======    ======                    =======

Gap as a percentage of total assets                        5.55%        (11.35)%    5.07%                     (0.73)%
                                                           ====         ======      ====                      =====

Cumulative gap as a percentage of total assets             5.55%         (5.80)%   (0.73)%                    (0.73)%
                                                           ====         ======      ====                      =====
</TABLE>
  ----------------
  (1)  Based upon (a) contractual  maturity,  (b) instrument  repricing date, if
       applicable, and (c) projected repayments and prepayments of principal, if
       applicable.  Prepayments were estimated generally by using the prepayment
       rates forecast by various large brokerage firms as of September 30, 1999.
       The actual  maturity  and rate  sensitivity  of these  assets  could vary
       substantially if future prepayments differ from prepayment estimates.
  (2)  Consists of  $214 million of securities held to maturity,  $74 million of
       short-term   investment   securities   and  less  than  $0.1  million  of
       interest-bearing deposits in other banks.
  (3)  As securities and mortgage-backed securities available for sale and loans
       held for sale may be sold  within  one year,  they are  considered  to be
       maturing within one year.
  (4)  Excludes underlying non-performing loans of $2 million.
  (5)  Excludes non-performing loans of $10 million.

                                              (Footnotes continued on next page)


                                    Page 39
<PAGE>

  (6)  Excludes  allowance  for loan losses of $571  million and  non-performing
       loans of $159 million.
  (7)  Fixed  rate  deposits and  deposits  with  fixed  pricing  intervals  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  September  30,  1999,  interest-bearing  liabilities  of GS  Holdings
exceeded  interest-earning  assets  by  $406  million.  At  December  31,  1998,
interest-bearing  liabilities of GS Holdings exceeded interest-earning assets by
$400 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,  and, at least  annually,  the Board of Directors of
the Bank reviews the Bank's interest rate risk management policy statements.

LIQUIDITY

       The major sources of funding for GS Holdings on an  unconsolidated  basis
are distributions and tax sharing payments from the Bank, which the Company uses
to meet debt  service  requirements,  pay any  expenses  it may incur,  and make
distributions  to Golden  State,  subject  to certain  restrictions.  Net income
generated  by the Bank is used to meet its cash  flow  needs,  including  paying
dividends on its preferred  stock,  and may be  distributed,  subject to certain
restrictions,  to GS Holdings. For more information on dividend restrictions for
the Bank and GS  Holdings,  refer to  "Business - Dividend  Policy of the Bank,"
"Business -  Regulation  of the Bank" and note 27 of the "Notes to  Consolidated
Financial Statements" in the Company's 1998 Form 10-K.

       The  Company  anticipates  that on a  consolidated  basis,  cash and cash
equivalents on hand, the cash flow from assets as well as other sources of funds
will provide adequate liquidity for its operating, investing and financing needs
and the Bank's regulatory liquidity  requirements for the foreseeable future. In
addition to cash and cash  equivalents  of $542.6 million at September 30, 1999,
the Company has  substantial  additional  borrowing  capacity  with the FHLB and
other sources.

       Interest on the GS Holdings Notes  approximates  $138.9 million per year.
Although GS Holdings  expects that  distributions  and tax sharing payments from
the Bank will be sufficient to pay interest when due and the principal amount of
its long-term debt at maturity, there can be no assurance that earnings from the
Bank will be sufficient to make such distributions to GS Holdings.  In addition,
there can be no assurance that such distributions will be permitted by the terms
of any debt  instruments  of GS Holdings'  subsidiaries  then in effect,  by the
terms of any class of preferred  stock  issued by the Bank or its  subsidiaries,
including the REIT Preferred Stock, or under applicable federal thrift laws.

       On a  consolidated  basis,  a major  source of the  Company's  funding is
expected  to be the Bank's  retail  deposit  branch  network,  which  management
believes will be sufficient to meet its long-term  liquidity  needs. The ability
of the Company to retain and attract new deposits is dependent  upon the variety
and  effectiveness  of its  customer  account  products,  customer  service  and
convenience,  and rates paid to  customers.  The Company also obtains funds from
the repayment  and  maturities of loans and  mortgage-backed  securities,  while
additional funds can be obtained

                                    Page 40
<PAGE>

from a variety of other sources including customer and brokered  deposits,  loan
sales, securities sold under agreements to repurchase,  FHLB advances, and other
secured and  unsecured  borrowings.  It is  anticipated  that FHLB  advances and
securities  sold under  agreements to  repurchase  will continue to be important
sources of funding,  and management expects there to be adequate  collateral for
such funding requirements.

       The consolidated  Company's  primary uses of funds are the origination or
purchase of loans, the purchase of  mortgage-backed  securities,  the funding of
maturing  certificates of deposit,  demand deposit withdrawals and the repayment
of  borrowings.  Certificates  of deposit  scheduled to mature during the twelve
months ending  September 30, 2000 aggregate $9.5 billion.  The Company may renew
these certificates,  attract new replacement  deposits,  replace such funds with
other  borrowings,  or it may elect to reduce the size of the balance sheet.  In
addition, at September 30, 1999, the Company had FHLB advances,  securities sold
under  agreements to repurchase and other borrowings  aggregating  $15.6 billion
maturing or repricing  within  twelve  months.  The Company may elect to pay off
such  debt  or  to  replace  such  borrowings  with  additional  FHLB  advances,
securities sold under agreements to repurchase or other borrowings at prevailing
rates.

       As presented in the  accompanying  unaudited  consolidated  statements of
cash flows, the sources of liquidity vary between  periods.  The primary sources
of funds during the nine months ended  September  30, 1999 were $22.4 billion in
proceeds  from  additional  borrowings,  $8.5 billion in proceeds  from sales of
loans held for sale,  $3.6 billion from  principal  payments on  mortgage-backed
securities  available for sale and held to maturity, a $1.7 billion net increase
in securities  sold under  agreements  to  repurchase,  $458.9  million from the
Nevada Purchase,  and $455.2 million from maturities of securities available for
sale and held to  maturity.  The  primary  uses of funds were  $21.8  billion in
principal payments on borrowings,  $7.2 billion in purchases and originations of
loans held for sale, $4.9 billion in purchases of securities and mortgage-backed
securities  available  for sale,  a net  increase  in loans  receivable  of $2.4
billion, and $1.4 billion from a net decrease in deposits.

       The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U. S. Government  securities and other specified  securities
to deposits and borrowings  due within one year.  The OTS  established a minimum
liquidity  requirement  for the Bank of 4.00%.  California  Federal  has been in
compliance with the liquidity regulations during the nine months ended September
30, 1999 and the year ended December 31, 1998.















                                    Page 41
<PAGE>

MORTGAGE BANKING OPERATIONS

       The Company,  through the Bank's wholly owned  mortgage bank  subsidiary,
FNMC, has  significantly  expanded its mortgage banking  operations.  During the
nine months ended September 30, 1999 and 1998, FNMC acquired  mortgage-servicing
rights on loan portfolios of $12.9 billion and $3.6 billion,  respectively, as a
result of bulk servicing  acquisitions  and flow  purchases,  and sold servicing
rights  during the nine  months  ended  September  30,  1999 on a  portfolio  of
approximately  $2.1  billion  and 50,700  loans.  With these  acquisitions,  the
acquisition of additional 1-4 unit residential loan servicing  portfolios in the
Golden State Acquisition,  the originated  servicing and the Servicing Sale, the
1-4 unit residential loans serviced for others (including loans sub-serviced for
others and  excluding  loans  serviced for the Bank)  totalled  $72.3 billion at
September  30, 1999,  an increase of $6.9 billion and $3.0 billion from December
31, 1998 and  September  30,  1998,  respectively.  During the nine months ended
September 30, 1999, the Bank,  through FNMC,  originated  $12.9 billion and sold
(generally with servicing  retained) $8.7 billion of 1-4 unit residential loans.
Gross revenues from mortgage loan servicing activities for the nine months ended
September 30, 1999 totalled  $206.1  million,  an increase of $54.3 million from
the nine months ended September 30, 1998. Gross loan servicing fees for the nine
months ended  September 30, 1999 were reduced by $154.4 million of  amortization
of servicing  rights to arrive at net loan  servicing  fees of $51.7 million for
FNMC.

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

       The Company owned several  derivative  instruments at September 30, 1999,
which  were used to hedge  against  prepayment  risk in its  mortgage  servicing
portfolio. These derivative instruments included Constant Maturity Swap interest
rate floor contracts,  swaptions,  principal only swaps,  and  prepayment-linked
swaps.  The interest rate floor contracts had a notional amount of $485 million,
strike  rates of 5.50% and 5.55%,  mature in the year 2004 and had an  estimated
fair  value  of  $5.3  million  at  September   30,  1999.   Premiums   paid  to
counter-parties in exchange for cash payments when the 10 year Constant Maturity
Swap rate falls below the strike  rate are  recorded as part of the MSR asset on
the balance sheet. The swaption  contracts had notional amounts of $479 million,
a strike rate of 6.75%,  expire in the year 2002 and had an estimated fair value
of $13.4 million at September  30, 1999.  Premiums  paid to  counter-parties  in
exchange for the right to enter into an interest  rate swap are recorded as part
of the MSR  asset on the  balance  sheet.  Principal  only swap  agreements  had
notional amounts of $133.0 million and an estimated fair value of $(7.3) million
at September 30, 1999. The prepayment-linked swaps had original notional amounts
of $203.3  million and an estimated  fair value of $0.3 million at September 30,
1999.

       The  following is a summary of activity in MSRs and the MSR Hedge for the
nine months ended September 30, 1999 (in millions):
<TABLE>
<CAPTION>
                                                                                                        Total MSR
                                                                        MSRs          MSR Hedge          Balance
                                                                        ----          ---------          -------
           <S>                                                         <C>              <C>              <C>
           Balance at December 31, 1998                                $  922           $ 22             $  944
           Additions - bulk purchases                                     205             --                205
           Additions - other purchases                                     89             --                 89
           Originated servicing                                           164             --                164
           Premiums paid                                                   --             41                 41
           Servicing Sale                                                 (19)            --                (19)
           Swaption sales                                                  29            (58)               (29)
           Interest rate floor sales                                       19            (32)               (13)
           Payments made to counterparties, net                             6             --                  6
           Amortization                                                  (142)           (16)              (158)
                                                                       ------           ----             ------
           Balance at September 30, 1999                               $1,273           $(43)            $1,230
                                                                       ======           ====             ======
</TABLE>

                                    Page 42
<PAGE>

       Capitalized  MSRs are amortized in proportion to, and over the period of,
estimated net servicing income. SFAS No. 125 requires enterprises to measure the
impairment of MSRs based on the  difference  between the carrying  amount of the
MSRs and their current fair value.  At September 30, 1999 and December 31, 1998,
no allowance for impairment of the MSRs was necessary.

CAPITAL RESOURCES

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

       At September 30, 1999, the Bank's regulatory  capital levels exceeded the
minimum  regulatory  capital  requirements,  with tangible,  core and risk-based
capital  ratios of 5.90%,  5.90% and 13.10%,  respectively.  The  following is a
reconciliation of the Bank's  stockholder's  equity to regulatory  capital as of
September 30, 1999:
<TABLE>
<CAPTION>
                                                                                   Tangible            Core           Risk-based
                                                                                    Capital           Capital           Capital
                                                                                    -------           -------           -------
                                                                                                 (dollars in millions)

 <S>                                                                                <C>                <C>               <C>
 Stockholder's equity of the Bank                                                   $3,644             $3,644            $3,644
 Minority interest - REIT Preferred Stock                                              500                500               500
 Unrealized holding loss on securities available for sale,  net                        200                200               200
 Non-allowable capital:
      Intangible assets                                                               (875)              (875)             (875)
      Goodwill Litigation Assets                                                      (160)              (160)             (160)
      Investment in non-includable subsidiaries                                        (58)               (58)              (58)
 Supplemental capital:
      Qualifying subordinated debentures                                                --                 --                93
      General loan loss allowance                                                       --                 --               353
 Assets required to be deducted:
      Land loans with more than 80% LTV ratio                                           --                 --                (2)
      Equity in subsidiaries                                                            --                 --                (5)
      Low-level recourse deduction                                                      --                 --               (11)
                                                                                    ------             ------            ------
 Regulatory capital of the Bank                                                      3,251              3,251             3,679
 Minimum regulatory capital requirement                                                826              2,203             2,247
                                                                                    ------             ------            ------
 Excess above minimum capital requirement                                           $2,425             $1,048            $1,432
                                                                                    ======             ======            ======

 Regulatory capital of the Bank                                                       5.90%              5.90%            13.10%
 Minimum regulatory capital requirement                                               1.50               4.00              8.00
                                                                                      ----               ----             -----
 Excess above minimum capital requirement                                             4.40%              1.90%             5.10%
                                                                                      ====               ====             =====
</TABLE>

                                    Page 43
<PAGE>

       The amount of adjusted  total  assets used for the  tangible and leverage
capital  ratios is $55.1 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $28.1 billion.

       The Bank is also  subject to the  "prompt  corrective  action"  standards
prescribed in the FDICIA and related OTS regulations, which, among other things,
define specific capital categories based on an association's capital ratios. The
capital  categories,  in declining  order, are "well  capitalized,"  "adequately
capitalized,"   "undercapitalized,"    "significantly   undercapitalized,"   and
"critically undercapitalized." Associations 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  association  either by the OTS or by the FDIC,  including  requirements  to
raise additional capital,  sell assets, or sell the entire association.  Once an
association  becomes  "critically  undercapitalized"  it is generally  placed in
receivership or conservatorship within 90 days.

       To be considered "well capitalized," a savings association must generally
have a  leverage  capital  ratio  of at  least  5.00%,  a Tier 1 (core  capital)
risk-based capital ratio of at least 6.00%, and a total risk-based capital ratio
of at least 10.00%. An association is deemed to be "critically undercapitalized"
if it has a tangible  equity  ratio of 2.00% or less.  At  September  30,  1999,
California  Federal's  capital  levels were  sufficient  for it to be considered
"well capitalized," as presented below.
<TABLE>
<CAPTION>
                                                                                              Risk-based
                                                                  Leverage           --------------------------
                                                                   Capital           Tier 1       Total Capital
                                                                   -------           ------       -------------
       <S>                                                           <C>               <C>             <C>
       Regulatory capital of the Bank                                5.90%             11.54%          13.10%
       "Well capitalized" ratio                                      5.00               6.00           10.00
                                                                     ----              -----           -----
       Excess above "well capitalized" ratio                         0.90%              5.54%           3.10%
                                                                     ====              =====           =====
</TABLE>
       OTS  capital  regulations  allow a savings  association  to include a net
deferred tax asset in regulatory capital, subject to certain limitations. To the
extent  that the  realization  of a  deferred  tax  asset  depends  on a savings
association's  future  taxable  income,  such  deferred tax asset is limited for
regulatory  capital  purposes  to the lesser of the amount  that can be realized
within one year or 10 percent of core capital.  At September  30, 1999,  none 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,  no amount
has been excluded from the Bank's regulatory capital at September 30, 1999.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       There have been no material  changes in reported market risks faced by GS
Holdings  since  the  Company's  report in Item 7A of its Form 10-K for the year
ended December 31, 1998.















                                    Page 44
<PAGE>

                          PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

       GOODWILL LITIGATION AGAINST THE GOVERNMENT

       On April 9, 1999,  the Claims Court issued its decision on a claim by the
Bank against the United States  Government  (the  "GOVERNMENT")  in the lawsuit,
GLENDALE FEDERAL BANK,  FEDERAL SAVINGS BANK V. UNITED STATES,  Civil Action No.
90-772-C (the "Glendale Goodwill  Litigation"),  ruling that the Government must
compensate  the  Bank in the sum of  $908.9  million.  This  decision  has  been
appealed by the Government and the Bank.

       On April 16, 1999, the Claims Court issued its decision on a claim by the
Bank against the  Government in the lawsuit,  CALIFORNIA  FEDERAL BANK V. UNITED
STATES, Civil Action No. 92-138C (the "California Federal  Litigation"),  ruling
that the Government must  compensate the Bank in the sum of $23.0 million.  This
decision has been appealed by the Government and the Bank.

       In each of the Glendale  Goodwill  Litigation and the California  Federal
Litigation,  it is alleged,  among other things, that the United States breached
certain  contractual  commitments  regarding the  computation  of its regulatory
capital for which each of Glendale  Federal and California  Federal seek damages
and   restitution.   The  claims  arose  from  changes  made  by  the  Financial
Institutions  Reform,  Recovery and Enforcement Act of 1989 and its implementing
regulations  ("FIRREA")  with  respect  to the  rules for  computing  regulatory
capital.

       OTHER LITIGATION

       In  addition  to  the  matters  described  above,  GS  Holdings  and  its
subsidiaries are involved in other legal proceedings on claims incidental to the
normal  conduct of their  business.  Although  it is  impossible  to predict the
outcome of any  outstanding  legal  proceedings,  management  believes that such
legal proceedings and claims,  individually or in the aggregate, will not have a
material  effect on the  financial  condition  or  results of  operations  of GS
Holdings or the Bank.

ITEM 2.  CHANGES IN SECURITIES.

       None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

       None.

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

       None.

ITEM 5.  OTHER INFORMATION.

       None.






                                    Page 45
<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits:

        3.1 Certificate  of  Incorporation   of  the  Registrant,   as  amended.
            (Incorporated by reference to Exhibit 3.1 to the Registrant's Report
            on Form 10-Q for the quarter ended September 30, 1998).

        3.2 By-laws of the Registrant, as amended. (Incorporated by reference to
            Exhibit 3.3 to the  Registrant's  Annual Report on Form 10-K for the
            year ended December 31, 1998).

       10.1 Employment  Agreement dated as of August 1, 1999, between California
            Federal Bank, A Federal Savings Bank, and Christie S. Flanagan.

       10.2 Employment  Agreement dated as of August 1, 1999, between California
            Federal Bank, A Federal Savings Bank, and Scott A. Kisting.

       27.1 Financial Data Schedule.

     (b) Reports on Form 8-K:

         None.





















                                    Page 46
<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.

                             Golden State Holdings Inc.





                                  /S/ RICHARD H. TERZIAN
                             ---------------------------------------------------
                             By: Richard H. Terzian
                                 Executive Vice President
                                 and Chief Financial Officer
                                 (Principal Financial Officer)





                                  /S/ RENEE NICHOLS TUCEI
                             ---------------------------------------------------
                             By: Renee Nichols Tucei
                                 Executive Vice President and Controller
                                 (Principal Accounting Officer)




November 9, 1999






















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