<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, 2002
                              --------------------------------------------------

                                       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:                 000-24915
                       ---------------------------------------------------------


                           GOLDEN STATE HOLDINGS INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

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, 2002: 1,000 shares.

                                    Page 1
<PAGE>

                           GOLDEN STATE HOLDINGS INC.
                     THIRD QUARTER 2002 REPORT ON FORM 10-Q
                                TABLE OF CONTENTS


                                                                            PAGE
PART I.    FINANCIAL INFORMATION                                            ----
           ---------------------

  Item 1.  Consolidated Financial Statements

           Unaudited Consolidated Balance Sheets
           September 30, 2002 and December 31, 2001...........................3

           Unaudited Consolidated Statements of Income
           Nine Months Ended Septemeber 30, 2002 and 2001.....................4

           Unaudited Consolidated Statements of Income
           Three Months Ended September 30, 2002 and 2001.....................5

           Unaudited Consolidated Statements of Comprehensive Income
           Nine Months Ended September 30, 2002 and 2001......................6

           Unaudited Consolidated Statements of Comprehensive Income
           Three Months Ended September 30, 2002 and 2001.....................7

           Unaudited Consolidated Statement of Stockholder's Equity
           Nine Months Ended September 30, 2002...............................8

           Unaudited Consolidated Statements of Cash Flows
           NineMonths Ended September 30, 2002 and 2001.......................9

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

  Item 2.  Management's Discussion and Analysis of
           Financial Condition and Results of Operations.....................31

           Critical Accounting Policies......................................31

  Item 3.  Quantitative and Qualitative Disclosures About Market Risk........66

  Item 4.  Controls and Procedures...........................................66


PART II.   OTHER INFORMATION
           -----------------

  Item 1.  Legal Proceedings.................................................67

  Item 2.  Changes in Securities.............................................68

  Item 3.  Defaults Upon Senior Securities...................................68

  Item 4.  Submission of Matters to a Vote of Security Holders...............68

  Item 5.  Other Information.................................................68

  Item 6.  Exhibits and Reports on Form 8-K..................................69

  Glossary of Defined Terms..................................................70

  Signatures.................................................................73

  Certifications.............................................................74

                                    Page 2
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
                                   (Unaudited)
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                  Assets                                      September 30, 2002      December 31, 2001
                                  ------                                      ------------------      -----------------
<S>                                                                              <C>                     <C>
Cash and due from banks                                                          $   795,795             $   709,139
Interest-bearing deposits in other banks                                           1,302,952                     103
Short-term investment securities                                                      89,400                  95,929
                                                                                 -----------             -----------
     Cash and cash equivalents                                                     2,188,147                 805,171

Securities available for sale, at fair value                                         109,816                 116,054
Securities held to maturity                                                           17,379                  30,602
Mortgage-backed securities available for sale, at fair value                       3,879,741               7,057,903
Mortgage-backed securities held to maturity                                        1,100,407               1,385,113
Loans held for sale, net                                                           1,954,851               2,608,365
Loans receivable, net                                                             36,862,720              39,335,623
Investment in FHLB System                                                          1,105,423               1,446,607
Premises and equipment, net                                                          260,222                 276,411
Foreclosed real estate, net                                                           11,986                  18,564
Accrued interest receivable                                                          247,413                 288,308
Goodwill (net of accumulated amortization of $286,470 at both
     September 30, 2002 and December 31, 2001)                                       563,726                 590,420
Other intangible assets (net of accumulated amortization of $23,042 at
     September 30, 2002 and $19,541 at December 31, 2001)                             46,922                  50,423
MSRs (net of valuation allowance of $274,080 at September 30, 2002
     and $153,345 at December 31, 2001)                                            1,002,755               1,623,947
Derivative assets                                                                    233,623                 349,026
Other assets                                                                         843,554                 536,281
                                                                                 -----------             -----------
         Total assets                                                            $50,428,685             $56,518,818
                                                                                 ===========             ===========
         Liabilities, Minority Interest and Stockholder's Equity
         -------------------------------------------------------

Deposits                                                                         $25,100,210             $25,146,827
Securities sold under agreements to repurchase                                     1,961,157               2,363,945
Borrowings                                                                        18,413,733              24,444,541
Derivative liabilities                                                               372,910                 250,711
Other liabilities                                                                  1,231,494               1,188,005
                                                                                 -----------             -----------
         Total liabilities                                                        47,079,504              53,394,029
                                                                                 -----------             -----------

Commitments and contingencies                                                             --                      --

Minority interest                                                                    500,000                 500,000

Stockholder's equity
     Common stock, $1.00 par value, 1,000 shares authorized;
         issued and outstanding                                                            1                       1
     Additional paid-in capital                                                    1,576,362               1,569,894
     Accumulated other comprehensive loss, net                                      (139,052)                (63,307)
     Retained earnings (substantially restricted)                                  1,411,870               1,118,221
                                                                                 -----------             -----------
     Total stockholder's equity                                                    2,849,181               2,624,789
                                                                                 -----------             -----------
         Total liabilities, minority interest and stockholder's equity           $50,428,685             $56,518,818
                                                                                 ===========             ===========
</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, 2002 AND 2001
                                   (Unaudited)
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                                     Nine Months Ended September 30,
                                                                                                     -------------------------------
                                                                                                          2002            2001
                                                                                                          ----            ----
<S>                                                                                                    <C>             <C>
Interest income:
     Loans receivable                                                                                  $1,903,553      $2,286,425
     Mortgage-backed securities available for sale                                                        229,562         486,859
     Mortgage-backed securities held to maturity                                                           56,126          99,401
     Loans held for sale                                                                                   94,700          99,241
     Securities available for sale                                                                          4,900          16,902
     Securities held to maturity                                                                              399          22,058
     Interest-bearing deposits in other banks                                                               2,585             808
     Dividends on FHLB stock                                                                               56,811          63,451
     Other                                                                                                 14,763              --
                                                                                                       ----------      ----------
         Total interest income                                                                          2,363,399       3,075,145
                                                                                                       ----------      ----------
Interest expense:
     Deposits                                                                                             377,583         666,343
     Securities sold under agreements to repurchase                                                        60,616         166,858
     Borrowings                                                                                           847,607       1,238,600
     Other                                                                                                  2,384              --
                                                                                                       ----------      ----------
         Total interest expense                                                                         1,288,190       2,071,801
                                                                                                       ----------      ----------
         Net interest income                                                                            1,075,209       1,003,344
                                                                                                       ----------      ----------
Noninterest income:
     Loan servicing fees, net                                                                             (62,901)        (35,652)
     Customer banking fees and service charges                                                            181,603         160,991
     Gain on sale, settlement and transfer of loans, net                                                   74,904          69,050
     (Loss) gain on sale of assets, net                                                                      (469)         21,976
     Other income                                                                                          14,788          43,974
                                                                                                       ----------      ----------
         Total noninterest income                                                                         207,925         260,339
                                                                                                       ----------      ----------
Noninterest expense:
     Compensation and employee benefits                                                                   365,449         345,993
     Occupancy and equipment                                                                              123,238         119,135
     Professional fees                                                                                     23,999          25,185
     Loan expense                                                                                          10,962          12,683
     Foreclosed real estate operations, net                                                                (1,366)         (1,239)
     Amortization of goodwill and other intangible assets                                                   3,501          44,821
     Other expense                                                                                        168,782         168,052
                                                                                                       ----------      ----------
         Total noninterest expense                                                                        694,565         714,630
                                                                                                       ----------      ----------

Income before income taxes, minority interest and cumulative effect of change in
     accounting principle                                                                                 588,569         549,053
Income tax expense                                                                                        194,680         211,253
Minority interest: other                                                                                   20,240          20,241
                                                                                                       ----------      ----------
         Income before cumulative effect of change in accounting principle                                373,649         317,559
Cumulative effect of change in accounting principle, net of applicable taxes of $1,072 in 2001                 --          (1,552)
                                                                                                       ----------      ----------
         Net income                                                                                    $  373,649      $  316,007
                                                                                                       ==========      ==========
</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, 2002 AND 2001
                                   (Unaudited)
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 Three Months Ended September 30,
                                                                                 --------------------------------
                                                                                     2002                 2001
                                                                                     ----                 ----
<S>                                                                                 <C>                 <C>
Interest income:
     Loans receivable                                                               $612,551            $745,411
     Mortgage-backed securities available for sale                                    61,064             141,882
     Mortgage-backed securities held to maturity                                      16,396              28,418
     Loans held for sale                                                              23,997              46,565
     Securities available for sale                                                     1,619               2,327
     Securities held to maturity                                                         123               5,606
     Interest-bearing deposits in other banks                                          2,427                 269
     Dividends on FHLB stock                                                          16,019              18,079
     Other                                                                             2,685                  --
                                                                                    --------            --------
         Total interest income                                                       736,881             988,557
                                                                                    --------            --------
Interest expense:
     Deposits                                                                        116,721             201,854
     Securities sold under agreements to repurchase                                   18,262              45,466
     Borrowings                                                                      263,759             384,753
     Other                                                                               929                  --
                                                                                    --------            --------
         Total interest expense                                                      399,671             632,073
                                                                                    --------            --------
         Net interest income                                                         337,210             356,484
                                                                                    --------            --------
Noninterest income:
     Loan servicing fees, net                                                         43,685             (28,746)
     Customer banking fees and service charges                                        62,583              55,171
     Gain on sale, settlement and transfer of loans, net                              19,389              47,165
     (Loss) gain on sale of assets, net                                               (8,851)              5,755
     Other income                                                                      3,151               7,534
                                                                                    --------            --------
         Total noninterest income                                                    119,957              86,879
                                                                                    --------            --------
Noninterest expense:
     Compensation and employee benefits                                              122,854             114,796
     Occupancy and equipment                                                          42,226              41,334
     Professional fees                                                                 7,930              10,535
     Loan expense                                                                      3,431               4,114
     Foreclosed real estate operations, net                                             (695)               (386)
     Amortization of goodwill and other intangible assets                              1,167              14,941
     Other expense                                                                    60,614              56,888
                                                                                    --------            --------
         Total noninterest expense                                                   237,527             242,222
                                                                                    --------            --------

Income before income taxes and minority interest                                     219,640             201,141
Income tax expense                                                                    81,073              87,544
Minority interest                                                                      6,746               6,747
                                                                                    --------            --------
         Net income                                                                 $131,821            $106,850
                                                                                    ========            ========
</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, 2002 AND 2001
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                        Nine Months Ended September 30,
                                                                        -------------------------------
                                                                            2002               2001
                                                                            ----               ----
<S>                                                                       <C>                <C>
Net income                                                                $ 373,649          $ 316,007

Other comprehensive (loss) income, net of tax:

    Unrealized holding (loss) gain on securities available for sale:
       Unrealized holding (loss) gain arising during the period              (3,378)           148,627
       Less: reclassification adjustment for gain included
             in net income                                                   (1,202)           (15,483)
                                                                          ---------          ---------
                                                                             (4,580)           133,144
    Amortization of market adjustment for securities
       transferred from available-for-sale to held-to-maturity                   --             17,912

    Transition adjustment upon adoption of SFAS No. 133                          --            (44,647)

    Unrealized loss on derivatives used for cash flow hedges:
       Unrealized holding loss arising during the period                   (147,888)          (127,349)
       Less: reclassification adjustment for loss included
             in net income                                                   76,743             25,406
                                                                          ---------          ---------

    Change in fair value of derivatives used for cash flow hedges,
       net of applicable taxes of $49,133 in 2002
       and $70,402 in 2001                                                  (71,145)          (101,943)
                                                                          ---------          ---------

Other comprehensive (loss) income                                           (75,725)             4,466
                                                                          ---------          ---------

Comprehensive income                                                      $ 297,924          $ 320,473
                                                                          =========          =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                    Page 6
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                 THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                        Three Months Ended September 30,
                                                                        --------------------------------
                                                                             2002               2001
                                                                             ----               ----
<S>                                                                        <C>                <C>
Net income                                                                 $131,821           $106,850

Other comprehensive loss, net of tax:

     Unrealized holding (loss) gain on securities available for sale:
        Unrealized holding (loss) gain arising during the period             (1,193)            50,462
        Less: reclassification adjustment for gain included
              in net income                                                      --             (5,911)
                                                                           --------           --------
                                                                             (1,193)            44,551
     Amortization of market adjustment for securities
        transferred from available-for-sale to held-to-maturity                  --             14,446

     Unrealized loss on derivatives used for cash flow hedges:
        Unrealized holding loss arising during the period                   (79,602)           (98,672)
        Less: reclassification adjustment for loss included
              in net income                                                  25,315             13,489
                                                                           --------           --------
     Change in fair value of derivatives used for cash flow hedges,
        net of applicable taxes of $37,491 in 2002
        and $58,828 in 2001                                                 (54,287)           (85,183)
                                                                           --------           --------

Other comprehensive loss                                                    (55,480)           (26,165)
                                                                           --------           --------

 Comprehensive income                                                      $ 76,341           $ 80,664
                                                                           ========           ========
</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, 2002
                                   (Unaudited)
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                       Additional     Accumulated Other Comprehensive Income (Loss), Net
                                            Common      Paid-in       --------------------------------------------------
                                             Stock      Capital            Securities    Derivatives       Total
                                             -----      -------            ----------    -----------       -----
<S>                                          <C>       <C>                   <C>          <C>           <C>
Balance at December 31, 2001                 $  1      $1,569,894            $56,052      $(119,379)    $ (63,327)

Net income                                     --              --                 --             --            --
Dividends to parent                            --              --                 --             --            --
Change in net unrealized holding gain
    on securities available for sale           --              --             (4,580)            --        (4,580)
Change in net unrealized holding loss
    on derivatives                             --              --                 --        (71,145)      (71,145)
Impact of Golden State restricted
    common stock                               --           3,040                 --             --            --
Tax benefit on exercise of stock options       --           3,428                 --             --            --
                                             ----      ----------            -------      ---------     ---------

Balance at September 30, 2002                $  1      $1,576,362            $51,472      $(190,524)    $(139,052)
                                             ====      ==========            =======      =========     =========

                                                                                                       (Continued)

</TABLE>
See accompanying notes to unaudited consolidated financial statements.

<TABLE>
<CAPTION>
                                                 Retained
                                                 Earnings            Total
                                              (Substantially      Stockholder's
                                                Restricted)          Equity
                                                -----------          ------
<S>                                              <C>               <C>
Balance at December 31, 2001                     $1,118,221        $2,624,789

Net income                                          373,649           373,649
Dividends to parent                                 (80,000)          (80,000)
Change in net unrealized holding gain
    on securities available for sale                     --            (4,580)
Change in net unrealized holding loss
    on derivatives                                       --           (71,145)
Impact of Golden State restricted
    common stock                                         --             3,040
Tax benefit on exercise of stock options                 --             3,428
                                                 ----------        ----------

Balance at September 30, 2002                    $1,411,870        $2,849,181
                                                 ==========        ==========
</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, 2002 AND 2001
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                      Nine Months Ended September 30,
                                                                                      -------------------------------
                                                                                          2002              2001
                                                                                          ----              ----
<S>                                                                                   <C>                <C>
Cash flows from operating activities:
Net income                                                                            $   373,649        $   316,007
Adjustments to reconcile net income to net cash provided by (used in)
   operating activities:
   Amortization of goodwill and other intangible assets                                     3,501             44,821
   Amortization of purchase accounting premiums and discounts, net                          7,592              8,125
   Accretion of discount on borrowings                                                        688                818
   Amortization of MSRs                                                                   326,269            219,793
   Loss (gain) on sale of assets, net                                                         469            (21,976)
   Gain on sale of foreclosed real estate, net                                             (1,994)            (2,438)
   Loss on sale, settlement and transfer of loans, net                                    274,356            184,371
   Capitalization of originated MSRs                                                     (349,260)          (253,421)
   Depreciation and amortization of premises and equipment                                 39,907             39,903
   Amortization of deferred debt issuance costs                                             4,480              5,283
   FHLB stock dividends                                                                   (56,811)           (63,451)
   Purchases and originations of loans held for sale                                  (14,701,581)       (12,205,482)
   Net proceeds from the sale of loans held for sale                                   15,046,828         10,933,006
   Net gain on derivatives used to hedge MSRs                                             (33,855)           (29,491)
   Provision for loss on MSRs                                                             120,735            158,000
   Increase in other assets                                                              (169,297)          (289,628)
   Decrease in accrued interest receivable                                                 40,895             36,372
   Increase in other liabilities                                                          238,631            485,580
   Amortization of deferred compensation expense - Golden State
        restricted common stock                                                             1,289              1,379
   Gain on non-monetary exchange of Star Systems common stock                                  --            (20,671)
   Reduction in net accrued tax liability                                                      --            (25,805)
   Income tax benefit                                                                     (45,791)            (3,370)
   Minority interest: other                                                                20,240             20,241
   Dividends on restricted common stock                                                        22                 49
                                                                                      -----------        -----------
        Net cash provided by (used in) operating activities                           $ 1,140,962        $  (461,985)
                                                                                      -----------        -----------

                                                                                                          (Continued)

</TABLE>
See accompanying notes to unaudited consolidated financial statements.

                                    Page 9
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                  NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                Nine Months Ended September 30,
                                                                                --------------------------------
                                                                                    2002                 2001
                                                                                    ----                 ----
<S>                                                                             <C>                  <C>
Cash flows from investing activities:
   Purchases of securities available for sale                                   $    (69,052)        $   (45,616)
   Proceeds from maturities of securities available for sale                          78,754             654,157
   Purchases of securities held to maturity                                           (2,886)             (7,541)
   Principal payments and proceeds from maturities
       of securities held to maturity                                                 16,109             321,555
   Purchases of mortgage-backed securities available for sale                        (43,644)           (120,809)
   Principal payments on mortgage-backed securities available for sale             3,129,403           2,263,091
   Proceeds from sales of mortgage-backed securities available for sale               64,300             777,265
   Principal payments on mortgage-backed securities held to maturity                 284,737             344,727
   Proceeds from sales of loans                                                       48,436              72,064
   Loan originations and principal collections, net                                5,625,227           1,630,891
   Purchases of loans receivable                                                  (3,320,012)         (3,138,329)
   Purchases of FHLB stock                                                           (58,484)            (23,193)
   Redemption of FHLB stock                                                          399,668                  --
   Purchases of premises and equipment                                               (27,257)            (29,217)
   Proceeds from disposal of premises and equipment                                   19,106              10,806
   Proceeds from sales of foreclosed real estate                                      21,308              24,622
   Proceeds from sale of Concord EFS common stock                                         --              29,948
   Purchases of MSRs                                                                (223,079)           (233,453)
   Hedge receipts                                                                     86,662              14,663
   Purchases of derivatives                                                       (1,230,598)           (354,017)
   Proceeds from sales and settlements of derivatives                              1,993,381             408,377
                                                                                ------------         -----------
       Net cash provided by investing activities                                   6,792,079           2,599,991
                                                                                ------------         -----------
Cash flows from financing activities:
   Net (decrease) increase in deposits                                               (46,346)          1,055,445
   Proceeds from additional borrowings                                            59,593,471          87,843,153
   Principal payments on borrowings                                              (65,597,340)        (89,205,993)
   Net decrease in securities sold under agreements to repurchase                   (402,788)         (1,117,147)
   Principal payment of FN Holdings Notes                                               (250)                 --
   Principal payment of GS Holdings Notes                                                 --            (350,000)
   Dividends on common stock                                                         (80,000)           (135,000)
   Dividends paid to minority stockholders of subsidiary, net of taxes               (20,240)            (20,241)
   Tax benefits on exercise of stock options                                           3,428               1,578
                                                                                ------------         -----------
       Net cash   used in financing activities                                    (6,550,065)         (1,928,205)
                                                                                ------------         -----------

Net change in cash and cash equivalents                                            1,382,976             209,801
Cash and cash equivalents at beginning of period                                     805,171             783,074
                                                                                ------------         -----------
Cash and cash equivalents at end of period                                      $  2,188,147         $   992,875
                                                                                ============         ===========
</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
       ---------------------

       These  financial  statements  are in  accordance  with  GAAP for  interim
financial  information  and Regulation  S-X,  Article 10. They are unaudited and
exclude some of the disclosures for complete  financial  statements.  Management
believes it has made all adjustments  necessary so that the financial statements
are presented  fairly.  The results of operations  for the three and nine months
ended September 30, 2002 may not indicate  future results.  Certain prior period
amounts have been reclassified to conform to current presentation.

       These financial statements should be read 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, 2001. A glossary of defined terms begins on page
70 of this  document.  All  terms  used  but not  defined  in the  glossary  are
clarified in the Company's Annual Report on Form 10-K.

       GS Holdings,  a wholly owned  subsidiary  of Golden  State,  is a holding
company whose only significant asset is all of the common and preferred stock of
the Bank.  Activities for the consolidated  entity are primarily  carried out by
the Bank and its subsidiaries.

       These unaudited consolidated financial statements include the accounts of
GS Holdings, the Bank and the Bank's wholly owned subsidiaries.  All significant
intercompany balances and transactions have been eliminated in consolidation.

       Minority  interest:  other  represents  amounts  attributable to the REIT
Preferred Stock of California  Federal Preferred Capital  Corporation,  a wholly
owned subsidiary of the Bank.

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

(2)    PENDING MERGER
       --------------

       On May 21,  2002,  Citigroup  and  Mercury  Merger  Sub,  a wholly  owned
subsidiary  of  Citigroup,  entered  into a merger  agreement  with Golden State
whereby  Golden  State will be merged with and into  Mercury  Merger  Sub,  with
Mercury  Merger Sub as the  surviving  company.  On October 28, 2002,  Citigroup
received Federal Reserve Board approval for the Merger. On October 29, 2002, the
OTS approved the related merger of the Bank with and into Citibank  (West),  FSB
(in formation).  The Merger is anticipated to close during the fourth quarter of
2002.

       The value of the merger  consideration  per share of the  Golden  State's
common stock is the sum of

       (a)    $16.40 and

       (b)    0.5613  fractional  share of Citigroup common stock for each share
              of Golden State common stock delivered at closing.

       Golden State's common  stockholders  will be entitled to elect to receive
merger  consideration  in the  form of  cash or  Citigroup  common  stock,  or a
combination, subject to certain limitations.

(3)    RECLASSIFICATION OF SECURITIES
       ------------------------------

       On January 1, 2001,  the  Company  reclassified  $1.1  billion  and $85.0
million  carrying value of  mortgage-backed  securities and U.S.  government and
agency  securities,  respectively,  from  securities  held to  maturity to their
respective available-for-sale portfolios, as permitted upon the adoption of SFAS
No. 133. The net unrealized  loss related to these  securities of $30.4 million,
which was recorded in OCI upon their  initial  transfer to the  held-to-maturity
portfolio in April 2000, was reclassified from accumulated  other  comprehensive
loss, and the securities were subsequently  marked to market, in accordance with
SFAS No. 115.

                                    Page 11
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(4)    CASH, CASH EQUIVALENTS, AND STATEMENTS OF CASH FLOWS
       ----------------------------------------------------
<TABLE>
<CAPTION>
                                                                                      Nine Months Ended September 30,
                                                                                      -------------------------------
                                                                                           2002            2001
                                                                                           ----            ----
                                                                                               (in thousands)
<S>                                                                                     <C>             <C>
Cash paid for:
   Interest                                                                             $1,370,115      $2,227,021
   Income taxes, net                                                                       189,178         164,458

   Transfer of loans to foreclosed real estate                                              12,647          22,990
   Loans made to facilitate the sale of real estate                                             --             168
   Reclassification of loans from loans held for sale to loans receivable                       --           6,542
   Reclassification of loans receivable to loans held for sale                             100,095         161,073
   Goodwill adjustment related to tax adjustments                                           13,159             --
   Impact of restricted common stock                                                         3,040           3,055
   Reclassification of mortgage-backed securities from the held-to-maturity
      portfolio to the available-for-sale portfolio upon the adoption of
      SFAS No. 133                                                                              --       1,067,933
   Reclassification of securities from the held-to-maturity portfolio to the
      available-for-sale portfolio upon the adoption of SFAS No. 133                            --          84,984
   Reclassification of derivative assets ($173.6 million) and derivative liabilities
      ($8.8 million) related to MSRs at fair value upon the adoption of
      SFAS No. 133                                                                              --         164,767
   Transfer of loans receivable to claims receivable                                       177,268         159,025
</TABLE>

(5)    REDEMPTION OF FN HOLDINGS NOTES
       -------------------------------

       On January 2, 2002,  GS Holdings  redeemed the  remaining  $250  thousand
principal of the FN Holdings 10 5/8% Senior Notes for a redemption price of $263
thousand,  including accrued  interest.  The premium paid in connection with the
redemption was not material.

                                    Page 12
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(6)    SEGMENT REPORTING
       -----------------

       The Company  derives  most of its  revenues  from  interest  income,  and
interest expense is the most significant expense. Therefore, net interest income
after  provision  for loan losses is  presented  for each  segment.  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 after
   provision for loan losses: (a)
2002                                   $ 1,033,696     $  109,138        $ 1,142,834    $   326,032      $   31,243      $   357,275
2001                                     1,036,087         73,592          1,109,679        357,105          37,132          394,237

Noninterest income: (b)
2002                                   $   239,964     $   (2,912)       $   237,052    $    73,794      $   56,047      $   129,841
2001                                       271,592         18,572            290,164        104,743          (3,571)         101,172

Noninterest expense: (c)
2002                                   $   577,251     $  120,794        $   698,045    $   199,675      $   39,012      $   238,687
2001                                       601,934        116,176            718,110        202,475          40,907          243,382

Pre-tax contribution:
2002                                   $   696,409     $  (14,568)       $   681,841    $   200,151      $   48,278      $   248,429
2001                                       705,745        (24,012)           681,733        259,373          (7,346)         252,027

Segment assets at period end: (d)
2002                                   $50,191,067     $4,625,912 (e)    $54,816,979    $50,191,067      $4,625,912 (e)  $54,816,979
2001                                    59,216,186      7,325,189 (e)     66,541,375     59,216,186       7,325,189 (e)   66,541,375
</TABLE>
____________
(a)    Includes  $67.6  million and $106.3  million  for the nine  months  ended
       September 30, 2002 and 2001, respectively, in earnings credit provided to
       FNMC by the Bank, primarily for custodial bank account balances generated
       by FNMC.  Also  includes  $97.3  million and $217.0  million for the nine
       months  ended  September  30,  2002 and 2001,  respectively,  in interest
       income and expense on intercompany loans.

       Includes  $20.1  million  and $37.8  million for the three  months  ended
       September 30, 2002 and 2001, respectively, in earnings credit provided to
       FNMC by the Bank, primarily for custodial bank account balances generated
       by FNMC.  Also  includes  $25.1  million and $82.9  million for the three
       months  ended  September  30,  2002 and 2001,  respectively,  in interest
       income and expense on intercompany loans.

(b)    Includes  $29.1  million  and $29.8  million  for the nine  months  ended
       September  30, 2002 and 2001,  respectively,  in  intercompany  servicing
       fees.  Also  includes $9.9 million and $14.3 million for the three months
       ended  September  30,  2002  and  2001,  respectively,   in  intercompany
       servicing fees.

(c)    Includes  $3.5  million for each of the nine months ended  September  30,
       2002 and 2001, in intercompany  noninterest  expense.  Also includes $1.2
       million for each of the three months ended  September  30, 2002 and 2001,
       in intercompany noninterest expense.

(d)    Includes  $4.3 billion and $7.0 billion for 2002 and 2001,  respectively,
       in  intercompany  borrowings and $49.4 million and $49.9 million for 2002
       and 2001,  respectively,  in  intercompany  deposits  maintained with the
       Bank.

(e)    Includes  $1.2 billion and $1.6 billion for 2002 and 2001,  respectively,
       in MSRs and the related hedge.

                                    Page 13
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       The  following  reconciles  the above table to the  amounts  shown on the
consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
                                                        Nine Months Ended September 30,   Three Months Ended September 30,
                                                        -------------------------------   --------------------------------
                                                             2002             2001            2002               2001
                                                             ----             ----            ----               ----
<S>                                                      <C>              <C>              <C>               <C>
Net interest income after provision for
    loan losses:
Total net interest income for reportable segments        $ 1,142,834      $ 1,109,679      $   357,275       $   394,237
Elimination of intersegment net interest income              (67,625)        (106,335)         (20,065)          (37,753)
                                                         -----------      -----------      -----------       -----------
    Total                                                $ 1,075,209      $ 1,003,344      $   337,210       $   356,484
                                                         ===========      ===========      ===========       ===========

Noninterest income:
Total noninterest income for reportable segments         $   237,052      $   290,164      $   129,841       $   101,172
Elimination of intersegment servicing fees                   (29,127)         (29,825)          (9,884)          (14,293)
                                                         -----------      -----------      -----------       -----------
    Total                                                $   207,925      $   260,339      $   119,957       $    86,879
                                                         ===========      ===========      ===========       ===========

Noninterest expense:
Total noninterest expense for reportable segments        $   698,045      $   718,110      $   238,687       $   243,382
Elimination of intersegment expense                           (3,480)          (3,480)          (1,160)           (1,160)
                                                         -----------      -----------      -----------       -----------
    Total                                                $   694,565      $   714,630      $   237,527       $   242,222
                                                         ===========      ===========      ===========       ===========

Pre-tax contribution:
Total contributions for reportable segments              $   681,841      $   681,733      $   248,429       $   252,027
Elimination of intersegment contributions                    (93,272)        (132,680)         (28,789)          (50,886)
                                                         -----------      -----------      -----------       -----------
    Total                                                $   588,569      $   549,053      $   219,640       $   201,141
                                                         ===========      ===========      ===========       ===========

Total assets at period end:
Total assets for reportable segments                     $54,816,979      $66,541,375      $54,816,979       $66,541,375
Elimination of intersegment borrowings                    (4,338,856)      (6,997,022)      (4,338,856)       (6,997,022)
Elimination of intersegment deposits                         (49,438)         (49,853)         (49,438)          (49,853)
                                                         -----------      -----------      -----------       -----------
    Total                                                $50,428,685      $59,494,500      $50,428,685       $59,494,500
                                                         ===========      ===========      ===========       ===========
</TABLE>

                                    Page 14
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(7)    LOANS RECEIVABLE, NET
       ---------------------

       Loans receivable, net, included the following (in thousands):
<TABLE>
<CAPTION>
                                                                         September 30, 2002   December 31, 2001
                                                                         ------------------   -----------------
       <S>                                                                   <C>                 <C>
       Real estate loans:
            1-4 unit residential                                             $26,324,514         $29,546,035
            Multi-family residential                                           4,506,114           4,130,287
            Commercial real estate                                             2,177,980           2,354,919
            Land                                                                   5,515              14,055
            Construction                                                             868               2,495
                                                                             -----------         -----------
               Total real estate loans                                        33,014,991          36,047,791
                                                                             -----------         -----------

            Equity-line                                                          878,661             639,297
            Other consumer loans                                                 220,651             283,434
            Auto loans, net (a)                                                2,179,431           1,917,591
            Commercial loans                                                     778,058             693,114
                                                                             -----------         -----------
               Total consumer and other loans                                  4,056,801           3,533,436
                                                                             -----------         -----------
               Total loans receivable                                         37,071,792          39,581,227
                                                                             -----------         -----------

            Deferred loan fees, costs, discounts and premiums, net               232,864             243,120
            Allowance for loan losses                                           (448,042)           (497,298)
            Purchase accounting adjustments, net                                   6,106               8,574
                                                                             -----------         -----------
               Total loans receivable, net                                   $36,862,720         $39,335,623
                                                                             ===========         ===========
</TABLE>
___________
(a)    $918  million,  or 42%  and  $766  million,  or 40%  of  this  portfolio,
       represents  prime product as of September 30, 2002 and December 31, 2001,
       respectively.

(8)    INTANGIBLE ASSETS
       -----------------

       Upon  adopting  SFAS No. 142,  management  reviewed  the records from the
Company's various  acquisitions.  At September 30, 2002, the Company's  goodwill
and other  intangible  assets totalled $610.6  million.  Of this amount,  $563.7
million  represents  goodwill that is no longer being amortized as of January 1,
2002 pursuant to SFAS No. 142. The  remaining  $46.9  million  represents  other
intangible assets that continue to be amortized.  In addition,  the Company held
MSR balances in the amount of $1.0 billion at September 30, 2002.

       The following table provides details on intangible assets including MSRs:
<TABLE>
<CAPTION>
                                               As of September 30, 2002                           As of December 31, 2001
                                     ----------------------------------------------    ---------------------------------------------
                                      Gross                             Net             Gross                            Net
                                     Carrying         Accumulated     Carrying         Carrying        Accumulated     Carrying
                                       Value          Amortization      Value            Value         Amortization      Value
                                       -----          ------------      -----            -----         ------------      -----
                                                                        (dollars in thousands)
<S>                                  <C>              <C>             <C>              <C>             <C>            <C>
Amortizable intangible assets:
    Unidentifiable intangibles       $   64,451       $   (18,258)    $   46,193       $   64,451      $  (15,030)    $   49,421
    Core deposit intangibles              5,513            (4,784)           729            5,513          (4,511)         1,002
                                     ----------       -----------     ----------       ----------      ----------     ----------
       Other intangible assets           69,964           (23,042)        46,922           69,964         (19,541)        50,423
    MSRs                              2,433,721 (a)    (1,430,966)     1,002,755 (a)    2,728,643 (a)  (1,104,696)     1,623,947 (a)
    Goodwill                                 --                --             --          876,890        (286,470)       590,420
                                     ----------       -----------     ----------       ----------      -----------    ----------
       Total amortizable
          intangible assets          $2,503,685       $(1,454,008)    $1,049,677       $3,675,497      $(1,410,707)   $2,264,790
                                     ==========       ===========     ==========       ==========      ===========    ==========
Unamortizable goodwill               $  850,196       $  (286,470)    $  563,726       $       --      $        --    $       --
                                     ==========       ===========     ==========       ==========      ===========    ==========

                                                                                                                         (Continued)
</TABLE>

                                    Page 15
<PAGE>
                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

___________
(a)    After  deducting  $274.1  million and $153.3  million  for the  valuation
       allowance at September 30, 2002 and December 31, 2001, respectively.

       As of September 30, 2002, all of the Company's goodwill, totalling $563.7
million,  is included in the  community-banking  reporting  segment.  During the
second quarter of 2002, goodwill was reduced by the following:

       (a)    $12.7  million  representing  California  state  tax  refunds  and
              pre-merger interest related to Old Cal Fed
       (b)    $12.6  million  related to a reversal of a portion of the deferred
              tax  asset  valuation   allowance  related  to  Old  Cal  Fed  and
              adjustments for sales and use tax related to Old Glen Fed and
       (c)    $0.6  million  related  to the  reversal  of a portion  of the tax
              reserve  based upon the status of Glendale  Federal tax audits for
              1991 through 1997.

       In addition,  during the third quarter of 2002, the following  changes to
goodwill were recorded:

       (a)    a $0.9 million  decrease  representing  Federal income tax refunds
              related to the 1986-1992 audits of Old Cal Fed and
       (b)    a  $30k  increase  due  to  a  California  state  tax  refund  and
              pre-merger  interest  from the  completion  of the  1997  audit of
              Golden State.

       Intangible acquisitions during the period were as follows:
<TABLE>
<CAPTION>
                                                                Nine Months Ended September 30,
                                            ------------------------------------------------------------------------
                                                         2002                                    2001
                                            --------------------------------       ---------------------------------
                                              Gross             Weighted            Gross             Weighted
                                            Carrying            Average            Carrying            Average
                                              Value          Life (in years)        Value           Life (in years)
                                              -----          ---------------        -----           ---------------
                                                                    (dollars in thousands)
<S>                                         <C>                    <C>             <C>                   <C>
MSRs originated and purchased
     during the period                      $572,339               3.4             $486,874              5.2
</TABLE>
<TABLE>
<CAPTION>
                                                               Three Months Ended September 30,
                                            ------------------------------------------------------------------------
                                                         2002                                    2001
                                            --------------------------------       ---------------------------------
                                              Gross             Weighted            Gross             Weighted
                                            Carrying            Average            Carrying            Average
                                              Value          Life (in years)        Value           Life (in years)
                                              -----          ---------------        -----           ---------------
                                                                    (dollars in thousands)
<S>                                         <C>                    <C>             <C>                   <C>
MSRs originated and purchased
     during the period                      $129,365               3.4             $227,295              5.2
</TABLE>


                                    Page 16
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       In the first quarter of 2002, the Company  reviewed the expected  present
value of future cash flows for all reporting  units with  recorded  goodwill and
determined that the carrying value of the goodwill was not impaired.  Actual and
estimated future amortization expense is as follows:
<TABLE>
<CAPTION>
                                                Unidentifiable    Core Deposit
                                                 Intangibles       Intangibles       MSRs       Goodwill         Total
                                                 -----------       -----------       ----       --------         -----
                                                                           (in thousands)
<S>                                                 <C>              <C>           <C>           <C>            <C>
Amortization expense:
     Three months ended September 30, 2002          $1,076           $  91         $113,673      $    --        $114,840
     Nine months ended September 30, 2002            3,228             273          326,269           --         329,770
     Three months ended September 30, 2001           1,076              91           72,780       13,773          87,720
     Nine months ended September 30, 2001            3,228             273          219,793       41,319         264,613

Estimated amortization expense:
     Three months ending December 31, 2002           1,076              91           98,616           --          99,783
     Year ending December 31,
         2003                                        4,304             364          287,451           --         292,119
         2004                                        4,304             364          200,454           --         205,122
         2005                                        4,304             364          138,662           --         143,330
         2006                                        4,304             364           92,394           --          97,062
         2007                                        4,304             364           58,336           --          63,004
</TABLE>

       The impact of the adoption of SFAS No. 142 on earnings was as follows:
<TABLE>
<CAPTION>
                                                 Nine Months Ended September 30,     Three Months Ended September 30,
                                                 -------------------------------     --------------------------------
                                                      2002              2001              2002              2001
                                                      ----              ----              ----              ----
                                                                            (in thousands)
<S>                                                 <C>               <C>               <C>               <C>
Reported net income before cumulative
    effect of change in accounting principle        $373,649          $317,559          $131,821          $106,850
Add back goodwill amortization, net of tax                --            40,543                --            13,514
                                                    --------          --------          --------          --------
Adjusted net income before cumulative
    effect of change in accounting principle        $373,649          $358,102          $131,821          $120,364
                                                    ========          ========          ========          ========
</TABLE>
<TABLE>
<CAPTION>
                                                 Nine Months Ended September 30,     Three Months Ended September 30,
                                                 -------------------------------     --------------------------------
                                                      2002              2001              2002              2001
                                                      ----              ----              ----              ----
                                                                            (in thousands)
<S>                                                 <C>               <C>               <C>               <C>
Reported net income                                 $373,649          $316,007          $131,821          $106,850
Add back goodwill amortization, net of tax                --            40,543                --            13,514
                                                    --------          --------          --------          --------
Adjusted net income                                 $373,649          $356,550          $131,821          $120,364
                                                    ========          ========          ========          ========
</TABLE>

                                    Page 17

<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(9)    DEPOSITS
       --------

       A summary of the  carrying  value of deposits  is as follows  (dollars in
thousands):
<TABLE>
<CAPTION>
                                                                 September 30, 2002    December 31, 2001
                                                                 ------------------    -----------------
       <S>                                                            <C>                 <C>
       Transaction Accounts:
            Non-interest checking                                     $ 2,364,211         $ 2,013,162
            Interest-bearing checking                                   2,273,112           2,139,674
                                                                      -----------         -----------
               Subtotal checking                                        4,637,323           4,152,836

            Money market                                                5,045,218           4,614,223
            Passbook savings                                            3,193,481           3,055,766
                                                                      -----------         -----------
               Total transaction accounts                              12,876,022          11,822,825

       Certificates of deposit                                          9,328,273          10,618,260
                                                                      -----------         -----------
               Total customer deposits                                 22,204,295          22,441,085

       Custodial accounts                                               2,837,731           2,512,684
       Accrued interest payable                                            32,856              46,184
       Purchase accounting                                                    103                 329
                                                                      -----------         -----------
               Total retail deposits                                   25,074,985          25,000,282

       Brokered Deposits                                                   25,225             146,545
                                                                      -----------         -----------
               Total deposits                                         $25,100,210         $25,146,827
                                                                      ===========         ===========

       Checking deposits (including custodials) as a %
            of retail deposits                                              29.8%                 26.7%
       Transaction accounts (including custodials) as a %
            of retail deposits                                              62.7%                 57.3%
       Checking deposits (excluding custodials) as a %
            of customer deposits                                            20.9%                 18.5%
       Transaction accounts (excluding custodials) as a %
            of customer deposits                                            58.0%                 52.7%
</TABLE>

(10)   ACCRUED TERMINATION AND FACILITIES COSTS
       ----------------------------------------

       In connection  with the Golden State  Acquisition,  the Company  recorded
liabilities resulting from:

       o      branch consolidations due to duplicate facilities and

       o      employee  severance  and  termination  benefits  due to a  planned
              reduction in force.

       The merger and integration plan relating 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  summarizes  the activity in the  liability for the costs
related to the plan (in thousands):

                                                     Severance and
                                        Branch        Termination
                                    Consolidations      Benefits        Total
                                    --------------      --------        -----

Balance at December 31, 2001           $14,208            $12,500      $26,708
    Charges to liability account        (3,095)                --       (3,095)
                                       -------            -------      -------
Balance at September 30, 2002          $11,113            $12,500      $23,613
                                       =======            =======      =======

                                    Page 18
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(11)   INCOME TAXES
       ------------

       During the nine months ended  September  30, 2002,  GS Holdings  recorded
gross income tax expense of $240.5 million, which was offset by a tax benefit of
$45.8  million,  for net income  tax  expense  of $194.7  million.  Based on the
current  status of Mafco  Holdings'  audits for the years 1991  through 1995 and
anticipated   reversal  of  deferred  tax  assets  with  established   valuation
allowance,  management  changed  its  judgment  about the  realizability  of the
Company's deferred tax assets and reduced its valuation allowance by $44 million
in the second quarter. As a result of reducing the valuation  allowance,  income
tax  expense  was reduced by $31.4  million  and  goodwill  was reduced by $12.6
million.

       On September 11, 2002,  California  enacted a law  requiring  large banks
(those with average  assets in excess of $500 million) to conform to federal law
with respect to accounting  for bad debts.  Prior to the law change,  all banks,
regardless of size,  were eligible to use the reserve  method of accounting  for
bad debts which enabled them to take  deductions for anticipated bad debt losses
prior to the losses being incurred for California tax purposes. With the change,
large  banks  may now  only  deduct  actual  charge-offs  net of  recoveries  in
determining their California taxable income.  Banks that are required to conform
to the new law must include in current year taxable income 50 percent of the bad
debt  reserves that existed as of the end of the prior tax year. As a concession
for requiring large banks to comply with the new law, recapture of the remaining
50 percent of the reserve is waived  thereby  creating a permanent  tax benefit.
The Company's tax benefit resulting from the law change was $8.7 million and has
been  reflected  in the  Company's  income tax  expense  for the  quarter  ended
September 30, 2002.

       In addition, an accrued liability had been established in prior years for
the purpose of satisfying assessments that may result from issues arising during
audits with various state taxing  authorities.  As a result of the completion of
the California  audit of Glendale  Federal Bank for the years 1991 through 1997,
management  reduced its accrued state tax  liability by $8.7 million  during the
nine months ended  September  30, 2002.  Goodwill was reduced by $0.6 million in
connection with this transaction.  The Company also recorded  additional Federal
tax expense of $3.1 million due to the reduction of the state tax expense.

       During the nine months ended September 30, 2001, GS Holdings recorded net
income tax expense of $211.3  million,  which included net tax benefits of $29.0
million. In prior years, an accrued liability was established for the purpose of
satisfying  assessments  that may result from issues  arising during audits with
various state taxing  authorities.  As a result of the completion and settlement
of audits in various  state  taxing  jurisdictions,  additional  guidance on the
deductibility  of covered asset losses,  and the current  assessment of exposure
for tax  strategies  employed  for prior years,  management  reduced its accrued
state tax  liability  by $39.7  million.  The Company also  recorded  additional
Federal  tax  expense of $13.9  million  due to the  reduction  of the state tax
expense.

       In addition,  during the nine months ended  September 30, 2001, an income
tax  benefit  was  recorded  for  $3.2  million  due to the  utilization  of net
operating  losses of a subsidiary made available as a result of the subsidiary's
liquidation into California Federal Bank.

(12)   STOCKHOLDER'S EQUITY
       --------------------

       At  September  30, 2002,  there were 1,000  shares of GS Holdings  common
stock issued and outstanding.

       Dividends on common stock during the nine months ended September 30, 2002
and 2001 totalled $80.0 million and $135.0 million, respectively.

                                    Page 19
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(13)   EXECUTIVE AND STOCK COMPENSATION
       --------------------------------

       In the nine months  ended  September  30, 2002,  Golden State  granted to
certain of the Company's  employees  non-qualified  stock options  equivalent to
884,000  shares of common stock at a weighted  average price of $27.69 per share
under the Stock Plan, all within the first quarter. During the nine months ended
September 30, 2001,  Golden State granted to certain of the Company's  employees
non-qualified  stock options equivalent to 1,411,100 shares of common stock at a
weighted average price of $27.69.  Golden State did not grant any options to the
Company's  employees  during the three months ended  September 30, 2002 or 2001.
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 nine months ended  September  30, 2002, in accordance
with the intrinsic value  accounting  methodology  prescribed in APB Opinion No.
25,  whereby  compensation  expense to  employees is  determined  based upon the
excess,  if any,  of the  market  price  of the  Company's  common  stock at the
measurement date over the exercise price of the award.

       During the three and nine months ended  September  30,  2002,  58,834 and
486,509 options were exercised,  and 11,263 and 53,860 options were cancelled or
expired,  respectively,  under all plans. During the three and nine months ended
September 30, 2001,  159,526 and 314,143  options were  exercised and 28,247 and
49,924 options, respectively, were cancelled or expired under all plans.

       At  September  30,  2002 and 2001,  options to acquire an  equivalent  of
5,059,352 and  4,718,433  shares and 659,583 and 861,916  LTWTMs,  respectively,
remained outstanding under all plans.

       On January  22,  2002 and 2001,  Golden  State  awarded to certain of the
Company's employees 112,760 and 99,108 shares, respectively, of restricted stock
under the Golden State Bancorp Inc.  Omnibus Stock Plan. The market value on the
date of the award was $27.65 and $26.38 per share,  respectively.  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.  During the nine
months ended September 30, 2002, 152,299 restricted shares were vested and 2,770
restricted  shares were  cancelled.  During the three months ended September 30,
2002, no restricted  shares were vested or cancelled.  During the three and nine
months ended  September  30,  2001,  28,454 and 143,499  restricted  shares were
vested, respectively,  and none was cancelled. At September 30, 2002, a total of
160,056 restricted shares was outstanding. The compensation expense based on the
stock price on the date of these awards was recognized on a straight-line  basis
over the  vesting  period for each  service  period  tranche of the award with a
corresponding increase to additional paid-in capital. In addition,  dividends on
restricted  stock are  recorded as  compensation  expense  with a  corresponding
increase to additional  paid-in capital.  During the three and nine months ended
September 30, 2002, $0.4 million and $1.3 million, respectively, in compensation
expense was recognized related to such awards.  During the three and nine months
ended  September  30, 2001,  $0.4  million and $1.4  million,  respectively,  in
compensation  expense was recognized  related to such awards.  These  restricted
shares have full voting and dividend rights.

(14)   CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
       ---------------------------------------------------

       On September  21, 2000,  the EITF issued EITF No. 99-20.  This  document,
which was effective on April 1, 2001, establishes guidance for

       (a)    recognizing interest income (including amortization of premiums or
              discounts) on

              (i)    all credit-sensitive  mortgage and asset-backed  securities
                     and
              (ii)   certain  prepayment-sensitive  securities  including agency
                     interest-only strips and

       (b)    determining  when these  securities  must be written  down to fair
              value because of impairment.

Existing GAAP did not provide interest  recognition and impairment  guidance for
securities on which cash flows change as a result of both prepayments and credit
losses and, in some cases, interest rate adjustments.

                                    Page 20
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       On April 1, 2001, the Company identified a portfolio of securities with a
total book value of $80.7 million which are subject to the impairment provisions
of EITF No.  99-20.  All of these  securities  had  previously  been reported as
available-for-sale securities, with changes in fair value reflected in OCI. As a
result of its  implementation  of EITF No. 99-20, the Company recorded a loss of
$1.6  million,  net of income tax  credits  of $1.1  million,  representing  the
cumulative effect of a change in accounting principle.

(15)   COMMITMENTS, CONTINGENCIES AND OTHER OFF-BALANCE SHEET ACTIVITIES
       -----------------------------------------------------------------

       CREDIT RELATED FINANCIAL INSTRUMENTS

       The  Company  is a party to credit  related  financial  instruments  with
off-balance  sheet risk in the normal  course of business to meet the  financing
needs of its  customers.  These  financial  instruments  include  commitments to
extend credit,  standby letters of credit and commercial letters of credit. Such
commitments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount recognized in the consolidated balance sheets.

       The Company's  exposure to credit loss is represented by the  contractual
amount of these commitments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments.

       Listed below are unfunded  financial  instruments  whose contract amounts
represent credit risk (in thousands):

                                                    Contract Amounts at
                                          --------------------------------------
                                          September 30, 2002   December 31, 2001
                                          ------------------   -----------------

   Commitments to extend credit
   ----------------------------

Unutilized consumer lines                    $1,806,013           $1,467,625
Unutilized commercial lines of credit           279,973              263,682
Commercial and standby letters of credit         28,138               24,953

       The contracts for the  Company's  commitments  to extend credit expire as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                September 30, 2002
                                   ---------------------------------------------------------------------------------
                                                             Contract Amount Expiring in
                                   ---------------------------------------------------------------------------------

Commitments to extend credit           Total       Less Than 1 Year  1 - 3 Years   4 - 5 Years     More Than 5 Years
----------------------------           -----       ----------------  -----------   -----------     -----------------
<S>                                 <C>                <C>             <C>           <C>              <C>
Unutilized consumer lines           $1,806,013         $525,354        $12,740       $10,574          $1,257,345
Unutilized commercial
     lines of credit                   279,973          202,525         60,522        10,411               6,515
Commercial and standby
     letters of credit                  28,138           26,541          1,597            --                  --
</TABLE>

       The fair value of  commitments  to extend credit was not  significant  at
either September 30, 2002 or December 31, 2001.

       Unutilized  consumer  lines of credit are  commitments  to extend credit.
These lines are either secured or nonsecured and may be cancelled by the Company
if certain  conditions of the contract are not met. Many consumer line of credit
customers  are not  expected to fully draw down their total lines of credit and,
therefore,  the total  contractual  amount of these  lines does not  necessarily
represent future cash requirements.

       Unutilized  commitments  under commercial lines of credit are commitments
for possible future extensions of credit to existing  customers.  These lines of
credit are  uncollateralized,  usually do not contain a specified  maturity date
and may not be drawn upon to the total extent to which the Company is committed.

                                    Page 21
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       Commercial  and  standby  letters of credit are  conditional  commitments
issued by the  Company to  guarantee  the  performance  of a customer to a third
party.  Those  letters of credit  are  primarily  issued to  support  public and
private  borrowing  arrangements.  All letters of credit issued have  expiration
dates within three years.  The credit risk involved in issuing letters of credit
is  essentially  the same as that  involved  in  extending  loan  facilities  to
customers.  The Company generally holds collateral  supporting those commitments
in an amount deemed to be necessary.

       OFF-BALANCE SHEET COMMITMENTS TO ORIGINATE, PURCHASE AND SELL LOANS

       The following is a summary of the Company's  pipeline of loans in process
and mandatory  forward  commitments to sell loans that have not been recorded in
the Company's  balance sheet as they do not meet the  definition of a derivative
financial  instrument.  These amounts exclude commitments to extend credit which
are summarized above. For more information on derivative  instruments,  see note
16.

                                                  Contract Amounts at
                                       -----------------------------------------
                                       September 30, 2002      December 31, 2001
                                       ------------------      -----------------
                                                     (in thousands)

Commitments to originate loans            $4,571,467               $3,937,422
Commitments to purchase loans              2,262,925                3,791,436
Mandatory commitments to sell loans          405,494                  679,182

       The Company's pipeline of loans in process includes loan applications for
both portfolio and  non-portfolio  loans in various stages of processing that do
not meet the definition of a derivative financial instrument. Until all required
documentation  is  provided  and  underwritten,  there is no credit  risk to the
Company.  There is no interest rate risk until a rate  commitment is extended by
the Company to a borrower.  Some of these  commitments will ultimately be denied
by the Company or declined by the borrower and therefore the commitment  amounts
do not necessarily represent future cash requirements.

       Mandatory and optional  delivery  forward  commitments  to sell loans are
used by the Company to hedge its interest rate exposure from the time a loan has
a committed rate to the time the loan is sold. These instruments involve varying
degrees of credit risk. Credit risk on these  instruments is controlled  through
credit  approvals,   limits  and  monitoring  procedures.  To  the  extent  that
counterparties  are not able to fulfill forward  commitments,  the Company is at
risk for any  fluctuations  in the market value of the mortgage loans and locked
pipeline.

       OFF-BALANCE SHEET EMBEDDED DERIVATIVE OPTIONS

       The Company also has off-balance  sheet embedded options in borrowings as
shown in the table below (in thousands):
<TABLE>
<CAPTION>
                                              September 30, 2002                          December 31, 2001
                                     --------------------------------------     --------------------------------------
       Instruments                    Notional Amount   Estimated Fair Value    Notional Amount   Estimated Fair Value
       -----------                    ---------------   --------------------    ---------------   --------------------
       <S>                              <C>                   <C>                 <C>                   <C>
       Interest rate caps               $2,000,000            $6,159              $2,000,000            $52,163
       Interest rate swaptions           1,250,000               820               1,250,000              9,448
</TABLE>

       The  off-balance  sheet  embedded  options in borrowings at September 30,
2002 are scheduled to expire as shown in the table below (in thousands):

                                          Contract Amount Expiring in:
                           -----------------------------------------------------

Instruments                  2003          2004         2005            Total
-----------                  ----          ----         ----            -----

Interest rate caps         $400,000      $350,000    $1,250,000       $2,000,000
Interest rate swaptions     150,000            --     1,100,000        1,250,000

                                    Page 22
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       COMMITMENTS AND CONTINGENCIES

       At September 30, 2002,  the Bank had pledged as collateral the securities
as detailed below (in thousands):
<TABLE>
<CAPTION>
                                                                      Mortgage-backed        Mortgage-backed         Commercial
                                                Securities               Securities             Securities              Paper
                                             Available for Sale      Available for Sale      Held to Maturity        Investments
                                             ------------------      ------------------      ----------------        -----------
<S>                                               <C>                   <C>                      <C>                   <C>
Provide credit enhancements for certain
    bond-financed real estate projects
    originated by Old FNB                         $15,500               $    9,909               $   6,409             $    --

Pledged securities for principal and
    interest on Bank loan securitization               --                  242,688                   7,261                  --

Guarantee credit enhancements on
    multi-family bond issues and loans
    securitized by FNMA and FHLMC                   1,018                  143,072                  32,221                  --

Guarantee credit enhancements on
    loans transferred as part of
    securitization transactions by the Bank            --                       --                     --               17,379

Guarantee state and local agency
    deposits, and certain deposits with the
    Federal Reserve Bank                            2,759                  358,313                 45,169                   --

Secure various other obligations                       --                1,715,610                731,181                   --
</TABLE>

       At September 30, 2002, $23.9 billion in residential  loans,  $4.0 billion
in  multifamily  loans and $1.5  billion in  commercial  real estate  loans were
pledged as collateral for FHLB advances.

       At September  30, 2002,  loans  receivable  included  approximately  $4.3
billion of loans that had the potential to experience negative amortization.

(16)   ON-BALANCE SHEET DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
       --------------------------------------------------------------

       INTEREST  RATE RISK  MANAGEMENT  - RISK  MANAGEMENT  POLICIES - CASH FLOW
       HEDGING INSTRUMENTS AND FAIR VALUE HEDGING INSTRUMENTS

       The Company  monitors  the  sensitivity  of its NPV and net income  under
various  interest rate scenarios and manages this risk.  Quarterly,  the Company
simulates  the NPV and net income  expected  to be earned  over the next  twelve
months.  Market  interest  rates are projected at various levels to estimate the
impact on  interest-earning  assets,  interest-bearing  liabilities and mortgage
prepayment speeds (which affect the MSR asset).  The Company may use derivatives
to  reduce  the  volatility  of NPV and net  income  within  certain  ranges  of
projected  changes in interest rates. The Company evaluates the effectiveness of
a  derivative  by  measuring  the cost of such an  agreement  in relation to the
reduction in NPV and net income  volatility  within an assumed range of interest
rates.

                                    Page 23
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       Interest Rate Risk  Management - Cash Flow Hedging  Instruments - Balance
       Sheet Hedges

       OBJECTIVES AND CONTEXT
       ----------------------

       The Company uses  variable-rate debt including FHLB advances and Repos as
a source  of funds for  lending  and  investment  activities  and other  general
business  purposes.  Interest payments on this debt may change if interest rates
change. If interest rates increase,  interest expense increases.  Conversely, if
interest rates decrease, interest expense decreases.

       Management  hedges a significant  portion of its  variable-rate  interest
payments to limit the effect of changing interest rates.

       STRATEGIES
       ----------

       Management  enters  into  derivative  instruments  agreements  to  manage
fluctuations in cash flows resulting from interest rate risk. These  instruments
include interest rate swaps.

       The interest  rate swaps change the  variable-rate  cash flow exposure on
the short-term FHLB advances and Repos to fixed-rate cash flows by entering into
receive-variable,  pay-fixed interest rate swaps. Under the interest rate swaps,
the Company  receives  variable  interest rate payments and makes fixed interest
rate payments, thereby creating fixed-rate FHLB advances and Repos.

       RESULTS
       -------

       Hedges of FHLB  advances and Repos were 100%  effective for the three and
nine months ended  September 30, 2002.  The Company  hedges the entire amount of
the change in fair value of the liabilities with the entire amount of the change
in fair value of the derivative instruments.

       Fair value changes in interest rate swap hedging instruments  relating to
cash flows  associated  with FHLB advances and Repos are reported in OCI.  These
amounts are then reclassified into interest expense as a yield adjustment in the
same period in which the related interest on the FHLB advances and Repos affects
earnings.  The net amount of OCI  reclassified  into interest expense during the
three and nine months  ended  September  30,  2002 was $42.8  million and $129.7
million,  respectively,  while $22.8 million and $43.0 million was  reclassified
during the three and nine months ended September 30, 2001, respectively.

       As of September 30, 2002 and 2001, approximately $147.2 million and $82.0
million  of losses  reported  in OCI  related  to the  interest  rate swaps were
expected to be reclassified  into interest  expense as a yield adjustment of the
hedged FHLB advances and Repos during the twelve month periods ending  September
30, 2003 and 2002, respectively.

       INTEREST RATE RISK MANAGEMENT - FAIR VALUE HEDGING INSTRUMENTS - MORTGAGE
       SERVICING RIGHTS HEDGES

       OBJECTIVES AND CONTEXT
       ----------------------

       The Company purchases and originates MSRs as a source of fee income. MSRs
expose the Company to the  variability of their fair value due to changes in the
assumed level of prepayments and other variables. The carrying value of MSRs are
first  adjusted  by the  calculated  change in the fair  value of the MSRs being
hedged  and are then  recorded  at the  lesser of their  amortized  cost or fair
value.

       Management  limits the  variability in the fair value of a portion of its
MSR asset by  hedging  the change in fair value of the  servicing  rights  asset
associated  with  fixed-rate,  non-prepayment  penalty  loans  for  which it has
recorded  MSRs.  The  Company  determines  appropriate  coverage  levels,  given
anticipated or existing interest rate levels and other market considerations, as
well as the relationship of change in this asset to other assets of the Company.

                                    Page 24
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       STRATEGIES
       ----------

       The Company utilizes interest rate swaps, PO swaps, interest rate floors,
and swaptions to hedge the change in value of the mortgage  servicing  portfolio
due to expected prepayment risk assumption changes.  Although the Company hedges
the change in value of its MSRs,  its hedge coverage ratio does not always equal
100%. The Company keeps hedge coverage ratios at acceptable  risk levels,  which
may vary  depending on current and  expected  interest  rate  movement and other
assets of the Company.

       Interest  rate swap  agreements  are  contracts to exchange  quarterly or
semi-annual floating rate payments for fixed-rate payments.  The notional amount
of the  contracts,  on which the  payments  are based,  are not  exchanged.  The
primary  risks  associated  with  interest  rate  swaps are the  ability  of the
counterparties  to meet the terms of the contract and the possibility  that swap
rates may not move in an inverse  manner or in an amount equal to mortgage  rate
movements.

       PO swap  agreements  simulate the  ownership of a PO strip,  the value of
which is affected  directly by prepayment  rates themselves in an inverse manner
to the servicing rights,  which act in a manner similar to IO strips. Under a PO
swap agreement,  the  counterparty  to the transaction  purchases a PO strip and
places the PO strip in a trust.  The  contracts  executed  prior to December 31,
1998 call for the Company to pay floating interest to the counterparty based on:

       (a)    an index tied to one month LIBOR and

       (b)    the amortized notional balance of the swap.

       The contracts call for the Company to receive cash from the  counterparty
based on the cash  flows  received  from the PO  strip.  For PO swap  agreements
executed  after December 31, 1998, the agreement also requires the PO swap to be
marked to market  value.  A decrease in the market value of the PO swap requires
the Company to increase the amount paid to the  counterparty  and an increase in
the market  value  requires  the  counterparty  to  increase  its payment to the
Company. The amounts to be paid and to be received are then netted together each
month.  The  nature of this  instrument  results  in  increased  cash  flows and
positive  changes in the value of the PO swap during a declining  interest  rate
environment.  This  positive  change  in the  value  of the PO  swap  is  highly
correlated to prepayment  activity.  PO swap agreements present yield curve risk
to the extent that short term interest  rates (which impact the cash amount that
the Company pays on the PO swap to the counterparty)  rise while long term rates
(which drive  prepayment  rates) stay the same. A third type of risk  associated
with PO swaps is the  ability  of the  counterparties  to meet the  terms of the
contract.

       Interest  rate  floors are  interest  rate  protection  instruments  that
involve payment from the seller to the buyer of an interest  differential.  This
differential is the difference between a long-term rate (e.g.,  10-year Constant
Maturity  Swaps in 2002 and 2001) and an  agreed-upon  rate,  the  strike  rate,
applied to a notional  principal amount. By purchasing a floor, the Company will
be paid the differential on a monthly basis by a counterparty,  when the current
long-term rate falls below the strike level of the agreement.  The fair value of
interest rate floor agreements is included in derivative  assets or liabilities.
Interest  rate  floors  are  subject to basis risk  because  of  differences  in
movements  of mortgage  and LIBOR  rates,  market  volatility  and the impact of
changes in the yield curve. In addition, a credit risk associated with purchased
interest rate floor agreements is the ability of the  counterparties to meet the
terms of the contract.

       A swaption is an over-the-counter option that provides the right, but not
the obligation,  to enter into an interest rate swap agreement at  predetermined
terms at a  specified  time in the future.  Swaptions  are subject to basis risk
because  of  differences  in  movements  of  mortgage  and LIBOR  rates,  market
volatility  and the impact of changes in the yield curve.  In  addition,  credit
risk associated with swaptions is the ability of the  counterparties to meet the
terms of the contract.

                                    Page 25
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       RESULTS
       -------

       Risk  management  results  related to the hedging of MSRs are  summarized
below and are included in the caption entitled "Loan servicing fees, net" in the
accompanying  consolidated statements of income (in thousands).  The net gain or
loss represents the ineffectiveness of the hedges.
<TABLE>
<CAPTION>
                                                   Nine Months Ended September 30,    Three Months Ended September 30,
                                                   -------------------------------    --------------------------------
                                                       2002             2001               2002              2001
                                                       ----             ----               ----              ----
<S>                                                 <C>              <C>                <C>               <C>
Gain on designated derivative contracts             $ 780,382        $ 214,708          $ 588,817         $ 289,309
Decrease in value of designated MSRs                 (746,527)        (185,217)          (558,901)         (268,775)
                                                    ---------        ---------          ---------         ---------

Net gain on derivatives used to hedge MSRs          $  33,855        $  29,491          $  29,916         $  20,534
                                                    =========        =========          =========         =========
</TABLE>

       INTEREST  RATE  RISK  MANAGEMENT  -  FAIR  VALUE  HEDGING  INSTRUMENTS  -
       WAREHOUSE LOANS

       OBJECTIVES AND CONTEXT
       ----------------------

       The Company,  as part of its traditional real estate lending  activities,
originates  fixed-rate  1-4 unit  residential  loans  for sale in the  secondary
market.  At the time of  origination,  management  identifies  loans it plans to
sell.  These  warehoused loans have been classified as loans held for sale, net,
in the consolidated balance sheet and are carried at fair market value, less the
values  associated  with  servicing (for those loans which are hedged) or at the
lower of  aggregate  amortized  cost or fair market value (for those loans which
are not hedged). These loans expose the Company to the variability of their fair
value due to changes in interest rates. If interest rates increase, the value of
the loans decreases.  Conversely,  if interest rates decrease,  the value of the
loans increases.

       Management  limits the  variability  of a major  portion of the change in
fair  value  of its  loans  held for sale by  hedging  substantially  all of its
warehoused loans held for sale to third parties.

       STRATEGIES
       ----------

       Management  employs forward loan sale hedging  techniques to minimize the
interest rate and pricing risks associated with the origination and sale of such
warehoused loans.

       The forward loan sales lock in the price for the sale of either  specific
loans held for sale or a generic group of loans held for sale.

       RESULTS
       -------

       Risk  management  results  related to the hedging of warehouse  loans are
summarized  below  and are  included  in the  caption  entitled  "Gain  on sale,
settlement  and  transfer  of  loans,  net"  in  the  accompanying  consolidated
statements of income (in thousands):
<TABLE>
<CAPTION>
                                                      Nine Months Ended September 30,       Three Months Ended September 30,
                                                      -------------------------------       --------------------------------
                                                           2002           2001                    2002            2001
                                                           ----           ----                    ----            ----
<S>                                                     <C>             <C>                     <C>             <C>
Transition adjustment upon adoption of SFAS No. 133     $     --        $  3,834                $     --        $     --
Unrealized loss on designated forward loan
     sale commitments recognized                         (52,744)        (18,141)                (14,206)        (28,541)
Increase in value of warehouse loans                      58,945          19,203                  15,564          28,241
                                                        --------        --------                --------        --------

Net gain (loss) on derivatives used to hedge
     warehouse loans                                    $  6,201        $  4,896                $  1,358        $   (300)
                                                        ========        ========                ========        ========
</TABLE>

                                    Page 26
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

       PURPOSE  -  INTEREST  RATE  LOCK   COMMITMENTS   AND  FORWARD  LOAN  SALE
       -------------------------------------------------------------------------
       COMMITMENTS
       -----------

       The  Company  enters  into rate  lock  commitments  to  extend  credit to
borrowers for generally a 30-day period for the  origination  and/or purchase of
loans.  Some of these rate lock commitments will ultimately expire without being
completed.  To the extent that a loan is  ultimately  granted  and the  borrower
ultimately accepts the terms of the loan, these rate lock commitments expose the
Company to variability in their fair value due to changes in interest  rates. If
interest rates  increase,  the value of these rate lock  commitments  decreases.
Conversely, if interest rates decrease, the value of these rate lock commitments
increases.

       To mitigate the effect of this  interest  rate risk,  the Company  enters
into offsetting derivative  contracts,  primarily forward loan sale commitments.
The forward  loan sale  commitments  lock in an interest  rate and price for the
sale of loans similar to the specific rate lock loan  commitments  classified as
derivatives.   Both  the  rate  lock  commitments  and  the  forward  loan  sale
commitments are undesignated  derivatives,  and accordingly are marked to market
through earnings.

       Risk management  results related to the undesignated  hedging of interest
rate lock  commitments  with  undesignated  forward  loan sale  commitments  are
summarized  below  and are  included  in the  caption  entitled  "Gain  on sale,
settlement and transfer of loans, net" in the consolidated  statements of income
(in thousands):
<TABLE>
<CAPTION>
                                                      Nine Months Ended September 30,      Three Months Ended September 30,
                                                      -------------------------------      --------------------------------
                                                           2002           2001                   2002            2001
                                                           ----           ----                   ----            ----
<S>                                                      <C>            <C>                    <C>             <C>
Transition adjustment upon adoption of SFAS No. 133      $     --       $ (2,785)              $     --        $     --
Unrealized loss on undesignated forward loan
     sale commitments recognized to income                (34,405)       (10,394)               (15,357)        (20,514)
Gain on undesignated interest rate loan
     commitments recognized to income                      38,887         10,648                 17,423          19,628
                                                         --------       --------               --------        --------

Net gain (loss) on derivatives                           $  4,482       $ (2,531)              $  2,066        $   (886)
                                                         ========       ========               ========        ========
</TABLE>

       NOTIONAL AMOUNTS OF DERIVATIVES

       Information   pertaining  to  the  notional   amounts  of  the  Company's
derivative financial  instruments utilized in both MSR and balance sheet hedging
is as follows  (in  thousands).  The fair values of these  derivative  financial
instruments were recorded in the Company's balance sheet in accordance with SFAS
No. 133.
<TABLE>
<CAPTION>
                                                        September 30, 2002                   December 31, 2001
                                                 -------------------------------      -------------------------------
                                                  Notional                             Notional
                                                   Amount        Credit Risk (1)        Amount        Credit Risk (1)
                                                   -------       ---------------        ------        ---------------
<S>                                              <C>                <C>                <C>                <C>
Interest rate swaps -  borrowings                $ 4,159,670        $     --           $ 4,089,670        $     --
Interest rate swaps hedging MSRs                   5,495,000         114,626             2,462,000           7,561
PO swaps                                             396,960           5,076               378,928           6,411
Interest rate floors                                 250,000           9,062             3,054,000          78,917
Interest rate swaptions                            1,704,000          76,367             4,111,000         183,641
Forward loan sale commitments                      3,719,857              --             3,980,863          36,879
Interest rate lock commitments                     2,369,136              --             1,870,852              --
Other                                                400,000           2,336                    --              --
                                                 -----------        --------           -----------        --------
            Total                                $18,494,623        $207,467           $19,947,313        $313,409
                                                 ===========        ========           ===========        ========
</TABLE>
_____________
(1)    Credit  risk  represents  the  amount  of  unrealized  gain  included  in
       derivative  assets  which is  subject to  counterparty  credit  risk.  It
       reflects the effect of master  netting  agreements  and  excludes  $113.5
       million and $95.2 million cash  collateral  held by the Bank at September
       30, 2002 and December 31, 2001, respectively.

                                    Page 27
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       Derivative financial instruments used for other-than-trading  purposes at
September 30, 2002 are scheduled to mature as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 Notional Amounts
                         ------------------------------------------------------------------------------------------------------
                         Three Months Ending
                          December 31, 2002       2003          2004            2005        2006       Thereafter       Total
                          -----------------       ----          ----            ----        ----       ----------       -----
<S>                         <C>               <C>            <C>            <C>           <C>         <C>           <C>
Interest rate swaps -
   borrowings               $  300,000        $  500,000     $1,520,000     $  819,670    $900,000    $  120,000    $ 4,159,670
Interest rate swaps
   hedging MSRs                     --                --             --        950,000          --     4,545,000      5,495,000
PO swaps                        74,052           163,590        149,077             --          --        10,241        396,960
Interest rate floors                --                --             --             --          --       250,000        250,000
Interest rate swaptions             --           625,000      1,079,000             --          --            --      1,704,000
Forward loan sale
   commitments               3,719,857                --             --             --          --            --      3,719,857
Interest rate lock
   commitments               2,369,136                --             --             --          --            --      2,369,136
Other                          400,000                --             --             --          --            --        400,000
                            ----------        ----------     ----------     ----------    --------    ----------    -----------

      Total                 $6,863,045        $1,288,590     $2,748,077     $1,769,670    $900,000    $4,925,241    $18,494,623
                            ==========        ==========     ==========     ==========    ========    ==========    ===========
</TABLE>

(17)   RECENT ACCOUNTING PRONOUNCEMENTS
       --------------------------------

       GOODWILL AND OTHER INTANGIBLE ASSETS

       On  January 1, 2002,  the  Company  adopted  SFAS No.  142.  SFAS No. 142
supersedes APB Opinion No. 17 and establishes new accounting  standards for both
identifiable  and  unidentifiable  intangible  assets  acquired  in  a  business
combination,  including  goodwill,  but does not  address  internally  developed
intangible assets. It requires  recognition of goodwill as an asset but does not
permit  amortization  of goodwill as previously  required by APB Opinion No. 17.
Instead, goodwill is tested for impairment at a level referred to as a reporting
unit. A reporting  unit is the same level as, or one level  below,  an operating
segment (as that term is used in SFAS No. 131).

       Goodwill is tested for impairment  annually and on an interim basis if an
event or  circumstance  occurs  between  annual tests that might reduce the fair
value of a reporting unit below its carrying  value. An example of such an event
or circumstance may include an adverse change in the business climate or market,
a legal factor,  an action by regulators,  an introduction of competition,  or a
loss of key  personnel.  Goodwill  would  also be tested  for  impairment  on an
interim basis when:

       (a)    a more-likely-than-not expectation exists that a reporting unit or
              a  significant  portion  of a  reporting  unit  will  be  sold  or
              otherwise disposed of,

       (b)    a  significant  asset group within a reporting  unit is tested for
              recoverability under SFAS No. 121, or

       (c)    a  subsidiary  of that  reporting  unit has  recognized a goodwill
              impairment loss.

       The fair value of each  reporting  unit  would not have to be  recomputed
every year if the  components  of the  reporting  unit had not changed since the
previous fair value  computation,  the previous  fair value amount  exceeded the
carrying amount of the reporting unit by a substantial  margin,  and no evidence
exists  indicating that the current fair value of the reporting unit may be less
than its current carrying amount.

                                    Page 28
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       Goodwill is tested for impairment  using a two-step  approach.  The first
step is a  comparison  of the fair  value of a  reporting  unit to its  carrying
amount,  including goodwill.  If the fair value of the reporting unit is greater
than its carrying  amount,  goodwill is not  considered  impaired and no further
work is  required.  If the fair  value of the  reporting  unit is less  than its
carrying amount,  the second step of the impairment test must be performed.  The
second step of the impairment  test is a comparison of the implied fair value of
goodwill to its carrying  amount.  If the implied fair value of goodwill is less
than its carrying amount, goodwill is considered impaired and an impairment loss
recognized.  The  impairment  loss would be  measured as the amount by which the
carrying amount of goodwill exceeds its implied fair value.

       Acquired  intangible  assets other than goodwill are amortized over their
useful  economic life and reviewed for  impairment  in accordance  with SFAS No.
144.

       The impact of the  adoption of SFAS No. 142  increases  GAAP  earnings by
$13.5 million per quarter in 2002.

       ACCOUNTING   BY  CERTAIN   ENTITIES   (INCLUDING   ENTITIES   WITH  TRADE
       RECEIVABLES) THAT LEND TO OR FINANCE THE ACTIVITIES OF OTHERS

       In December  2001,  the AICPA issued SOP 01-6.  SOP 01-6 is effective for
annual and interim financial  statements issued for fiscal years beginning after
December 15, 2001. SOP 01-6 reconciles the specialized  accounting and financial
reporting  guidance  established in the existing Banks and Savings  Institutions
Guide, Audits of Credit Unions Guide, and Audits of Finance Companies Guide. The
SOP  eliminates  differences  in accounting  and  disclosure  established by the
respective  guides and carries  forward  accounting  guidance  for  transactions
determined to be unique to certain financial institutions.  The adoption of this
pronouncement  has  not  had a  material  impact  on the  Company's  results  of
operations or financial condition.

       RESCISSION  OF SFAS NO. 4, 44,  AND 64,  AMENDMENT  OF SFAS NO.  13,  AND
       TECHNICAL CORRECTIONS

       SFAS No. 145  rescinds  SFAS No. 4, which  required  all gains and losses
from extinguishment of debt to be aggregated and, if material,  classified as an
extraordinary  item, net of related income tax effect. As a result, the criteria
in Opinion No. 30 will now be used to classify those gains and losses.  SFAS No.
64 amended  SFAS No. 4, and is no longer  necessary  because SFAS No. 4 has been
rescinded.

       The accounting, disclosure and financial statement provisions of SFAS No.
145 are effective for financial  statements in fiscal years  beginning after May
15, 2002. Any gain or loss on  extinguishment  of debt that was classified as an
extraordinary item in prior periods presented that does not meet the criteria in
Opinion  No.  30  for   classification   as  an  extraordinary   item  shall  be
reclassified.

       The  implementation  of  SFAS  No.  145 is not  expected  to  impact  the
Company's financial condition or operating results.

       ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

       In June of 2002,  the FASB issued SFAS No.  146.  SFAS No. 146  addresses
financial  accounting and reporting for costs  associated  with exit or disposal
activities and nullifies EITF No. 94-3.  The principal  difference  between SFAS
No. 146 and EITF No.  94-3 is that SFAS No. 146  requires  that a  liability  be
recognized for a cost associated with an exit or disposal activity only when the
liability  is incurred.  Under EITF No.  94-3, a liability  for an exit cost was
recognized  at the date of an  entity's  commitment  to an exit plan.  The Board
concluded  that an entity's  commitment to a plan, by itself,  does not create a
present obligation to others that meets the definition of a liability.  SFAS No.
146  also  establishes  that  fair  value  is  the  objective  for  the  initial
measurement of the liability.

       The  provisions  of SFAS  No.  146 are  effective  for  exit or  disposal
activities initiated after December 31, 2002. The implementation of SFAS No. 146
is not  expected to  materially  impact the  Company's  financial  condition  or
operating results.

                                    Page 29
<PAGE>

                  GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

       ACQUISITIONS OF CERTAIN FINANCIAL INSTITUTIONS

       In October of 2002,  the FASB issued SFAS No. 147,  which  addresses  the
accounting for the acquisition of certain financial institutions.

       The  provisions  of SFAS  No.  147  rescind  the  specialized  accounting
guidance  in  paragraph  5 of  SFAS  No.  72 and  would  require  unidentifiable
intangible  assets to be reclassified  to goodwill if certain  criteria are met.
Financial  institutions  meeting the conditions outlined in SFAS No. 147 will be
required to restate previously issued financial statements back to the date SFAS
No. 142 was initially applied.

       The  provisions of SFAS No. 147 are  effective  for financial  statements
after September 30, 2002. Given that all goodwill and unidentifiable  intangible
assets will be eliminated in purchase  accounting in connection  with the Merger
during the  quarter  ended  December  31,  2002,  there will be no impact to the
Company as a result of the issuance of SFAS No. 147.

                                    Page 30
<PAGE>

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

FORWARD-LOOKING  STATEMENTS.  THIS  QUARTERLY  REPORT  CONTAINS  FORWARD-LOOKING
STATEMENTS,  WITHIN THE MEANING OF THE PRIVATE SECURITIES  LITIGATION REFORM ACT
OF  1995,  THAT  PERTAIN  TO  OUR  FUTURE  OPERATING  RESULTS.   WORDS  SUCH  AS
"ANTICIPATE,"  "BELIEVE,"  "EXPECT," "INTEND" AND OTHER SIMILAR  EXPRESSIONS ARE
INTENDED  TO  IDENTIFY  THESE  STATEMENTS.  FORWARD-LOOKING  STATEMENTS  ARE NOT
HISTORICAL FACTS AND ARE INHERENTLY  SUBJECT TO SIGNIFICANT  BUSINESS,  ECONOMIC
AND COMPETITIVE  UNCERTAINTIES AND  CONTINGENCIES,  MANY OF WHICH ARE BEYOND OUR
CONTROL.   OUR  ACTUAL  RESULTS  COULD  DIFFER  MATERIALLY  FROM  THOSE  IN  THE
FORWARD-LOOKING  STATEMENTS DUE TO SUCH FACTORS AS (I) PORTFOLIO CONCENTRATIONS;
(II) INTEREST RATE CHANGES,  INCLUDING CHANGES IN SHORT-TERM INTEREST RATES, THE
SHAPE OF THE YIELD CURVE AND THE  TREASURY-EURODOLLAR  SPREAD;  (III) CHANGES IN
ASSET  PREPAYMENT  SPEEDS;  (IV)  CHANGES  IN  OUR  COMPETITIVE  AND  REGULATORY
ENVIRONMENTS;  AND  (V)  CHANGES  IN  THE  AVAILABILITY  OF NET  OPERATING  LOSS
CARRYOVERS AND DEFERRED TAX LIABILITIES.  SEE "BUSINESS--FACTORS THAT MAY AFFECT
FUTURE  RESULTS" IN THE COMPANY'S  ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 2001 FOR A DISCUSSION OF THESE FACTORS IN GREATER DETAIL. WE ASSUME
NO OBLIGATION TO UPDATE ANY OF OUR FORWARD-LOOKING STATEMENTS.

CRITICAL ACCOUNTING POLICIES

       In  preparing  its  consolidated  financial  statements,  the  Company is
required to make judgments and estimates that may have a significant impact upon
its financial results. The Company's valuation of its MSRs and its determination
of the adequacy of its  allowance  for loan losses are  particularly  subject to
management's judgment and estimates. The accounting policies for these two areas
are  discussed  at  length  in notes  2(m) and  2(e) of the  Company's  Notes to
Consolidated  Financial  Statements,   as  well  as  in  the  "Mortgage  Banking
Activities"  and  "Allowance for Loan Losses"  sections of the Company's  Annual
Report on Form 10-K for the year ended December 31, 2001.

OVERVIEW

       GS Holdings,  formerly FN Holdings,  a wholly owned  subsidiary of Golden
State,  is a holding company whose only  significant  asset is all of the common
and preferred stock of the Bank.

       The  Company,  headquartered  in  San  Francisco,   California,  provides
diversified  financial  services to consumers and small businesses in California
and Nevada, primarily:

       (a)    retail  branches  that provide  deposit  products  such as demand,
              transaction and savings accounts,  and investment products such as
              mutual funds, annuities and insurance; and

       (b)    mortgage banking activities,  including originating and purchasing
              1-4 unit residential loans for sale or retention,  servicing loans
              for itself and others and, to a lesser extent,  originating and/or
              purchasing  commercial real estate,  commercial and consumer loans
              for investment.

       The Company's revenues are derived from:

       (a)    interest earned on loans and securities;

       (b)    gains on sales of loans and other  investments,  fees  received in
              connection with loan servicing and securities brokerage; and

       (c)    other customer service transactions.

       Expenses  primarily  consist of interest on customer deposit accounts and
borrowings,  and general and administrative  expenses including compensation and
benefits,   occupancy  and  equipment,   professional  fees  and  other  general
administrative expenses.

                                    Page 31
<PAGE>

       CITIGROUP MERGER

       On May 21,  2002,  Citigroup  and  Mercury  Merger  Sub,  a wholly  owned
subsidiary  of  Citigroup,  entered  into a merger  agreement  with Golden State
whereby  Golden  State will be merged with and into  Mercury  Merger  Sub,  with
Mercury  Merger Sub as the  surviving  company.  On October 28, 2002,  Citigroup
received Federal Reserve Board approval for the Merger. On October 29, 2002, the
OTS approved the related merger of the Bank with and into Citibank  (West),  FSB
(in formation).  The Merger is anticipated to close during the fourth quarter of
2002.  See note 2 of the  Company's  Notes to Unaudited  Consolidated  Financial
Statements.

       NET INCOME

       GS  Holdings  reported  net income of $373.6  million for the nine months
ended  September 30, 2002,  compared  with net income of $316.0  million for the
corresponding period in 2001. Net income for the nine months ended September 30,
2001 includes a loss of $1.6 million,  net of tax, from the cumulative effect of
change in  accounting  principle.  Net income  before the  cumulative  effect of
change in accounting  principle for the nine months ended September 30, 2001 was
$317.6 million. The Bank's efficiency ratio was 47.74% for the nine months ended
September 30, 2002, compared to 48.73% for the comparable period in 2001.

       Net interest income  increased $71.9 million during the first nine months
of 2002 as compared to the year-ago  period,  primarily as a result of declining
market  interest  rates  reducing the costs of liabilities at a faster rate than
the decline in the yield on assets. Lower-costing liabilities were the result of
the   replacement  of  higher-rate   borrowings  and  deposits  with  lower-rate
borrowings  and  deposits  as  these  instruments  came due or were  repaid.  In
addition,  during the nine months ended  September  30, 2002,  $11.2  million of
interest  income was received in connection  with  California and federal income
tax refunds. Total noninterest income declined by $52.4 million,  primarily as a
result of $30.0  million in gains on the  non-monetary  exchange and  subsequent
sale of Star  Systems  common stock for Concord EFS common stock in 2001 and the
decline in loan servicing fees, net,  primarily due to higher MSR  amortization.
Total  noninterest  expense  declined $20.1 million and includes a $41.3 million
decrease due to the adoption of SFAS No. 142 on January 1, 2002.

       GS Holdings  reported  net income of $131.8  million for the three months
ended  September 30, 2002,  compared  with net income of $106.9  million for the
corresponding  period in 2001.  The Bank's  efficiency  ratio was 48.52% for the
three months ended  September  30, 2002,  compared to 47.66% for the  comparable
period in 2001.

       Net interest income decreased $19.3 million during the three months ended
September 30, 2002 as compared to the same period in 2001, primarily as a result
of reduced  average  earning  assets more than  offsetting a higher net interest
margin. Average interest-earning assets were $47.1 billion for the third quarter
of 2002,  down from  $56.5  billion  during  the same  period  in 2001.  The net
interest  margin for the current  quarter was 2.88%, up 32 bps from 2.56% in the
third quarter of 2001. The  improvement in net interest margin was mainly due to
declining  market  interest  rates reducing the costs of liabilities at a faster
rate than the decline in the yield on assets. Total noninterest income increased
by $33.1 million,  primarily in loan servicing fees, net due to an $87.4 million
improvement  in the  valuation  provision  on  MSRs  related  to SFAS  No.  140,
partially offset by $40.9 million in higher MSR amortization and a $24.5 million
reduction in the Company's  recourse liability during the year-ago quarter which
did not recur.  Total  noninterest  expense declined $4.7 million and includes a
$13.8 million decrease due to the cessation of goodwill amortization as required
by SFAS No. 142.

       As noted above,  the Company  adopted SFAS No. 142  effective  January 1,
2002,  which  requires that  goodwill no longer be amortized.  The effect of the
adoption was to reduce goodwill  amortization by $13.8 million and $41.3 million
for the three and nine months ended September 30, 2002,  respectively,  compared
to the same period a year ago.  Excluding the effect of the adoption of SFAS No.
142,  net income for the three and nine  months  ended  September  30,  2001 was
$120.4  million and $356.6  million,  respectively.  Excluding the effect of the
adoption  of SFAS No.  142,  income  before the  cumulative  effect of change in
accounting  principle for the three and nine months ended September 30, 2001 was
$120.4 million and $358.1 million, respectively.

                                    Page 32
<PAGE>

       FINANCIAL CONDITION

       During the nine months  ended  September  30,  2002,  consolidated  total
assets  decreased  to $50.4  billion  from $56.5  billion and total  liabilities
decreased  to  $47.1   billion   from  $53.4   billion  at  December  31,  2001.
Mortgage-backed  securities,  loans  receivable and loans held for sale declined
$3.5  billion,  $2.5  billion and $0.7  billion,  respectively,  during the nine
months ended  September 30, 2002. This shift in  mortgage-backed  securities and
loans is  primarily  due to high  repayment  rates  in  light  of the  declining
interest rate  environment.  Deposits  decreased  $46.6 million  during the nine
months ended September 30, 2002,  including decreases of $1.3 billion in CDs and
$121.3  million in  Brokered  Deposits,  offset by a $1.1  billion  increase  in
transaction accounts and $325.0 million in custodial accounts. Total borrowings,
including  securities  sold under  agreements to  repurchase,  FHLB advances and
other  borrowings,  declined $6.4 billion during the nine months ended September
30, 2002.

       During the nine months ended  September  30, 2002,  stockholder's  equity
increased $224.4 million to $2.8 billion.  The increase in stockholder's  equity
is principally  the result of $373.6 million in net income for the period,  $3.4
million from the exercise of Golden State common stock  options and $3.0 million
due to the impact of Golden State  restricted  common stock.  These amounts were
partially  offset by $80.0 million of common stock  dividends,  $71.1 million in
net  unrealized  losses,  after  tax,  on  derivatives  and $4.6  million in net
unrealized losses, after tax, on securities available for sale.

       GS Holdings'  non-performing assets,  consisting of non-performing loans,
net of  purchase  accounting  adjustments,  foreclosed  real  estate,  net,  and
repossessed  assets,  decreased to $107.5 million at September 30, 2002 compared
with $124.1  million at December  31,  2001.  Total  non-performing  assets as a
percentage  of the Bank's total assets was 0.21% at September  30, 2002 compared
with 0.22% at December 31, 2001.

                                    Page 33
<PAGE>

RESULTS OF OPERATIONS

       NINE MONTHS ENDED  SEPTEMBER 30, 2002 VERSUS NINE MONTHS ENDED  SEPTEMBER
       30, 2001

       The following  table shows the  Company's  consolidated  average  balance
sheets,  with the  related  interest  income,  interest  expense and the average
interest rates for the periods  presented.  Average balances are calculated on a
daily basis.
<TABLE>
<CAPTION>
                                                                              Nine Months Ended September 30, 2002
                                                                              ------------------------------------
                                                                              Average                     Average
                                                                              Balance      Interest        Rate
                                                                              -------      --------        ----
                                                                                       (dollars in millions)
<S>                                                                           <C>           <C>            <C>
ASSETS

Interest-earning assets (1):
     Securities, interest-bearing deposits in banks  and other (2)            $   602       $   23          4.98%
     Mortgage-backed securities available for sale                              5,123          230          5.97
     Mortgage-backed securities held to maturity                                1,217           56          6.15
     Loans held for sale, net                                                   1,986           95          6.36
     Loans receivable, net:
         Residential                                                           28,267        1,284          6.06
         Commercial real estate                                                 6,578          347          7.03
         Consumer                                                               1,015           46          6.07
         Automobile                                                             2,041          194         12.71
         Commercial banking                                                       751           32          5.75
                                                                              -------       ------
     Loans receivable, net                                                     38,652        1,903          6.57
     FHLB stock                                                                 1,255           56          6.05
                                                                              -------       ------
          Total interest-earning assets                                        48,835        2,363          6.45%
Noninterest-earning assets                                                      3,999       ------
                                                                              -------
          Total assets                                                        $52,834
                                                                              =======
LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                                 $24,791          377          2.04%
     Securities sold under agreements to repurchase (3)                         2,108           61          3.80
     Borrowings (3)                                                            21,392          848          5.28
     Other                                                                        179            2          1.76
                                                                              -------       ------
          Total interest-bearing liabilities                                   48,470        1,288          3.54%
Noninterest-bearing liabilities                                                 1,179       ------
Minority interest                                                                 496
Stockholder's equity                                                            2,689
                                                                              -------
          Total liabilities, minority interest
             and stockholder's equity                                         $52,834
                                                                              =======
Net interest income                                                                         $1,075
                                                                                            ======
Interest rate spread (4)                                                                                    2.91%
                                                                                                           =====
Net interest margin                                                                                         2.94%
                                                                                                           =====

Return on average assets                                                                                    0.94%
                                                                                                           =====
Return on average common equity                                                                            18.53%
                                                                                                           =====
Return on tangible common equity                                                                           24.38%
                                                                                                           =====
Average equity to average assets                                                                            5.09%
                                                                                                           =====
</TABLE>

                                    Page 34
<PAGE>
<TABLE>
<CAPTION>
                                                                             Nine Months Ended September 30, 2001
                                                                             ------------------------------------
                                                                             Average                       Average
                                                                             Balance        Interest        Rate
                                                                             -------        --------        ----
                                                                                       (dollars in millions)
<S>                                                                          <C>             <C>           <C>
ASSETS

Interest-earning assets (1):
     Securities, interest-bearing deposits in banks and other (2)            $   890         $   40         5.96%
     Mortgage-backed securities available-for-sale                             9,887            487         6.57
     Mortgage-backed securities held-to-maturity                               1,626             99         8.15
     Loans held for sale, net                                                  1,921             99         6.89
     Loans receivable, net:
         Residential                                                          31,725          1,655         6.95
         Commercial real estate                                                6,221            384         8.23
         Consumer                                                                886             59         8.86
         Automobile                                                            1,758            152        11.58
         Commercial banking                                                      596             37         8.22
                                                                             -------         ------
     Total loans receivable, net                                              41,186          2,287         7.40
     FHLB stock                                                                1,402             63         6.05
                                                                             -------         ------
         Total interest-earning assets                                        56,912          3,075         7.21%
Noninterest-earning assets                                                     3,717         ------
                                                                             -------
         Total assets                                                        $60,629
                                                                             =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                                $24,198            667         3.68%
     Securities sold under agreements to repurchase (3)                        3,872            167         5.69
     Borrowings (3)                                                           28,513          1,238         5.79
                                                                             -------         ------
         Total interest-bearing liabilities                                   56,583          2,072         4.88%
Noninterest-bearing liabilities                                                1,198         ------
Minority interest                                                                496
Stockholder's equity                                                           2,352
                                                                             -------
          Total liabilities, minority interest
                and stockholder's equity                                     $60,629
                                                                             =======
Net interest income                                                                          $1,003
                                                                                             ======
Interest rate spread (4)                                                                                    2.33%
                                                                                                           =====
Net interest margin                                                                                         2.35%
                                                                                                           =====

Return on average assets                                                                                    0.70%
                                                                                                           =====
Return on average common equity                                                                            17.91%
                                                                                                           =====
Return on tangible common equity                                                                           28.57%
                                                                                                           =====
Average equity to average assets                                                                            3.88%
                                                                                                           =====
</TABLE>
____________
(1)    Non-performing  assets  are  included  in the  average  balances  for the
       periods indicated.

(2)    Includes securities, interest-bearing deposits in other banks, securities
       purchased  under  agreements  to resell,  interest  income on  California
       income tax refund and other interest income.

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

(4)    Interest rate spread represents the difference  between the average rates
       of total interest-earning assets and total interest-bearing liabilities.

                                    Page 35
<PAGE>

       The following  table shows the changes in interest income and expense due
to changes in rate and volume. For each category of interest-earning  assets and
interest-bearing liabilities, information is provided on changes attributable to
volume (change in average  outstanding  balance multiplied by the prior period's
rate) and rate (change 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, 2002 vs. 2001
                                                                               Increase (Decrease) Due to
                                                                      ---------------------------------------------
                                                                         Volume           Rate             Net
                                                                         ------           ----             ---
                                                                                      (in millions)
<S>                                                                      <C>              <C>             <C>
INTEREST INCOME:

       Securities, interest-bearing deposits in banks and other          $  --            $ (17)          $ (17)
       Mortgage-backed securities available for sale                      (217)             (40)           (257)
       Mortgage-backed securities held to maturity                         (22)             (21)            (43)
       Loans held for sale, net                                              3               (8)             (5)
       Loans receivable, net                                              (106)            (277)           (383)
       FHLB stock                                                           (7)              --              (7)
                                                                         -----            -----           -----
          Total                                                           (349)            (363)           (712)
                                                                         -----            -----           -----

INTEREST EXPENSE:

       Deposits                                                            (36)            (253)           (289)
       Securities sold under agreements to repurchase                      (63)             (43)           (106)
       Borrowings                                                         (278)            (113)           (391)
       Other                                                                --                2               2
                                                                         -----            -----           -----
          Total                                                           (377)            (407)           (784)
                                                                         -----            -----           -----
                  Change in net interest income                          $  28            $  44           $  72
                                                                         =====            =====           =====
</TABLE>

       INTEREST  INCOME.  Total  interest  income was $2.4  billion for the nine
months ended  September  30,  2002,  a decrease of $711.7  million from the nine
months ended  September  30, 2001.  Total  interest-earning  assets for the nine
months  ended  September  30, 2002  averaged  $48.8  billion,  compared to $56.9
billion for the corresponding  period in 2001. The decrease in  interest-earning
assets  is  primarily  a result  of a  decline  in  mortgage-backed  securities,
principally due to management's  decision to sharply reduce  purchases,  and net
loan run off.  These  decreases were  partially  offset by a slight  increase in
loans  held for sale due to  heightened  borrower  refinancing  activity  in the
declining interest rate environment.  The yield on total interest-earning assets
during the nine months ended  September  30, 2002  decreased to 6.45% from 7.21%
for the nine months ended September 30, 2001,  primarily due to the repricing of
loans and mortgage-backed  securities at lower rates. At September 30, 2002, 11%
of  the  Company's   portfolio   loans  were  tied  to  COFI  indices,   11%  to
Treasury-based indices and 49% were "hybrid" ARMs - fixed for three to ten years
and then adjusting  annually.  Twenty-three  percent of the portfolio was fixed.
The remaining 6% of the portfolio was in other adjustable-rate products.

       GS Holdings  earned $1.9 billion of interest  income on loans  receivable
for the nine months ended  September 30, 2002, a decrease of $382.9 million from
the  nine  months  ended  September  30,  2001.  The  average  balance  of loans
receivable  was $38.7  billion for the nine months  ended  September  30,  2002,
compared  to $41.2  billion for the same period in 2001.  The  weighted  average
yield on loans receivable decreased to 6.57% for the nine months ended September
30, 2002 from 7.40% for the nine months ended  September 30, 2001.  The decrease
in the average balance reflects the sharp run off of residential  loans during a
period of high refinancing activity.  The decrease in the weighted average yield
reflects the repricing of  variable-rate  loans, a decrease in the prime rate on
commercial  banking loans and  comparatively  lower market interest rates during
the nine months ended September 30, 2002,  partially offset by a higher yield on
auto loans  purchased  after July 1, 2001,  which are recorded on a gross-coupon
basis,  rather than a credit-adjusted  yield basis. The impact of this change on
net  interest  income  during the nine months  ended  September  30, 2002 was to
increase interest income by $35.5 million. (See "--Allowance for Loan Losses.")

                                    Page 36
<PAGE>

       Loan production is detailed in the table below (in thousands):

                                                 Nine Months Ended September 30,
                                                 -------------------------------
                                                      2002           2001
                                                      ----           ----

Loans funded:
   Residential real estate loans:

     Adjustable-rate                              $ 5,206,053     $ 5,476,707
     Fixed-rate                                    14,491,315      12,838,798
                                                  -----------     -----------
        Total  residential  real  estate loans     19,697,368      18,315,505


   Commercial real estate loans                     1,251,279       1,302,697
   Commercial loans                                   973,083         764,795
   Consumer nonmortgage loans                         806,828         597,943
   Auto loans (a)                                     944,804         954,862
                                                  -----------     -----------
        Total loans funded                        $23,673,362     $21,935,802
                                                  ===========     ===========

   Residential real estate loans purchased        $ 2,392,869     $ 2,198,742
                                                  ===========     ===========
____________
(a)    Approximately  47% and 41% of this volume was in prime  product;  53% and
       59% in sub-prime product for the nine months ended September 30, 2002 and
       2001, respectively.

       GS Holdings  earned  $94.7  million of interest  income on loans held for
sale for the nine months  ended  September  30, 2002, a decrease of $4.5 million
from the nine months ended September 30, 2001. The average balance of loans held
for sale was $2.0  billion for the nine months  ended  September  30,  2002,  an
increase  of  $65.0  million  from the  comparable  period  in  2001,  primarily
attributed to increased originations of residential fixed-rate loans as a result
of  heightened  borrower  refinancing  activity in the  declining  interest rate
environment.  Fixed-rate  production  for sale totalled $14.2 billion during the
nine months ended  September 30, 2002, an increase of 18% over the $12.0 billion
originated  during the comparable  period in 2001. The weighted average yield on
loans held for sale  decreased to 6.36% for the nine months ended  September 30,
2002 from 6.89% for the nine months ended  September 30, 2001,  primarily due to
declining market interest rates.

       Interest  income on  mortgage-backed  securities  available  for sale was
$229.6  million for the nine months  ended  September  30,  2002,  a decrease of
$257.3  million  from the nine months  ended  September  30,  2001.  The average
portfolio  balance  decreased $4.8 billion,  to $5.1 billion for the nine months
ended  September  30, 2002  compared to the same  period in 2001.  The  weighted
average  yield on these  assets  decreased  from 6.57% for the nine months ended
September 30, 2001 to 5.97% for the nine months ended  September  30, 2002.  The
decrease  in the volume is  primarily  attributed  to  management's  decision to
sharply   reduce   purchases,   coupled  with  high   repayments  and  sales  of
mortgage-backed securities. The decrease in the weighted average yield primarily
reflects the repricing of variable-rate securities at lower rates.

       Interest income on mortgage-backed  securities held to maturity was $56.1
million  for the nine  months  ended  September  30,  2002,  a decrease of $43.3
million from the nine months ended  September  30, 2001.  The average  portfolio
balance  decreased  $0.4  billion,  to $1.2  billion for the nine  months  ended
September  30,  2002  compared  to the same  period  in 2001,  primarily  due to
repayments.  The weighted average yields for the nine months ended September 30,
2002 and 2001 were 6.15% and 8.15%,  respectively.  The decrease in the weighted
average  yield  is  primarily  the  result  of the  repricing  of  variable-rate
securities at lower rates.

       Interest  income on  securities,  interest-bearing  deposits in banks and
other was $22.6 million for the nine months ended September 30, 2002, a decrease
of $17.1  million from the nine months  ended  September  30, 2001.  The average
portfolio  balance was $0.6  billion and $0.9  billion for the nine months ended
September 30, 2002 and 2001, respectively.  The weighted average yield was 4.98%
for the nine months  ended  September  30,  2002  compared to 5.96% for the nine
months  ended  September  30,  2001.  The  decrease  in the volume is  primarily
attributed to payments and maturities of securities.  The lower weighted average
yield reflects a shift in the mix of securities,  with lower average balances of
higher rate securities and the repricing of securities at lower rates during the
nine months of 2002.  The weighted  average yield also reflects $11.2 million of
interest income related to

                                    Page 37
<PAGE>

income tax refunds for which there is no  corresponding  earning asset;  if this
amount  is  excluded,  the  weighted  average  yield for the nine  months  ended
September 30, 2002 would be 2.52%.

       Dividends  on FHLB stock were $56.8  million  for the nine  months  ended
September  30,  2002,  a decrease of $6.6  million  from the nine  months  ended
September 30, 2001. The average  balance  outstanding  was $1.3 billion and $1.4
billion for the nine months ended September 30, 2002 and 2001, respectively. The
weighted  average  dividend  on FHLB stock was 6.05% for the nine  months  ended
September 30, 2002 and 2001.

       INTEREST  EXPENSE.  Total interest  expense was $1.3 billion for the nine
months ended  September  30,  2002,  a decrease of $783.6  million from the nine
months  ended  September  30, 2001.  The decrease is primarily  due to declining
market  interest  rates and a reduction in  borrowings  under FHLB  advances and
securities sold under agreements to repurchase.

       Interest expense on deposits,  including  Brokered  Deposits,  was $377.6
million for the nine  months  ended  September  30,  2002,  a decrease of $288.8
million from the nine months ended  September 30, 2001.  The average  balance of
deposits  outstanding  increased  from $24.2  billion for the nine months  ended
September  30, 2001 to $24.8  billion for the nine months  ended  September  30,
2002. Deposit interest expense attributed to changes in volume decreased despite
an increase  in average  volume  because  the volume of the  average  individual
deposit  categories  with lower or zero rates (such as transaction and custodial
accounts) increased  significantly,  while those with higher rates (such as CDs)
decreased.  The  increase  in the average  balance is  primarily  attributed  to
increases in the average balances of money market accounts,  custodial accounts,
and retail customer checking and savings accounts, partially offset by a decline
in CDs. The overall weighted average cost of deposits decreased to 2.04% for the
nine  months  ended  September  30,  2002 from 3.68% for the nine  months  ended
September 30, 2001, primarily due to declining market interest rates and a shift
in the mix of deposits, with higher average balances of lower rate money market,
custodial,  checking and savings accounts, and a lower average balance of higher
rate CDs during the first nine months of 2002.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled $60.6 million for the nine months ended  September 30, 2002, a decrease
of $106.2  million from the nine months ended  September  30, 2001.  The average
balance of such borrowings for the nine months ended September 30, 2002 and 2001
was $2.1  billion and $3.9  billion,  respectively.  The decrease in the average
balance is primarily the result of  maturities,  which were not renewed in light
of the decline in interest-earning assets. The weighted average interest rate on
these  instruments  decreased to 3.80% for the nine months ended  September  30,
2002 from 5.69% for the nine months ended  September 30, 2001,  primarily due to
maturities of higher  fixed-rate  borrowings and the repricing of  variable-rate
borrowings at lower rates.

       Interest  expense on  borrowings  totalled  $847.6  million  for the nine
months ended  September  30,  2002,  a decrease of $391.0  million from the nine
months ended  September 30, 2001. The average  balance  outstanding for the nine
months ended  September 30, 2002 and 2001 was $21.4  billion and $28.5  billion,
respectively.  The weighted average interest rate on these instruments decreased
to 5.28% for the nine months  ended  September  30, 2002 from 5.79% for the nine
months ended September 30, 2001. The decrease in the average volume is primarily
the  result of  maturities,  which were not  renewed in light of the  decline in
interest-earning  assets,  while the  decrease in the  weighted  average rate is
primarily due to declining market interest rates.

       NET INTEREST  INCOME.  Net interest  income was $1.1 billion for the nine
months  ended  September  30, 2002,  an increase of $71.9  million from the nine
months ended September 30, 2001. The interest rate spread increased to 2.91% for
the nine months  ended  September  30, 2002 from 2.33% for the nine months ended
September 30, 2001,  primarily as a result of declining  market  interest  rates
reducing  costs of liabilities at a faster rate than the decline in the yield on
assets.  Lower-costing  liabilities  were  the  result  of  the  replacement  of
higher-rate  borrowings and deposits with lower-rate  borrowings and deposits as
these instruments came due or were repaid.  The net interest margin increased to
2.94% for the nine months ended  September  30,  2002,  up 59 bps from the 2.35%
reported during the nine months of 2001. Excluding the $11.2 million interest on
the  California  income tax refund,  the  interest  rate spread and net interest
margin for the nine months  ended  September  30, 2002 would have been 2.88% and
2.91%, respectively.

                                    Page 38
<PAGE>

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan  servicing  fees,  customer  banking  fees,  gain on sale,  settlement  and
transfer of loans, net, (loss) gain on sale of assets, net and other income, was
$207.9  million for the nine months ended  September  30, 2002,  representing  a
decrease of $52.4 million from the nine months ended September 30, 2001.

       Loan  servicing fees for the Company,  were $(62.9)  million for the nine
months ended  September  30, 2002,  compared to $(35.7)  million the nine months
ended  September 30, 2001.  The following  table details the  components of loan
servicing fees, net (in thousands):
<TABLE>
<CAPTION>
                                                                       Nine Months Ended September 30,
                                                                       -------------------------------
                                                                           2002               2001
                                                                           ----               ----
       <S>                                                               <C>              <C>
       Components of loan servicing fees, net:

          Loan servicing fees                                            $ 383,516        $ 337,026
          Amortization of MSRs                                            (326,269)        (219,793)
          Pass-through Interest Expense                                    (33,268)         (24,376)
          Net gain on MSRs/MSR derivatives (SFAS No. 133)                   33,855           29,491
          MSR valuation provision                                         (120,735)        (158,000)
                                                                         ---------        ---------
                Total loan servicing fees, net                           $ (62,901)       $ (35,652)
                                                                         =========        =========

       Portfolio run off rate (residential portfolio only)                    32.9%            26.1%
       MSR value run off rate (residential portfolio only)                    23.5             22.3
       MSR amortization rate (residential portfolio only)                     24.8             19.9
</TABLE>

       As the table reflects,  gross loan servicing fees increased $46.5 million
from  year-ago  levels,  which is  primarily  attributable  to the growth of the
Company's  servicing  portfolio and higher  ancillary  fees.  The  single-family
residential  loan servicing  portfolio,  excluding  loans serviced for the Bank,
increased from $86.3 billion at September 30, 2001 to $87.3 billion at September
30,  2002.  The  portfolio  runoff  rate,  representing  the  percentage  of the
residential  portfolio  that has been paid off during the year,  influences  MSR
amortization,  which increased $106.5 million in the nine months ended September
30, 2002 over the same period in 2001.  Pass-through  Interest Expense increased
$8.9 million or 36% year over year,  also  influenced  by higher  runoff  rates.
Total loan servicing  fees, net for the nine months ended September 30, 2002 and
2001  includes  net  pre-tax   gains  of  $33.9   million  and  $29.5   million,
respectively,  from the impact of SFAS No. 133  pertaining to the MSR fair value
hedges. After recording these gains in accordance with SFAS No. 133, the Company
determined that the fair value of the MSR asset was less than its carrying value
and recorded  pre-tax  valuation  provisions  on the MSRs of $120.7  million and
$158.0  million  during  the nine  months  ended  September  30,  2002 and 2001,
respectively.  See  "--Impact  of SFAS No.  133" and  "--Mortgage  Banking  Risk
Management" for further discussion.

       Customer  banking  fees were $181.6  million  for the nine  months  ended
September  30,  2002  compared  to  $161.0  million  for the nine  months  ended
September  30, 2001.  The  following  table  details the  components of customer
banking fees and service charges (in thousands):
<TABLE>
<CAPTION>
                                                                          Nine Months Ended September 30,
                                                                          -------------------------------
                                                                              2002              2001
                                                                              ----              ----
       <S>                                                                  <C>               <C>
       Components of customer banking fees and service charges:

          Customer and electronic banking fees                              $119,234          $104,876
          Other customer fees                                                  2,438             1,903
          Investment sales income                                             52,674            46,424
          Insurance commissions                                                7,257             7,788
                                                                            --------          --------
                  Total customer banking fees and service charges           $181,603          $160,991
                                                                            ========          ========
</TABLE>
                                    Page 39
<PAGE>

       The increase is primarily  attributed to increased emphasis by management
on transaction  account growth and higher fee income on mutual fund, annuity and
other  investment and insurance  product sales through CFI. 2002 also includes a
$2.4 million  reclassification  to reflect gross  revenues  from customer  check
printing  fees  rather than net  revenues.  The offset is included in the "other
expense" line of the income statement. Transaction accounts (including custodial
accounts) as a percentage of retail deposits increased to 62.7% at September 30,
2002, from 53.7% at September 30, 2001.

       Gain on sale,  settlement  and  transfer  of loans,  net  totalled  $74.9
million  for the nine  months  ended  September  30,  2002,  an increase of $5.9
million from the nine months ended  September  30, 2001.  During the nine months
ended  September  30,  2002,  the Company  sold $15.4  billion in  single-family
mortgage loans with servicing  rights  retained as part of its ongoing  mortgage
banking  operations at gains of $58.6 million  compared to $11.2 billion of such
sales at gains of $33.8  million  for the  corresponding  period in 2001,  which
included a $4.2 million gain on the sale of $136.2 million in government-insured
loans that were previously  seriously delinquent and had become performing (GNMA
reperformers).  The overall increase in the volume of loans sold and the related
gain is a result of the significant increase in fixed-rate loan originations due
to  the  overall  decline  in  market  interest  rates  and  increased  mortgage
refinancing.  The  results in 2002 and 2001  include  unrealized  gains of $10.7
million and $2.4 million,  respectively,  on the derivative rate locks,  forward
loan sale commitments and closed loan inventory from the application of SFAS No.
133.

       Net loss on sale of assets  totalled  $0.5  million  for the nine  months
ended  September 30, 2002,  compared to a net gain of $22.0 million for the nine
months ended  September 30, 2001.  The loss during the first nine months of 2002
includes a $20.2 million loss on the  mark-to-market of the Company's  portfolio
of IO strip and "B" tranche  mortgage  securities,  partially  offset by a $14.2
million gain on the sale of a real estate partnership  interest,  a $3.4 million
gain on the sale of the Santa Barbara branch and a $2.0 million gain on the sale
of  $62.3  million  in  mortgage-backed  securities.  The  gain  during  2001 is
primarily  attributed to a $16.6  million gain on the sale of $761.8  million in
mortgage-backed  securities and a $9.3 million gain on the sale of the Company's
Concord EFS stock, partially offset by a $4.1 million loss on the mark-to-market
of the Company's portfolio of IO strip securities.

       Other noninterest income totalled $14.8 million for the nine months ended
September  30, 2002,  a decrease of $29.2  million from the same period in 2001.
The decrease relates to a gain of $20.7 million on the non-monetary  exchange of
Star Systems  common  stock for 634,520  shares of Concord EFS common stock as a
result of  Concord's  acquisition  of Star  Systems  in  February  2001 and $5.4
million in higher float  commissions  for check  disbursements  during the first
nine months of 2001.

       NONINTEREST EXPENSE. Total noninterest expense was $694.6 million for the
nine months ended  September 30, 2002, a decrease of $20.1  million  compared to
the nine months ended September 30, 2001. Excluding the amortization of goodwill
and other  intangible  assets,  noninterest  expense for the nine  months  ended
September  30, 2002 was $691.1  million,  an increase of $21.3  million over the
same period in the prior  year.  Noninterest  expense for the nine months  ended
September  30, 2002  included  decreases  of $41.3  million in  amortization  of
intangible assets, $1.7 million in loan expense and $1.2 million in professional
fees.  These  decreases were  partially  offset by increases of $19.5 million in
compensation and employee benefits,  $4.1 million in occupancy and equipment and
$0.7 million in other noninterest expense.

       Compensation  and employee  benefits  expense was $365.4  million for the
nine months ended September 30, 2002, an increase of $19.5 million from the nine
months ended September 30, 2001. The increase is primarily  attributed to normal
salary  adjustments,  and increases in incentive  compensation  and commissions,
primarily in volume-related operating groups.

       Professional  fees were $24.0 million for the nine months ended September
30, 2002, a decrease of $1.2  million from the nine months ended  September  30,
2001,  primarily  due to an overall  decrease  in legal fees  related to various
legal cases.

       Amortization  of  intangible  assets was $3.5 million for the nine months
ended September 30, 2002, a decrease of $41.3 million from the nine months ended
September  30,  2001,  due to the  adoption  of SFAS No. 142 on January 1, 2002,
which requires that goodwill no longer be amortized.

                                    Page 40
<PAGE>

       Other  noninterest  expense was $168.8  million for the nine months ended
September  30, 2002 compared to $168.1  million in the same period of 2001.  The
increase in  expenses  relates to  increases  in a number of  operating  expense
categories,  including  data  processing  systems,  clerical  and other  losses,
insurance,  bank  charges,   charitable  contributions,   postage,  back  office
operations and courier service.

       PROVISION  FOR INCOME TAX.  During the nine months  ended  September  30,
2002, GS Holdings recorded gross income tax expense of $240.5 million, which was
offset by a tax benefit of $45.8  million,  for net income tax expense of $194.7
million.  Based on the current  status of Mafco  Holdings'  audits for the years
1991  through  1995  and  anticipated  reversal  of  deferred  tax  assets  with
established  valuation  allowance,  management  changed its  judgment  about the
realizability  of the  Company's  deferred tax assets and reduced its  valuation
allowance  by $44 million in the second  quarter.  As a result of  reducing  the
valuation  allowance,  income  tax  expense  was  reduced by $31.4  million  and
goodwill was reduced by $12.6 million.

       On September 11, 2002,  California  enacted a law  requiring  large banks
(those with average  assets in excess of $500 million) to conform to federal law
with respect to accounting  for bad debts.  Prior to the law change,  all banks,
regardless of size,  were eligible to use the reserve  method of accounting  for
bad debts which enabled them to take  deductions for anticipated bad debt losses
prior to the losses being incurred for California tax purposes. With the change,
large  banks  may now  only  deduct  actual  charge-offs  net of  recoveries  in
determining their California taxable income.  Banks that are required to conform
to the new law must include in current year taxable income 50 percent of the bad
debt  reserves that existed as of the end of the prior tax year. As a concession
for requiring large banks to comply with the new law, recapture of the remaining
50 percent of the reserve is waived  thereby  creating a permanent  tax benefit.
The Company's tax benefit resulting from the law change was $8.7 million and has
been  reflected  in the  Company's  income tax  expense  for the  quarter  ended
September 30, 2002.

       In addition, an accrued liability had been established in prior years for
the purpose of satisfying assessments that may result from issues arising during
audits with various state taxing  authorities.  As a result of the completion of
the California  audit of Glendale  Federal Bank for the years 1991 through 1997,
management  reduced its accrued state tax  liability by $8.7 million  during the
nine months ended  September  30, 2002.  Goodwill was reduced by $0.6 million in
connection with this transaction.  The Company also recorded  additional Federal
tax expense of $3.1 million due to the reduction of the state tax expense.

       During the nine months ended September 30, 2001, GS Holdings recorded net
income tax expense of $211.3  million,  which included net tax benefits of $29.0
million. In prior years, an accrued liability was established for the purpose of
satisfying  assessments  that may result from issues  arising during audits with
various state taxing  authorities.  As a result of the completion and settlement
of audits in various  state  taxing  jurisdictions,  additional  guidance on the
deductibility  of covered asset losses,  and the current  assessment of exposure
for tax  strategies  employed  for prior years,  management  reduced its accrued
state tax  liability  by $39.7  million.  The Company also  recorded  additional
Federal  tax  expense of $13.9  million  due to the  reduction  of the state tax
expense.

       In addition,  during the nine months ended  September 30, 2001, an income
tax  benefit  was  recorded  for  $3.2  million  due to the  utilization  of net
operating  losses of a subsidiary made available as a result of the subsidiary's
liquidation into California Federal Bank.

       GS  Holdings'  effective  gross  federal tax rate was 30% during the nine
months ended  September 30, 2002 and 39% during the nine months ended  September
30, 2001, while its federal  statutory tax rate was 35% during both periods.  In
2002, the difference between the effective and statutory rates was the result of
a  reduction  of the  deferred  tax  asset  valuation  allowance.  In 2001,  the
difference between the effective and statutory rates was primarily the result of
non-deductible  goodwill  amortization  and  additional  federal  tax  liability
recorded in conjunction with a reduction in the accrued state tax liability.  GS
Holdings'  effective  state tax rate was 3.4% and (1)%  during  the nine  months
ended  September 30, 2002 and 2001,  respectively.  The low effective  state tax
rate  during  2002  was the  result  of  previously  discussed  reversal  of the
California  bad debt reserves and reduction in the accrued state tax  liability.
The low  effective  state tax rate during 2001 was the result of the  previously
discussed reduction in the accrued state tax liability.

                                    Page 41
<PAGE>

       MINORITY  INTEREST.  During each of the nine months ended  September  30,
2002 and 2001,  dividends on the REIT  Preferred  Stock were recorded  totalling
$20.2 million,  net of income tax benefit,  which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.

       CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Cumulative effect of
change in  accounting  principle  for the nine months ended  September  30, 2001
includes a write-down of $1.6 million,  net of income taxes of $1.1 million,  on
certain securities as a result of the Company's implementation of EITF No. 99-20
on April 1, 2001. See note 14 of the Company's  Notes to Unaudited  Consolidated
Financial Statements.

       IMPACT OF SFAS NO. 133. On January 1, 2001, the Company  adopted SFAS No.
133. The pronouncement impacted several other areas of the financial statements.
The table  summarizes  the activity  during the nine months ended  September 30,
2002 below (debit/(credit); in thousands):
<TABLE>
<CAPTION>
                                               Assets                        Liabilities and Equity              Pre-tax Earnings
                               -------------------------------------   ----------------------------------    -----------------------
                                Loans                                                  Taxes-                  Loan      (Gain)/Loss
                                 Held      Residential   Derivative    Derivative      Other                 Servicing    on Sale of
                               For Sale       MSRs         Assets      Liabilities  Liabilities     OCI      Fees, Net      Loans
                               --------       ----         ------      -----------  -----------     ---      ---------      -----
<S>                             <C>        <C>          <C>             <C>           <C>        <C>          <C>         <C>
Fair value adjustments:
   MSRs and MSR hedges          $    --    $(746,527)   $   739,883     $  40,499     $     --    $     --    $(33,855)   $     --
   Warehouse loans and
      pipeline hedges            58,945           --        (11,262)      (37,000)          --          --          --     (10,683)
   Cash flow (balance sheet)
      hedges - swaps                 --           --             --      (120,278)      49,133      71,145          --          --
                                -------    ---------    -----------     ---------     --------    --------    --------    --------
Fair Value Adjustments -
   Nine Months Ended
   September 30, 2002            58,945     (746,527)       728,621      (116,779)      49,133      71,145     (33,855)    (10,683)

Other Activity - Nine Months
   Ended September 30, 2002:
   MSR hedge additions               --           --      1,230,598            --           --          --          --          --
   MSR hedge sales and
      maturities                     --           --     (2,025,869)       32,490           --          --          --          --
   MSR hedge receipts
      and payments                   --           --        (48,753)      (37,910)          --          --          --          --
                                -------    ---------    -----------     ---------     --------    --------    --------    --------
Total Other Activity -
   Nine Months Ended
   September 30, 2002                --           --       (844,024)       (5,420)          --          --          --          --
                                -------    ---------    -----------     ---------     --------    --------    --------    --------
Total Impact from
   SFAS No. 133 - Nine Months
   Ended September 30, 2002     $58,945    $(746,527)   $  (115,403)    $(122,199)    $ 49,133    $ 71,145    $(33,855)   $(10,683)
                                =======    =========    ===========     =========     ========    ========    ========    ========
Total Impact from
   SFAS No. 133 - Nine Months
   Ended September 30,  2001    $23,037    $(350,105)   $   326,296     $(284,224)    $101,237    $146,590    $(29,491)   $ (2,365)
                                =======    =========    ===========     =========     ========    ========    ========    ========
</TABLE>

                                    Page 42
<PAGE>

RESULTS OF OPERATIONS

       THREE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS THREE MONTHS ENDED SEPTEMBER
       30, 2001

       The following  table shows the  Company's  consolidated  average  balance
sheets,  with the  related  interest  income,  interest  expense and the average
interest rates for the periods  presented.  Average balances are calculated on a
daily basis.
<TABLE>
<CAPTION>
                                                                         Three Months Ended September 30, 2002
                                                                         -------------------------------------
                                                                         Average                      Average
                                                                         Balance       Interest        Rate
                                                                         -------       --------        ----
                                                                                (dollars in millions)
<S>                                                                      <C>             <C>           <C>
ASSETS

Interest-earning assets (1):
     Securities, interest-bearing deposits in banks and other (2)        $ 1,094         $  7           2.46%
     Mortgage-backed securities available for-sale                         4,190           61           5.83
     Mortgage-backed securities held-to-maturity                           1,122           16           5.85
     Loans held for sale, net                                              1,516           24           6.33
     Loans receivable, net:
         Residential                                                      27,352          402           5.87
         Commercial real estate                                            6,628          114           6.89
         Consumer                                                          1,086           16           5.88
         Automobile                                                        2,150           70          12.83
         Commercial banking                                                  786           11           5.77
                                                                         -------         ----
     Total loans receivable, net                                          38,002          613           6.44
     FHLB stock                                                            1,131           16           5.62
                                                                         -------         ----
         Total interest-earning assets                                    47,055          737           6.26%
Noninterest-earning assets                                                 3,705         ----
                                                                         -------
         Total assets                                                    $50,760
                                                                         =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                            $24,860          117           1.86%
     Securities sold under agreements to repurchase (3)                    1,950           18           3.69
     Borrowings (3)                                                       19,263          264           5.44
     Other                                                                   207            1           1.76
                                                                         -------         ----
         Total interest-bearing liabilities                               46,280          400           3.43%
Noninterest-bearing liabilities                                            1,233         ----
Minority interest                                                            494
Stockholder's equity                                                       2,753
                                                                         -------
          Total liabilities, minority interest
               and stockholder's equity                                  $50,760
                                                                         =======
Net interest income                                                                      $337
                                                                                         ====
Interest rate spread (4)                                                                                2.83%
                                                                                                       =====
Net interest margin                                                                                     2.88%
                                                                                                       =====

Return on average assets                                                                                1.04%
                                                                                                       =====
Return on average common equity                                                                        19.15%
                                                                                                       =====
Return on tangible common equity                                                                       24.84%
                                                                                                       =====
Average equity to average assets                                                                        5.42%
                                                                                                       =====
</TABLE>

                                    Page 43
<PAGE>
<TABLE>
<CAPTION>
                                                                           Three Months Ended September 30, 2001
                                                                           -------------------------------------
                                                                           Average                       Average
                                                                           Balance         Interest       Rate
                                                                           -------         --------       ----
                                                                                   (dollars in millions)
<S>                                                                        <C>               <C>          <C>
ASSETS

Interest-earning assets (1):
       Securities, interest-bearing deposits in banks and other (2)        $   571           $  8          5.73%
       Mortgage-backed securities available-for-sale                         8,909            142          6.37
       Mortgage-backed securities held-to-maturity                           1,510             28          7.53
       Loans held for sale, net                                              2,707             46          6.88
       Loans receivable, net:
          Residential                                                       31,571            531          6.73
          Commercial real estate                                             6,399            128          7.98
          Consumer                                                             908             19          7.99
          Automobile                                                         1,871             56         11.95
          Commercial banking                                                   647             12          7.41
                                                                           -------           ----
       Total loans receivable, net                                          41,396            746          7.20
       FHLB stock                                                            1,423             18          5.04
                                                                           -------           ----
         Total interest-earning assets                                      56,516            988          6.99%
Noninterest-earning assets                                                   3,962           ----
                                                                           -------
         Total assets                                                      $60,478
                                                                           =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
       Deposits                                                            $24,596            202          3.26%
       Securities sold under agreements to repurchase (3)                    3,635             46          4.91
       Borrowings (3)                                                       27,980            384          5.45
                                                                           -------           ----
         Total interest-bearing liabilities                                 56,211            632          4.45%
Noninterest-bearing liabilities                                              1,344           ----
Minority interest                                                              495
Stockholder's equity                                                         2,428
                                                                           -------
         Total liabilities, minority interest
               and stockholder's equity                                    $60,478
                                                                           =======
Net interest income                                                                          $356
                                                                                             ====
Interest rate spread (4)                                                                                   2.53%
                                                                                                          =====
Net interest margin                                                                                        2.56%
                                                                                                          =====

Return on average assets                                                                                   0.71%
                                                                                                          =====
Return on average common equity                                                                           17.61%
                                                                                                          =====
Return on tangible common equity                                                                          27.46%
                                                                                                          =====
Average equity to average assets                                                                           4.01%
                                                                                                          =====
</TABLE>
___________
(1)    Non-performing  assets  are  included  in the  average  balances  for the
       periods indicated.

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

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

(4)    Interest rate spread represents the difference  between the average rates
       of total interest-earning assets and total interest-bearing liabilities.

                                    Page 44
<PAGE>

       The following  table shows what portion of the changes in interest income
and interest  expense were due to changes in rate and volume.  For each category
of  interest-earning  assets and  interest-bearing  liabilities,  information is
provided  on changes  attributable  to volume  (change  in  average  outstanding
balance  multiplied  by the prior  period's  rate) and rate  (change  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, 2002 vs. 2001
                                                                             Increase (Decrease) Due to
                                                                   ----------------------------------------------
                                                                         Volume        Rate           Net
                                                                         ------        ----           ---
                                                                                  (in millions)
<S>                                                                     <C>           <C>           <C>
INTEREST INCOME:

       Securities, interest-bearing deposits in banks and other         $   2         $  (3)        $  (1)
       Mortgage-backed securities available for sale                      (70)          (11)          (81)
       Mortgage-backed securities held to maturity                         (6)           (6)          (12)
       Loans held for sale, net                                           (19)           (3)          (22)
       Loans receivable, net                                              (47)          (86)         (133)
       FHLB stock                                                          (4)            2            (2)
                                                                        -----         -----         -----
               Total                                                     (144)         (107)         (251)
                                                                        -----         -----         -----

INTEREST EXPENSE:

       Deposits                                                           (13)          (72)          (85)
       Securities sold under agreements to repurchase                     (18)           (9)          (27)
       Borrowings                                                        (103)          (18)         (121)
       Other                                                               --             1             1
                                                                        -----         -----         -----
               Total                                                     (134)          (98)         (232)
                                                                        -----         -----         -----
                  Change in net interest income                         $ (10)        $  (9)        $ (19)
                                                                        =====         =====         =====
</TABLE>

       INTEREST  INCOME.  Total interest income was $736.9 million for the three
months ended  September  30,  2002, a decrease of $251.7  million from the three
months ended  September 30, 2001.  Total  interest-earning  assets for the three
months  ended  September  30, 2002  averaged  $47.1  billion,  compared to $56.5
billion for the corresponding  period in 2001. The decrease in  interest-earning
assets  is  primarily  a result  of a  decline  in  mortgage-backed  securities,
principally due to management's  decision to sharply reduce  purchases,  and net
loan run off. The yield on total interest-earning assets during the three months
ended  September  30, 2002  decreased  to 6.26% from 6.99% for the three  months
ended  September  30,  2001,  primarily  due  to  the  repricing  of  loans  and
mortgage-backed securities at lower rates.

       GS Holdings earned $612.6 million of interest income on loans  receivable
for the three months ended September 30, 2002, a decrease of $132.9 million from
the three  months  ended  September  30,  2001.  The  average  balance  of loans
receivable  was $38.0  billion for the three  months ended  September  30, 2002,
compared  to $41.4  billion for the same period in 2001.  The  weighted  average
yield  on loans  receivable  decreased  to  6.44%  for the  three  months  ended
September 30, 2002 from 7.20% for the three months ended September 30, 2001. The
decrease in the average balance reflects the sharp run off of residential  loans
during a period of high  refinancing  activity.  The  decrease  in the  weighted
average  yield  primarily  reflects the  repricing  of  variable-rate  loans,  a
decrease in the prime rate on commercial  banking loans and comparatively  lower
market  interest  rates  during  the three  months  ended  September  30,  2002,
partially  offset by a higher yield on auto loans  purchased after July 1, 2001,
which are recorded on a gross-coupon basis, rather than a credit-adjusted  yield
basis.  The impact of this change on net interest income during the three months
ended September 30, 2002 was to increase interest income by $14.8 million.  (See
"--Allowance for Loan Losses.")

                                    Page 45
<PAGE>

       Loan production is detailed in the table below (in thousands):

                                                Three Months Ended September 30,
                                                --------------------------------
                                                    2002              2001
                                                    -----             ----

Loans funded:
  Residential real estate loans:

     Adjustable-rate                             $1,750,876        $1,622,486
     Fixed-rate                                   4,121,746         5,379,189
                                                 ----------        ----------
       Total  residential  real  estate loans     5,872,622         7,001,675


  Commercial real estate loans                      348,110           415,861
  Commercial loans                                  324,796           241,541
  Consumer nonmortgage loans                        280,582           204,295
  Auto loans (a)                                    325,110           319,396
                                                 ----------        ----------
       Total loans funded                        $7,151,220        $8,182,768
                                                 ==========        ==========

  Residential real estate loans purchased        $  184,923        $  475,166
                                                 ==========        ==========
____________
(a)    Approximately  42% and 40% of this volume was in prime  product;  58% and
       60% in sub-prime  product for the three months ended  September  30, 2002
       and 2001, respectively.

       GS Holdings  earned  $24.0  million of interest  income on loans held for
sale for the three months ended  September 30, 2002, a decrease of $22.6 million
from the three months ended  September  30, 2001.  The average  balance of loans
held for sale was $1.5 billion for the three months ended  September 30, 2002, a
decrease of $1.2 billion from the comparable  period in 2001,  primarily related
to decreased originations of residential fixed-rate loans. Fixed-rate production
for sale totalled $4.0 billion during the three months ended September 30, 2002,
a decline of 20% over the $5.1 billion  originated  during the comparable period
in 2001.  The weighted  average yield on loans held for sale  decreased to 6.33%
for the three  months ended  September  30, 2002 from 6.88% for the three months
ended September 30, 2001, primarily due to declining market interest rates.

       Interest  income on  mortgage-backed  securities  available  for sale was
$61.1 million for the three months ended September 30, 2002, a decrease of $80.8
million from the three months ended  September 30, 2001.  The average  portfolio
balance  decreased  $4.7  billion,  to $4.2  billion for the three  months ended
September  30, 2002  compared to the same period in 2001.  The weighted  average
yield on these assets  decreased from 6.37% for the three months ended September
30, 2001 to 5.83% for the three months ended September 30, 2002. The decrease in
the volume is primarily  attributed to  management's  decision to sharply reduce
purchases, coupled with high repayments and sales of mortgage-backed securities.
The decrease in the weighted  average yield primarily  reflects the repricing of
variable-rate securities at lower rates.

       Interest income on mortgage-backed  securities held to maturity was $16.4
million for the three  months  ended  September  30,  2002,  a decrease of $12.0
million from the three months ended  September 30, 2001.  The average  portfolio
balance  decreased  $0.4  billion,  to $1.1  billion for the three  months ended
September  30,  2002  compared  to the same  period  in 2001,  primarily  due to
repayments. The weighted average yields for the three months ended September 30,
2002 and 2001 were 5.85% and 7.53%,  respectively.  The decrease in the weighted
average  yield  is  primarily  the  result  of the  repricing  of  variable-rate
securities at lower rates.

       Interest  income on  securities,  interest-bearing  deposits in banks and
other was $6.9 million for the three months ended September 30, 2002, a decrease
of $1.3  million from the three months  ended  September  30, 2001.  The average
portfolio  balance was $1.1  billion and $0.6 billion for the three months ended
September 30, 2002 and 2001,  respectively.  The weighted  average yield for the
three months ended  September 30, 2002 was 2.46% compared to 5.73% for the three
months ended  September 30, 2001. The increase in the volume is primarily due to
the impact of additional  issuances of repurchase  agreements  and federal funds
sold during the third  quarter of 2002.  The  decrease in the  weighted  average
yield reflects a shift in the mix of securities,  with lower average balances of
higher rate securities held to maturity during the third quarter of 2002.

                                    Page 46
<PAGE>

       Dividends  on FHLB stock were $16.0  million for the three  months  ended
September  30,  2002,  a decrease of $2.1  million  from the three  months ended
September 30, 2001. The average  balance  outstanding  was $1.1 billion and $1.4
billion for the three months ended  September  30, 2002 and 2001,  respectively.
The  weighted  average  dividend on FHLB stock  increased to 5.62% for the three
months ended  September 30, 2002 from 5.04% for the three months ended September
30, 2001.

       INTEREST EXPENSE. Total interest expense was $399.7 million for the three
months ended  September  30,  2002, a decrease of $232.4  million from the three
months  ended  September  30, 2001.  The decrease is primarily  due to declining
market  interest  rates and a reduction in  borrowings  under FHLB  advances and
securities sold under agreements to repurchase.

       Interest expense on deposits,  including  Brokered  Deposits,  was $116.7
million for the three  months  ended  September  30,  2002,  a decrease of $85.1
million from the three months ended  September 30, 2001. The average  balance of
deposits  outstanding  increased  from $24.6  billion for the three months ended
September  30, 2001 to $24.9  billion for the three months ended  September  30,
2002. Deposit interest expense attributed to changes in volume decreased despite
an increase  in average  volume  because  the volume of the  average  individual
deposit  categories  with lower or zero rates (such as transaction and custodial
accounts) increased  significantly,  while those with higher rates (such as CDs)
decreased.  The  increase  in the average  balance is  primarily  attributed  to
increases in the average balances of money market accounts,  custodial accounts,
and retail customer checking and savings accounts, partially offset by a decline
in CDs. The overall weighted average cost of deposits decreased to 1.86% for the
three  months  ended  September  30, 2002 from 3.26% for the three  months ended
September 30, 2001, primarily due to declining market interest rates and a shift
in the mix of deposits, with higher average balances of lower rate money market,
custodial,  checking and savings accounts, and a lower average balance of higher
rate CDs during the third quarter of 2002.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled $18.3 million for the three months ended September 30, 2002, a decrease
of $27.2  million from the three months ended  September  30, 2001.  The average
balance of such  borrowings  for the three months ended  September  30, 2002 and
2001 was $2.0  billion  and $3.6  billion,  respectively.  The  decrease  in the
average balance is primarily the result of maturities, which were not renewed in
light of the decline in  interest-earning  assets. The weighted average interest
rate on  these  instruments  decreased  to  3.69%  for the  three  months  ended
September  30, 2002 from 4.91% for the three  months ended  September  30, 2001,
primarily due to maturities of higher fixed-rate borrowings and the repricing of
variable-rate borrowings at lower rates.

       Interest  expense on  borrowings  totalled  $263.8  million for the three
months ended  September  30,  2002, a decrease of $121.0  million from the three
months ended September 30, 2001. The average  balance  outstanding for the three
months ended  September 30, 2002 and 2001 was $19.3  billion and $28.0  billion,
respectively.  The weighted average interest rate on these instruments decreased
to 5.44% for the three months ended  September 30, 2002 from 5.45% for the three
months ended September 30, 2001. The decrease in the average volume is primarily
the  result of  maturities,  which were not  renewed in light of the  decline in
interest-earning  assets, while the slight decrease in the weighted average rate
is primarily due to declining  market  interest  rates,  offset by the impact of
maturity extensions.

       NET INTEREST INCOME. Net interest income was $337.2 million for the three
months ended  September  30,  2002,  a decrease of $19.3  million from the three
months ended  September 30, 2001. The decline was the result of reduced  average
earning  assets  more than  offsetting  a higher net  interest  margin.  Average
interest-earning  assets were $47.1 billion for the third quarter of 2002,  down
from $56.5  billion  during the same period in 2001.  The  interest  rate spread
increased to 2.83% for the three months ended  September 30, 2002 from 2.53% for
the three months ended  September  30, 2001,  primarily as a result of declining
market  interest  rates  reducing costs of liabilities at a faster rate than the
decline in the yield on assets. Lower-costing liabilities were the result of the
replacement of higher-rate  borrowings and deposits with  lower-rate  borrowings
and  deposits as these  instruments  came due or were  repaid.  The net interest
margin  increased to 2.88% for the three months ended  September 30, 2002, up 32
bps from the 2.56% reported during the third quarter of 2001.

                                    Page 47
<PAGE>

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan  servicing  fees,  customer  banking  fees,  gain on sale,  settlement  and
transfer of loans, net, (loss) gain on sale of assets, net and other income, was
$120.0 million for the three months ended  September 30, 2002,  representing  an
increase of $33.1 million from the three months ended September 30, 2001.

       Loan  servicing  fees for the Company,  were $43.7  million for the three
months ended  September 30, 2002,  compared to $(28.7)  million the three months
ended  September 30, 2001.  The following  table details the  components of loan
servicing fees, net (in thousands):
<TABLE>
<CAPTION>
                                                                  Three Months Ended September 30,
                                                                  --------------------------------
                                                                       2002              2001
                                                                       ----              ----
       <S>                                                          <C>                <C>
       Components of loan servicing fees, net:
          Loan servicing fees                                       $ 133,840          $112,734
          Amortization of MSRs                                       (113,673)          (72,780)
          Pass-through Interest Expense                               (12,770)           (8,234)
          Net gain on MSRs/MSR derivatives (SFAS No. 133)              29,916            20,534
          MSR valuation recovery/(provision)                            6,372           (81,000)
                                                                    ---------          --------
                Total loan servicing fees, net                      $  43,685          $(28,746)
                                                                    =========          ========

       Portfolio run off rate (residential portfolio only)               38.7%             27.2%
       MSR value run off rate (residential portfolio only)               27.5              24.3
       MSR amortization rate (residential portfolio only)                29.3              19.1
</TABLE>

       As the table reflects,  gross loan servicing fees increased $21.1 million
from  year-ago  levels,  which is  primarily  attributable  to the growth of the
Company's  servicing  portfolio and higher  ancillary  fees.  The  single-family
residential  loan servicing  portfolio,  excluding  loans serviced for the Bank,
decreased to $87.3  billion at September 30, 2002 from $90.7 billion at June 30,
2002 and  increased  from $86.3  billion at September  30, 2001.  The  portfolio
runoff rate,  representing the percentage of the residential  portfolio that has
been paid off during the year,  influences  MSR  amortization,  which  increased
$40.9  million  in the  third  quarter  of 2002  over the same  period  in 2001.
Pass-through  Interest  Expense,  which  increased $4.5 million or 55% year over
year, was also influenced by higher runoff rates. Total loan servicing fees, net
for the third  quarter  of 2002 and 2001  includes  net  pre-tax  gains of $29.9
million  and  $20.5  million,  respectively,  from the  impact  of SFAS No.  133
pertaining  to the MSR  fair  value  hedges.  After  recording  these  gains  in
accordance with SFAS No. 133, the Company  determined that the fair value of the
MSR asset differed from its carrying value. As a result, in the third quarter of
2002,  after  determining  the fair  value of the MSR  asset  was more  than its
carrying value,  the Company  recovered $6.4 million of the previously  recorded
valuation  provision.  During the three months  ended  September  30, 2001,  the
Company  recorded a pre-tax  valuation  provision  on the MSRs of $81.0  million
after  determining  that  the  fair  value of the MSR  asset  was less  than its
carrying  value.  See  "--Impact of SFAS No. 133" and  "--Mortgage  Banking Risk
Management" for further discussion.

       Customer  banking  fees were $62.6  million  for the three  months  ended
September  30,  2002  compared  to $55.2  million  for the  three  months  ended
September  30, 2001.  The  following  table  details the  components of customer
banking fees and service charges (in thousands):
<TABLE>
<CAPTION>
                                                                          Three Months Ended September 30,
                                                                          --------------------------------
                                                                              2002                2001
                                                                              ----                ----
       <S>                                                                   <C>                 <C>
       Components of customer banking fees and service charges:
          Customer and electronic banking fees                               $41,632             $36,375
          Other customer fees                                                    921                 605
          Investment sales income                                             17,475              15,694
          Insurance commissions                                                2,555               2,497
                                                                             -------             -------
                  Total customer banking fees and service charges            $62,583             $55,171
                                                                             =======             =======
</TABLE>

                                    Page 48
<PAGE>

       The increase is primarily  attributed to increased emphasis by management
on transaction  account growth and higher fee income on mutual fund, annuity and
other  investment  and insurance  product sales through CFI.  Third quarter 2002
also includes a $0.8 million  reclassification  to reflect  gross  revenues from
customer check printing fees rather than net revenues. The offset is included in
the "other expense" line of the income statement.

       Gain on sale,  settlement  and  transfer  of loans,  net  totalled  $19.4
million for the three  months  ended  September  30,  2002,  a decrease of $27.8
million from the three months ended September 30, 2001.  During the three months
ended  September  30,  2002,  the  Company  sold $3.5  billion in  single-family
mortgage loans with servicing  rights  retained as part of its ongoing  mortgage
banking  operations at gains of $14.9  million  compared to $5.5 billion of such
sales at gains of $19.7  million  for the  corresponding  period in 2001,  which
included a $4.2 million gain on the sale of $136.2 million in government-insured
loans that were previously  seriously delinquent and had become performing (GNMA
reperformers).  The overall decrease in the volume of loans sold and the related
gain is a result of a reduction in fixed-rate loan originations during the third
quarter of 2002. Gain on sale of loans during the third quarter of 2001 included
$24.5 million related to a reduction in the Company's recourse liability,  which
did not recur.  The results in 2002 and 2001 include an unrealized  gain of $3.4
million and an unrealized loss of $1.2 million,  respectively, on the derivative
rate locks,  forward loan sale  commitments  and closed loan  inventory from the
application of SFAS No. 133.

       Net loss on sale of assets  totalled  $8.9  million for the three  months
ended  September 30, 2002,  compared to a net gain of $5.8 million for the three
months ended  September  30, 2001.  The loss during the third quarter of 2002 is
due to the loss on the mark-to-market of the Company's portfolio of IO strip and
"B" tranche mortgage securities. The gain during 2001 is primarily attributed to
a  $10.0  million  gain  on  the  sale  of  $464.0  million  in  mortgage-backed
securities, partially offset by a $4.1 million loss on the mark-to-market of the
Company's portfolio of IO strip securities.

       Other noninterest income totalled $3.2 million for the three months ended
September  30,  2002,  a decrease of $4.4  million  from the three  months ended
September  30,  2001,  primarily  attributed  to the  receipts in the prior year
related to an eminent domain settlement on real estate property and a CRA award,
and lower float commissions for check disbursements in 2002.

       NONINTEREST EXPENSE. Total noninterest expense was $237.5 million for the
three months ended  September  30, 2002, a decrease of $4.7 million  compared to
the three months  ended  September  30,  2001.  Excluding  the  amortization  of
goodwill and other intangible assets,  noninterest  expense for the three months
ended  September 30, 2002 was $236.4  million,  an increase of $9.1 million over
the same period in the prior  year.  Noninterest  expense  for the three  months
ended September 30, 2002 included  decreases of $13.8 million in amortization of
intangible  assets,  $2.6 million in professional  fees and $0.7 million in loan
expense.  These decreases were partially  offset by increases of $8.1 million in
compensation  and  employee  benefits,  $3.7  million in other  expense and $0.9
million in occupancy and equipment.

       Compensation  and employee  benefits  expense was $122.9  million for the
three months  ended  September  30,  2002,  an increase of $8.1 million from the
three months ended  September 30, 2001. The increase is primarily  attributed to
an  increase  in   incentive   compensation   and   commissions,   primarily  in
volume-related operating groups, and normal salary adjustments.

       Professional  fees were $7.9 million for the three months ended September
30, 2002, a decrease of $2.6 million from the three months ended  September  30,
2001,  primarily  due to an overall  decrease  in legal fees  related to various
legal cases.

       Amortization  of intangible  assets was $1.2 million for the three months
ended  September  30,  2002,  a decrease of $13.8  million from the three months
ended  September  30,  2001,  due to the  adoption of SFAS No. 142 on January 1,
2002, which requires that goodwill no longer be amortized.

       Other  noninterest  expense was $60.6  million for the three months ended
September 30, 2002  compared to $56.9  million for the same period in 2001.  The
increase in  expenses  relates to  increases  in a number of  operating  expense
categories, including insurance, data processing systems, bank charges, clerical
and other  losses,  charitable  contributions,  postage  and retail  back office
operations.

                                    Page 49
<PAGE>

       PROVISION  FOR INCOME TAX.  During the three months ended  September  30,
2002 and 2001, GS Holdings  recorded net income tax expense of $81.1 million and
$87.5 million,  respectively. The expense recorded during the three months ended
September  30,  2002 is net of an income  tax  benefit  of $8.7  million  due to
legislation passed in the third quarter of 2002. The legislation precludes banks
from using the reserve method for bad debts,  and requires  recognition of fifty
percent of bad debt  reserves as income.  As a  concession  for this  additional
taxable  income,  the recapture of the remaining fifty percent of the reserve is
waived thereby creating a permanent tax benefit.

       GS Holdings'  effective gross federal tax rate was 35% and 37% during the
three months ended September 30, 2002 and 2001, respectively,  while its federal
statutory tax rate was 35% during both periods.  In 2001, the difference between
the  effective and  statutory  rates was  primarily the result of  nondeductible
goodwill  amortization.  GS  Holdings'  effective  state  tax rate was 2% and 6%
during the three months ended September 30, 2002 and 2001, respectively. The low
effective  state tax rate  during  2002 was the result of  previously  discussed
reversal of the California bad debt reserves.

       MINORITY  INTEREST.  During each of the three months ended  September 30,
2002 and 2001,  dividends on the REIT  Preferred  Stock were recorded  totalling
$6.7  million,  net of income tax benefit,  which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.

       IMPACT OF SFAS NO. 133. On January 1, 2001, the Company  adopted SFAS No.
133. The pronouncement  impacted several other areas of the financial statements
for  the  three  months  ended   September  30,  2002,   as   summarized   below
(debit/(credit); in thousands):
<TABLE>
<CAPTION>
                                               Assets                        Liabilities and Equity             Pre-tax Earnings
                                -----------------------------------     --------------------------------     -----------------------
                                 Loans                                                  Taxes-                 Loan      (Gain)/Loss
                                  Held      Residential  Derivative     Derivative      Other                Servicing    on Sale of
                                For Sale       MSRs        Assets       Liabilities  Liabilities    OCI      Fees, Net      Loans
                                --------       ----        ------       -----------  -----------    ---      ---------      -----
<S>                              <C>        <C>          <C>            <C>           <C>         <C>        <C>          <C>
Fair value adjustments:
   MSRs and MSR hedges           $    --    $(558,901)   $ 559,425      $  29,392     $    --     $    --    $(29,916)    $    --
   Warehouse loans and
      pipeline hedges             15,564           --       17,423        (29,563)         --          --          --      (3,424)
   Cash flow (balance sheet)
      hedges - swaps                  --           --           --        (91,778)     37,491      54,287          --          --
                                 -------    ---------    ---------      ---------     -------     -------    --------     -------
Fair Value Adjustments -
   Three Months Ended
   September 30, 2002             15,564     (558,901)     576,848        (91,949)     37,491      54,287     (29,916)     (3,424)

Other Activity - Three Months
   Ended September 30, 2002:
   MSR hedge additions                --           --      397,213             --          --          --          --          --
   MSR hedge sales and
      maturities                      --           --     (947,738)            97          --          --          --          --
   MSR hedge receipts
      and payments                    --           --      (16,700)       (18,896)         --          --          --          --
                                 -------    ---------    ---------      ---------     -------     -------    --------     -------
Total Other Activity -
   Three Months Ended
   September 30, 2002                 --           --     (567,225)       (18,799)         --          --          --          --
                                 -------    ---------    ---------      ---------     -------     -------    --------     -------
Total Impact from
   SFAS No. 133 -
   Three Months Ended
   September 30, 2002            $15,564    $(558,901)   $   9,623      $(110,748)    $37,491     $54,287    $(29,916)    $(3,424)
                                 =======    =========    =========      =========     =======     =======    ========     =======

Total Impact from
   SFAS No. 133 - Three
   Months Ended
   September 30,  2001           $28,241    $(268,775)   $ 132,866      $(157,600)    $58,828    $85,183     $(20,534)    $ 1,186
                                 =======    =========    =========      =========     =======    =======     ========     =======
</TABLE>

                                    Page 50
<PAGE>

PROBLEM AND POTENTIAL PROBLEM ASSETS

       A loan is impaired when it is probable that the Company will be unable to
collect all contractual  amounts due (i.e., both principal and interest),  based
upon current  information  and events.  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.  Loans
collectively  reviewed for impairment by the Company  include all  single-family
loans,  all auto 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:

       (a)    the  present  value  of the  expected  future  cash  flows  of the
              impaired loan discounted at the loan's original effective interest
              rate;

       (b)    the observable market price of the impaired loan; or

       (c)    the fair  value  of the  collateral  (less  disposal  costs)  of a
              collateral-dependent loan.

       The  excess of the  recorded  investment  of the loan  over the  impaired
loan's value is recognized by recording a valuation allowance.

       Cash receipts on  non-performing  impaired  loans are  generally  used to
reduce the carrying value of the loan, unless the Company expects to recover the
remaining  principal balance of the loan.  Impairment losses are included in the
allowance for loan losses.  Any loss of principal  upon  disposition is recorded
through a charge-off to the allowance for loan losses.

       At September 30, 2002, loans that were considered to be impaired totalled
$48.6 million (of which $15.3 million were on  nonaccrual  status).  The average
recorded  investment in impaired loans during the three and  nine-month  periods
ended  September 30, 2002 was  approximately  $54.2  million and $54.6  million,
respectively.  For the three and nine-month periods ended September 30, 2002, GS
Holdings  recognized interest income on those impaired loans of $1.0 million and
$3.0  million,  respectively,  which  included  $0.2  million and $0.5  million,
respectively,  of  interest  income  recognized  using the cash basis  method of
income recognition.

       The  following  table  presents the  Company's  non-performing  loans and
impaired loans,  foreclosed  real estate and repossessed  assets 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 in
the table below using each individual loan's contractual UPB.

                                                   September 30, 2002
                                             ------------------------------
                                             Non-performing        Impaired
                                             --------------        --------
                                                       (in millions)

Real Estate:
    1-4 unit residential                         $ 61                 $ 1
    Multi-family residential                       --                   2
    Commercial and other                            5                  31
                                                 ----                 ---
           Total real estate                       66                  34
Non-real estate                                    22                  15
                                                 ----                 ---
       Total loans                                 88  (a)            $49  (b)
                                                                      ===
Foreclosed real estate, net                        12
Repossessed assets                                  8
                                                 ----
       Total non-performing assets               $108
                                                 ====

                                    Page 51
<PAGE>

                                                   December 31, 2001
                                             ------------------------------
                                             Non-performing        Impaired
                                             --------------        --------
                                                       (in millions)

Real Estate:
    1-4 unit residential                         $ 75                 $ 1
    Multi-family residential                       --                   9
    Commercial and other                            4                  32
                                                 ----                 ---
         Total real estate                         79                  42
Non-real estate                                    22                  17
                                                 ----                 ---
      Total loans                                 101  (a)            $59  (b)
                                                                      ===
Foreclosed real estate, net                        19
Repossessed assets                                  4
                                                 ----
      Total non-performing assets                $124
                                                 ====
___________

(a)    There were no loans securitized with recourse on non-performing status at
       September 30, 2002 or December 31, 2001.

(b)    Includes  $15.3  million  and $14.1  million of  non-performing  loans at
       September 30, 2002 and December 31, 2001, respectively.

       There were no accruing  loans  contractually  past due 90 days or more at
September 30, 2002 or December 31, 2001.

       The  Company's  and  the  Bank's  non-performing  assets,  consisting  of
nonaccrual loans,  repossessed assets and foreclosed real estate, net, decreased
to $108 million at September  30, 2002,  from $124 million at December 31, 2001.
Non-performing  assets as a  percentage  of the Bank's total assets was 0.21% at
September 30, 2002 and 0.22% at December 31, 2001.

       The  following  table  presents  non-performing  real  estate  assets  by
geographic region of the country as of September 30, 2002:
<TABLE>
<CAPTION>
                                                                              Total
                                   Non-performing       Foreclosed        Non-performing
                                    Real Estate        Real Estate,        Real Estate         Geographic
                                   Loans, Net (2)         Net (2)             Assets          Concentration
                                   --------------         -------             ------          -------------
                                                             (dollars in millions)
      <S>                               <C>                 <C>                <C>               <C>
      Region:
            Northeast (1)               $ 7                 $ 1                $ 8                10.26%
            California                   37                   6                 43                55.13
            Other regions                22                   5                 27                34.61
                                        ---                 ---                ---               ------
                    Total               $66                 $12                $78               100.00%
                                        ===                 ===                ===               ======
</TABLE>
       ______________
       (1)    Consists of Connecticut, Delaware, Maine, Maryland, Massachusetts,
              New Hampshire,  New Jersey, New York,  Pennsylvania,  Rhode Island
              and Vermont.

       (2)    Net of purchase accounting adjustments.

       At September  30, 2002,  the Bank had two  non-performing  assets over $2
million in size with an average balance of $2.3 million and 4,195 non-performing
assets  below  $2  million  in  size,  including  806  non-performing  1-4  unit
residential assets.

                                    Page 52
<PAGE>

ALLOWANCE FOR LOAN LOSSES

       The Company's  allowance  absorbs losses  inherent in the loan portfolio.
Management periodically evaluates the adequacy of the allowance.  Provisions for
loan  losses  (charged  to  current  earnings)  and  balances  acquired  through
acquisitions  increase the  allowance,  while  charge-offs  (net of  recoveries)
decrease it. The provision considers both specifically  identified problem loans
as well as credit risks not specifically  identified in the loan portfolio.  The
Company  recorded  no  provision  for loan losses  during the nine months  ended
September 30, 2002 and 2001, respectively.  Management believes that its present
allowance  for loan losses is adequate  and it will  continue to review its loan
portfolio  to determine  the extent to which any changes in economic  conditions
and loss experience may require further provisions in the future.

       Activity in the allowance for loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
                                               Nine Months Ended September 30,      Three Months Ended September 30,
                                               -------------------------------      --------------------------------
                                                   2002               2001               2002              2001
                                                   ----               ----               ----              ----
<S>                                              <C>                <C>                <C>               <C>
Balance - beginning of period                    $497,298           $526,308           $469,047          $515,979
    Provision for loan losses                          --                 --                 --                --
    Net charge-offs:
       1-4 unit residential                        (1,471)            (2,735)              (401)             (753)
       Multi-family residential and
          commercial real estate                      260               (109)               (13)              (52)
       Auto loans                                 (39,090)            (7,457)           (17,622)           (2,368)
       Consumer and other                          (8,931)            (4,992)            (2,969)           (1,791)
                                                 --------           --------           --------          --------
          Subtotal - net charge-offs              (49,232)           (15,293)           (21,005)           (4,964)
       Reclassification                               (24)              (130)                --              (130)
                                                 --------           --------           --------          --------
Balance - end of period                          $448,042           $510,885           $448,042          $510,885
                                                 ========           ========           ========          ========
</TABLE>

       The current period  reclassification  relates to loans transferred to the
held-for-sale portfolio. Net charge-offs for the nine months ended September 30,
2002  totalled  $49.2  million,  up $33.9  million  from the nine  months  ended
September 30, 2001. This level of charge-offs represents 13 bps on average loans
in  the  nine  months  ended  September  30,  2002,  compared  to 4 bps  of  net
charge-offs  in the nine months  ended  September  30,  2001.  The  increase was
related  to the  Company's  auto  loan  portfolio,  but  does  not  represent  a
significant increase in portfolio  delinquency rates. Total delinquency rates on
the  portfolio  were 6.67% at September  30, 2001 compared to 6.48% at September
30, 2002. The higher charge-offs resulted primarily from two other issues.

       The Company  experienced higher losses in the current quarter compared to
the previous quarter for two reasons.  First, both seasonal and general economic
trends resulted in a greater number of defaults, and consequently  repossessions
of vehicles.  Historically,  seasonal  factors tend to improve  beginning in the
first quarter and continuing  into the second quarter.  Second,  prices received
for  repossessed  vehicles  weakened.  This  was due to the  prevalence  of auto
manufacturer incentives, including zero percent financing and cash options, that
attracted  buyers to new cars rather than used cars.  This in turn depressed the
values  of used  cars  due  both to  lessened  demand  and  excess  supply  from
trade-ins. Management believes that such incentives will not be sustainable over
a long  period  of time,  and that  used  car  markets  will  return  to  normal
conditions in the near future.

       In addition,  interest income on all auto loans  originated after July 1,
2001 is  recorded  at the gross  coupon vs. an  effective  (or credit  adjusted)
yield.  Credit losses on these loans are no longer being  amortized  through the
net  interest  margin but are charged to the loan loss  allowance,  resulting in
higher net  charge-offs.  During the nine months ended  September 30, 2002,  net
charge-offs  were  $22.2  million  higher  as a result  of this  treatment.  See
"--Interest Income."

                                    Page 53
<PAGE>

       The  adequacy  of the  allowance  is based on past loan loss  experience,
known and inherent risks in the loan portfolio,  adverse unknown situations that
have occurred  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  element  considers  losses  embedded  within the
portfolios, but which have not yet been realized. Losses are recognized when:

       (a)    available  information  indicates  that it is probable that a loss
              has been incurred and

       (b)    the amount of the loss can be reasonably estimated.

       The Company has  determined  that  borrowers  are impacted by events that
result in loan  default  and  eventual  loss  which  occur  well in advance of a
lender's  knowledge  of  those  events,  and  that the  time-frame  between  the
occurrence  of such events and the  resulting  default and loss  realization  is
between  one and 2.5  years,  depending  upon the loan  type.  Examples  of such
loss-causing events for single family mortgage and other consumer loans would be
borrower job loss,  divorce,  and medical crisis. An example for commercial real
estate loans would be the loss of a major tenant.

       The  specific   allowances  are  established  against  individual  loans,
including  impaired loans, in accordance with SFAS No. 114. Specific  allowances
are established  against individual  residential 1-4 mortgage loans,  commercial
loans and commercial and multi-family real estate loans for which management has
performed analyses and concluded that, based on current  information and events,
it is probable that the Bank will be unable to collect all amounts contractually
due. Generally,  management believes that collectibility is improbable if a loan
is severely  delinquent or if it has been  determined that borrower cash flow is
inadequate for debt repayment. The amount of specific allowance is determined by
estimating collateral deficiency, including consideration of collateral disposal
costs.  If the net book value  exceeds the fair value,  a specific  allowance is
established  equal to the excess.  Loans  evaluated  for specific  allowance are
excluded  from the formula  allowance  analysis so as not to  double-count  loss
exposure.

       The  unallocated  allowance is established  for inherent losses which may
not have been  identified  through  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
underwriting  processes,  and trends in problem  loan and loss  recovery  rates.
Geographic concentration is a particularly key component as there is evidence of
deterioration  in some real estate markets,  especially in northern  California.
Statistics  regarding  California  concentration  of the  Company's  entire real
estate-secured portfolio at September 30, 2002 are summarized below:

                                      % of Total Portfolio Concentration in
                                   --------------------------------------------
                                   California     Northern CA       Southern CA
                                   ----------     -----------       -----------

Residential                           76%             37%              39%
Commercial Real Estate                88              28               60
Consumer (primarily Home Equity)      92              42               50

       Each factor is  analyzed  and  assigned a range of values.  At this time,
management  has chosen an unallocated  allowance  amount at the mid-point of the
range for each factor.

       At September  30, 2002,  the  allowance for loan losses was $448 million,
consisting of a $355 million formula allowance, a $16 million specific allowance
and an $77 million unallocated  allowance.  Although the loan loss allowance has
been allocated by type of loan for internal valuation purposes,  $432 million of
the  allowance is general in nature and is available to support any losses which
may occur, regardless of type, in the Company's loan portfolio.

                                    Page 54
<PAGE>

        A summary of the activity in the total allowance for loan losses by loan
type is as follows:
<TABLE>
<CAPTION>
                                                   Multi-family
                                                   Residential
                                  1 - 4 Unit      and Commercial                      Consumer
                                  Residential      Real Estate          Auto          and Other         Total
                                  -----------      -----------          ----          ---------         -----
                                                                   (in millions)
<S>                                  <C>               <C>              <C>             <C>              <C>
Balance - December 31, 2001          $224              $159             $ 10            $104             $497
     Provision for loan losses         --               (13)              13              --               --
     Charge-offs                       --                --              (12)             (3)             (15)
     Recoveries                        --                --               --               1                1
     Reclassification                  (4)               --               --               4               --
                                     ----              ----             ----            ----             ----
Balance - March 31, 2002              220               146               11             106              483
     Provision for loan losses         --               (17)              17              --               --
     Charge-offs                       (1)               --              (10)             (5)             (16)
     Recoveries                        --                --                1               1                2
                                     ----              ----             ----            ----             ----
Balance - June 30, 2002               219               129               19             102              469
     Provision for loan losses         --               (22)              22              --               --
     Charge-offs                       --                --              (18)             (4)             (22)
     Recoveries                        --                --               --               1                1
                                     ----              ----             ----            ----             ----
Balance - September 30, 2002         $219              $107             $ 23            $ 99             $448
                                     ====              ====             ====            ====             ====
</TABLE>

RISK MANAGEMENT

       The Company's  risk  management  policies are  established  by the Bank's
Asset/Liability Management Committee. 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 maintain
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.

       Banks  are  subject  to  interest  rate  risk to the  degree  that  their
interest-bearing  liabilities 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 interest rate risk and
liquidity  risk.  The process of planning and  controlling  asset and  liability
mixes,  volumes, and maturities to influence the net interest spread is referred
to as asset and liability  management.  The objective of the Company's asset and
liability  management  is to maximize  the net  interest  income  over  changing
interest  rate  cycles  within the  constraints  imposed by prudent  lending and
investing practices, liquidity needs, and capital planning.

ASSET AND LIABILITY MANAGEMENT

       GS Holdings,  through the Bank,  actively pursues  investment and funding
strategies  to  minimize  the  sensitivity  of its  earnings  to  interest  rate
fluctuations.  The Company measures the interest rate sensitivity of its balance
sheet  through gap and duration  analysis,  as well as net  interest  income and
market value simulation. After taking into consideration both the variability of
rates and the maturities of various  instruments,  it evaluates strategies which
may reduce the  sensitivity  of its  earnings to interest  rate and market value
fluctuations. In order to reduce interest rate risk by increasing the percentage
of  interest-rate-sensitive  assets,  the Company  continues  to  emphasize  the
origination of ARM products for its portfolio. Where possible, the Company seeks
to originate  real estate and other loans that on the whole adjust in accordance
with the  repricing  of its  liabilities.  At  September  30,  2002,  77% of the
Company's net loan portfolio consisted of ARMs.

                                    Page 55
<PAGE>

       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.

       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  significantly
below their  contractual  margin over  existing  market rates.  Since  repricing
liabilities   are  typically  not  subject  to  such  interest  rate  adjustment
constraints,  the Company's net interest  margin would most likely be negatively
impacted in this  situation.  In order to reduce the  negative  impact of assets
with periodic rate caps in a rising interest rate  environment,  the Bank issued
liabilities  whose  rates are capped  against  rising  rates.  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 UPB  through
negative amortization.

       Conversely,  in a  period  of  falling  rates,  ARMs  can be  subject  to
repayments as borrowers convert from  floating-rate  mortgages to low fixed-rate
mortgages.  As the ARMs  reprice  downward or are  converted  to low  fixed-rate
mortgages,  the yield on interest-earning assets is reduced,  thereby negatively
impacting  the net  interest  margin.  The Bank  seeks to  manage  this  risk by
structuring  the maturity and  repricing of its  liabilities  to best offset the
impact on the net interest margin.

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

                                    Page 56
<PAGE>

       The  following  table sets  forth the  projected  contractual  maturities
adjusted for projected  prepayments and "repricing  mechanisms"  (provisions for
changes in the interest rates of assets and  liabilities).  Prepayment rates are
assumed 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. Accordingly, such assets may not respond in the same manner or
to the same extent to changes in interest rates as the Company's liabilities. In
addition,   the  interest  rate   sensitivity  of  the  assets  and  liabilities
illustrated in the table would vary substantially if different  assumptions were
used or if actual  experience  differed  from the  assumptions  set  forth.  The
Company's  estimated  interest rate sensitivity gap at September 30, 2002 was as
follows:
<TABLE>
<CAPTION>
                                                                     Maturity/Rate Sensitivity
                                                   --------------------------------------------------------------
                                                   Within         1 - 5         Over 5      Noninterest
                                                   1 Year         Years          Years        Bearing       Total
                                                   ------         -----          -----        -------       -----
                                                                        (dollars in millions)
<S>                                                <C>           <C>            <C>           <C>          <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits in other banks           $ 1,392       $    --        $   --        $   --       $ 1,392
     and short-term investment
     securities (1) (2)
Securities held to maturity (1)                         17            --            --            --            17
Securities available for sale (3)                      110            --            --            --           110
Mortgage-backed securities
     available for sale (3)                          3,880            --            --            --         3,880
Mortgage-backed securities
     held to maturity (1) (4)                        1,085            14             1            --         1,100
Loans held for sale, net (3)                         1,955            --            --            --         1,955
Loans receivable, net (1) (5)                       22,925        12,348         1,950            --        37,223
Investment in FHLB                                   1,105            --            --            --        1,105
                                                   -------       -------        ------        ------       -------
     Total interest-earning assets                  32,469        12,362         1,951            --        46,782
Noninterest-earning assets                              --            --            --         3,647         3,647
                                                   -------       -------        ------        ------       -------
                                                   $32,469       $12,362        $1,951        $3,647       $50,429
                                                   =======       =======        ======        ======       =======

INTEREST-BEARING LIABILITIES:
Deposits (6)                                       $22,603       $ 2,496        $    1        $   --       $25,100
Securities sold under agreements to
     repurchase (1)                                  1,888            73            --            --         1,961
FHLB advances (1)                                   11,733         4,919            --            --        16,652
Other borrowings (1)                                   871           891            --            --         1,762
                                                   -------       -------        ------        ------       -------
Total interest-bearing liabilities                  37,095         8,379             1            --        45,475
Noninterest-bearing liabilities                         --            --            --         1,605         1,605
Minority interest                                       --            --            --           500           500
Stockholder's equity                                    --            --            --         2,849         2,849
                                                   -------       -------        ------        ------       -------
                                                   $37,095       $ 8,379        $    1        $4,954       $50,429
                                                   =======       =======        ======        ======       =======

Gap before interest rate swap agreements           $(4,626)      $ 3,983        $1,950                     $ 1,307
Interest rate swap agreements                        3,510        (3,440)          (70)                         --
                                                   -------       -------        ------                     -------
Gap                                                 (1,116)          543         1,880                     $ 1,307
                                                   -------       -------        ------                     =======

Cumulative gap                                     $(1,116)      $  (573)       $1,307
                                                   =======       =======        ======

Gap as a percentage of total assets                   (2.2)%         1.1%          3.7%                        2.6%
                                                   =======       =======        ======                     =======

Cumulative gap as a percentage of total assets        (2.2)%        (1.1)%         2.6%                        2.6%
                                                   =======       =======        ======                     =======

                                                                                                        (Continued)
</TABLE>

                                    Page 57

<PAGE>
_________________
(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, 2002. The
       actual  maturity  and  rate   sensitivity  of  these  assets  could  vary
       substantially if future prepayments differ from prepayment estimates.

(2)    Consists of $89.4 million of short-term  investment  securities  and $1.3
       billion 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 securities of $0.8 million.

(5)    Excludes  allowance  for loan losses of $448  million and  non-performing
       loans of $88 million.

(6)    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, 2002, GS Holdings' cumulative gap totalled $1.3 billion.
At December 31, 2001, GS Holdings' cumulative gap totalled $518 million.

       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.   However,  the
maturity/rate  sensitivity  analysis is a static view of the balance  sheet with
assets and  liabilities  grouped into certain  defined  time  periods,  and only
partially  depicts the dynamics of the  Company's  sensitivity  to interest rate
changes.  Therefore,  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.

                                    Page 58
<PAGE>

       The  Company's  performance  is highly  dependent on the structure of the
balance sheet and the relationship  between assets and liabilities.  Differences
in maturity,  coupon rates and rate indices between assets and liabilities  have
the potential to create variability in earnings.

       The following table sets forth the Company's balance sheet composition by
index (in thousands):

                                           September 30, 2002  December 31, 2001
                                           ------------------  -----------------

Balance Sheet Composition by Index:
  Securities
     Fixed                                     $ 2,725,829        $ 5,348,504
     COFI                                          848,569          1,140,414
     Treasury                                    1,231,291          1,516,419
     Other ARMs                                    212,364            483,136
     Unrealized gain/(loss)                         89,639             97,070
     Purchase accounting                              (349)             4,129
                                               -----------        -----------
        Total securities                         5,107,343          8,589,672
                                               -----------        -----------

  Loans
     Fixed                                       8,617,795          9,149,482
     Hybrid ARMs                                18,120,000         18,649,980
     COFI                                        4,153,266          5,092,248
     Treasury                                    4,271,674          5,340,633
     Other ARMs                                  2,141,921          1,592,005
     Purchase accounting                             6,106              8,573
     Allowance for loan losses                    (448,042)          (497,298)
                                               -----------        -----------
        Total loans                             36,862,720         39,335,623
                                               -----------        -----------

  Other interest-earning assets                  4,452,626          4,151,004
  Noninterest-earning assets                     4,005,996          4,442,519
                                               -----------        -----------
        Total assets                           $50,428,685        $56,518,818
                                               ===========        ===========

  Deposits                                     $25,100,210        $25,146,827
  Borrowings:
     Fixed with maturities < 1 year              8,230,256          9,416,480
     Fixed with maturities > 1 year              6,482,839         10,155,390
     Adjustable                                  5,557,000          7,063,000
     Purchase accounting                                72              2,524
     Accrued interest payable                      104,723            171,092
                                               -----------        -----------
        Total borrowings                        20,374,890         26,808,486
                                               -----------        -----------

  Noninterest-bearing liabilities                1,604,404          1,438,716
  Minority interest and stockholder's equity     3,349,181          3,124,789
                                               -----------        -----------
        Total liabilities and equity           $50,428,685        $56,518,818
                                               ===========        ===========

                                    Page 59
<PAGE>

MORTGAGE BANKING ACTIVITIES

       The following table provides detailed information related to FNMC's MSRs:
<TABLE>
<CAPTION>
                                                                         September 30, 2002    December 31, 2001
                                                                         ------------------    -----------------
                                                                                   (dollars in thousands)
<S>                                                                         <C>                   <C>
Residential Mortgage Servicing Portfolio:
       Total UPB residential loans serviced                                 $110,489,364          $112,262,916
       Total number of residential loans serviced                                959,625               997,276

       Total UPB residential loans serviced for others                      $ 87,268,885          $ 85,218,280
       Total number of residential loans serviced for others                     819,999               838,234

Portfolio Characteristics:
       Weighted average contractual servicing fee earned                              42bps                 42bps
       Average loan balance                                                 $        106          $        102
       Weighted average note rate                                                   7.11%                 7.36%
       Per loan servicing cost (in whole dollars)                           $         49          $         47
       Secured by California properties                                            42.08%                45.67%
</TABLE>
<TABLE>
<CAPTION>
                                               Nine Months Ended September 30,      Three Months Ended September 30,
                                               -------------------------------      --------------------------------
                                                   2002               2001               2002               2001
                                                   ----               ----               ----               ----
                                                                          (in thousands)
<S>                                             <C>                <C>                 <C>                <C>
Mortgage loans sold                             $15,385,092        $11,191,653         $3,464,789         $5,548,272
Mortgage loans sold (servicing retained)        $15,364,620        $11,191,080         $3,464,789         $5,548,169
</TABLE>
<TABLE>
<CAPTION>
                                                          Number of Loans     Loan Principal      Msr Basis
                                                          ---------------     --------------      ---------
                                                          (whole numbers)            (in thousands)
<S>                                                          <C>               <C>                <C>
Residential Mortgage Servicing Portfolio:
Balance - December 31, 2001 (a)                               838,234          $ 85,218,280       $1,620,916
       Originated servicing                                   205,331            14,450,666          349,260
       Flow purchases                                          47,017             6,949,539          185,277
       Bulk purchases                                          15,184             2,252,897           37,797
       Runoff                                                (285,767)          (21,602,497)        (324,808)
       Fair value adjustment (SFAS No. 133)                        --                    --         (746,527)
       Valuation provision                                         --                    --         (120,735)
                                                             --------          ------------       ----------
Balance - September 30, 2002 (a)                              819,999          $ 87,268,885       $1,001,180
                                                             ========          ============       ==========
</TABLE>
___________
(a)    Excludes  $1.6 million at September 30, 2002 and $3.0 million at December
       31, 2001 of MSRs on non-single family residential portfolios.

                                    Page 60
<PAGE>

       The table below summarizes  mortgage  servicing  acquisitions  during the
nine and three months ended September 30, 2002 and 2001:
<TABLE>
<CAPTION>
                                       Number of loans              Loan Principal                 MSR Basis
                                     -------------------          ------------------           ------------------
                                                            Nine Months Ended September 30,
                                     ----------------------------------------------------------------------------
                                     2002           2001          2002          2001           2002          2001
                                     ----           ----          ----          ----           ----          ----
                                       (whole numbers)               (in millions)                (in millions)
                                     -------------------          ------------------           ------------------
<S>                                 <C>           <C>           <C>           <C>             <C>           <C>
Residential Mortgage
    Servicing portfolio:

    Purchased servicing rights      62,201        62,803        $9,202.4      $8,709.1        $223.1        $231.6
</TABLE>
<TABLE>
<CAPTION>
                                       Number of loans              Loan Principal                 MSR Basis
                                     -------------------          ------------------           ------------------
                                                            Three Months Ended September 30,
                                     ----------------------------------------------------------------------------
                                     2002           2001          2002          2001           2002          2001
                                     ----           ----          ----          ----           ----          ----
                                       (whole numbers)               (in millions)                (in millions)
                                     -------------------          ------------------           ------------------
<S>                                 <C>             <C>         <C>           <C>              <C>          <C>
Residential Mortgage
    Servicing portfolio:

    Purchased servicing rights      12,564          27,612      $1,850.8      $3,892.8         $45.6        $105.2
</TABLE>

                                    Page 61
<PAGE>

MORTGAGE BANKING RISK MANAGEMENT

       In  2002,  mortgage  rates  have  declined  to  levels  not  seen in over
thirty-five  years.  As a result,  prepayments  of mortgages are occurring at an
unprecedented  level.  This  results  in  reduced  servicing  fee  income due to
increased amortization and also results in lower market value of MSRs. To reduce
the sensitivity of its earnings to interest rate and market value  fluctuations,
the  Company  hedges  the  change in value of its MSRs  based on  changes in the
benchmark  interest  rate,  LIBOR.  However,  its hedge  coverage ratio does not
always  equate to 100%.  The Company does not hedge  certain  components  of its
portfolio,  primarily ARMs and loans with prepayment penalties. In addition, the
Company  hedges  only  certain  components  of risk,  which  have not  generally
included the mortgage rate spread to other market  interest  rates.  The Company
works to reduce its  exposure to changes  between  mortgage and LIBOR rates in a
variety  of  ways,  including  changing  the  hedge  ratio  and  the  mix of the
instruments  used to hedge  its  MSRs.  However,  because  its  instruments  are
predominantly  based on LIBOR  rates,  there is  significant  exposure to future
spread changes.

       The Company owned several  derivative  instruments at September 30, 2002,
which were used to hedge the change in value of the mortgage servicing portfolio
due to expected  prepayment risk assumption  changes caused by changes in rates.
These derivative  instruments  included interest rate swap agreements,  Constant
Maturity  Swap  interest  rate  floor  contracts,  swaptions  and PO swaps.  MSR
derivatives  used to hedge  the  change  in  value  due to  prepayment  risk are
comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
                                    Notional                                                                   Fair Value at
        Derivative                   Amount             Contract Provisions                Maturity          September 30, 2002
        ----------                   ------             -------------------                --------        -----------------------
                                                                                                            Assets     Liabilities
                                                                                                            ------     -----------
<S>                                <C>            <C>                                      <C>             <C>           <C>
Interest rate swap agreements      $5,495,000     Weighted average pay rate of 1.80%       2005 - 2012     $114,767      $(141)
                                                  Receive rates between 2.97% and 4.73%

Interest rate floor contracts (a)     250,000     Strike rates between 5.96% and 6.19%     2007               9,062         --

Swaption contracts (b)              1,704,000     Strike rates between 4.40% and 4.85%     2003 - 2004       76,367         --

PO swap agreements                    396,960     Index tied to LIBOR based on cash
                                                    flow from a PO strip                   2002 - 2028        5,473       (397)

Other                                 400,000     Strike rate between  5.50% and 6.00%     2002               2,336         --
                                   ----------                                                              --------      -----

Total                              $8,245,960                                                              $208,005      $(538)
                                   ==========                                                              ========      =====
</TABLE>
____________
(a)    Premiums paid to counterparties in exchange for the right to receive cash
       payments  when the 10-year  Constant  Maturity  Swap rate falls below the
       strike  rate  are  recorded  as part of the MSR  derivative  asset on the
       balance sheet.

(b)    Premiums paid to  counterparties  in exchange for the right to enter into
       an interest rate swap are recorded as part of the MSR derivative asset on
       the balance sheet.

       Servicing  fee  income  for the nine  months  ended  September  30,  2002
included a $120.7  million  charge to increase the valuation  allowance on MSRs.
During  the   nine-month   period,   mortgage   rates   declined   significantly
(approximately  130 bps) and estimates of future prepayment  speeds  accelerated
substantially.  In addition,  the  relationship  between  mortgage rates and the
LIBOR  rates on the  instruments  most  commonly  used to hedge  MSRs moved in a
manner  that  increased  the  effective  hedge  ratio and  reduced the amount of
impairment  required to be recorded.  Based on the  benchmark  mortgage rate the
Bank uses for its  internal  estimates,  the spread  between  mortgage and LIBOR
rates widened from  approximately  114 bps at December 31, 2001 to approximately
140 bps at September 30, 2002. These spread levels represent  historically  wide
spreads.  All of the widening  occurred in the three months ended  September 30,
2002, when mortgage rates declined approximately 81 bps and LIBOR rates declined
approximately 110 bps. As a result,  during the three months ended September 30,
2002,  the Company was

                                    Page 62
<PAGE>

effectively  100%  hedged and  recorded  a small  recovery  (approximately  $6.4
million) of its previously recorded valuation  allowance.  The Company estimates
that the spread  widening  increased the gain in the value of the hedges and the
offsetting  writedown of the MSRs by approximately $100 million. The hedge ratio
during the  nine-month  period ranged from  approximately  60% to  approximately
100%.

       If  mortgage  rates  were to  remain  constant  and LIBOR  rates  were to
increase such that the spread to mortgage  rates was similar to that at June 30,
2002,  the hedges at September 30, 2002 would lose an estimated $100 million and
the  servicing  would only gain an  estimated  $30  million,  resulting in a net
pre-tax loss of $70 million.  To the extent that mortgage  rates also  increase,
but not as much as LIBOR rates, recorded losses may be reduced because estimated
hedge ratios are less than 100% or because  other  factors used in the valuation
change in a manner that increases the value of the servicing.

       Because  mortgage  rates have  decreased in 2002 to lows not seen in over
thirty-five  years,  prepayments of mortgages are occurring at an  unprecedented
level   despite   significant   opportunities   to  refinance  in  2001.   These
unprecedented  prepayments  could exceed  estimates of  prepayments  used in the
valuation  of the  servicing  resulting  in  additional  recorded  losses in the
future.

       When developing MSR values,  there is no  demonstrable  liquid market for
MSRs with the same size and other  characteristics  as the  Company's MSR asset.
Management  must  therefore  turn to  other  methods  to  estimate  fair  value.
Management  regularly  reviews its process  for  determining  MSR fair value and
believes that the process it has been using has led to  reasonable  estimates of
value.

LIQUIDITY

       The ratio of cash and  short-term  U.S.  Government  securities and other
specified securities to deposits and borrowings due within one year measures the
Company's   liquidity.   The  OTS  requires  that  California  Federal  maintain
sufficient liquidity to ensure its safe and sound operation. Effective March 15,
2001, the OTS eliminated the previously imposed minimum liquidity requirement of
4%.  California  Federal has been in compliance  with the liquidity  regulations
during the nine months ended  September 30, 2002 and the year ended December 31,
2001.

       The major source of funding for GS Holdings on an unconsolidated basis is
distributions  of the  Bank's  earnings  and tax  sharing  payments.  Net income
generated by the Bank is used to meet its own cash flow needs,  including paying
dividends on its preferred  stock owned by GS Holdings,  and may be distributed,
subject to certain  restrictions,  to the  Company.  In turn,  GS Holdings  uses
distributions   received   from  the  Bank   primarily   to  meet  debt  service
requirements,  pay any  expenses it may incur and make  distributions  to Golden
State,  subject  to  certain  restrictions.  For more  information  on  dividend
restrictions  for the Bank and GS Holdings,  refer to "Business - Regulation and
Supervision" and note 24 of the "Notes to Consolidated  Financial Statements" in
the Company's 2001 Annual Report on Form 10-K.

       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 Company
must  retain and  attract  new  deposits,  which  depends  upon the  variety and
effectiveness of its customer  account  products,  service and convenience,  and
rates paid to customers.  Any decline in retail deposit  funding would adversely
impact  the  Company's  liquidity.  The  Company  also  obtains  funds  from the
repayment  and  maturity  of loans and  mortgage-backed  securities,  as well as
deposit  inflows,  loan sales,  securities sold under  agreements to repurchase,
FHLB  advances,  and  other  secured  and  unsecured  borrowings.   The  Company
anticipates   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. A decline
in the Bank's credit rating would adversely  affect the Bank's ability to borrow
and/or the related borrowing costs, thus impacting the Company's  liquidity.  In
addition,  if the Company  were to default on a  borrowing,  all  principal  and
accrued  interest would become due and payable,  thus  negatively  affecting the
Company's liquidity.

                                    Page 63
<PAGE>

       The consolidated  Company's  primary uses of funds are the origination or
purchase of loans,  mortgage-backed  securities,  maturing CDs,  demand  deposit
withdrawals,  repayment of borrowings and dividends to common shareholders.  CDs
scheduled to mature during the twelve months ending September 30, 2003 aggregate
$6.9 billion. The Company may renew these certificates,  attract new replacement
deposits,  replace such funds with other  borrowings,  or reduce the size of the
balance  sheet.  In  addition,  at  September  30,  2002,  the  Company had FHLB
advances,  securities sold under  agreements to repurchase and other  borrowings
aggregating $9.2 billion and $14.5 billion maturing or repricing within the next
three and twelve  months,  respectively.  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.

       Interest expense on the GS Holdings Notes approximates $107.3 million per
year. The Company  expects the GS Holdings  Notes to be redeemed  within 30 days
after the  consummation of the Citigroup  Merger.  Although GS Holdings  expects
that  distributions  and tax sharing  payments  from the Bank will cover  future
interest and principal payments, there is no guarantee. In addition, there is no
assurance  that  Bank  distributions  will be  permitted  by the terms of any GS
Holdings' debt  instruments,  any class of preferred stock issued by the Bank or
its  subsidiaries,  including  the REIT  Preferred  Stock,  or under  applicable
federal thrift laws then in effect.

       The Company  anticipates  that cash and cash  equivalents on hand and its
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 $2.2 billion at
September 30, 2002, the Company has substantial  additional  borrowing  capacity
with the FHLB and other sources amounting to $8.9 billion.

       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, 2002 were $59.6 billion in
proceeds  from  additional  borrowings,  $15.0 billion in proceeds from sales of
loans  held for  sale,  $5.6  billion  in net loan  originations  and  principal
collections,  $3.4 billion in principal payments on  mortgage-backed  securities
available  for sale and held to maturity and $2.0 billion in proceeds from sales
and settlements of derivatives.  The primary uses of funds were $65.6 billion in
principal payments on borrowings, $14.7 billion in purchases and originations of
loans held for sale,  $3.3  billion in purchases  of loans  receivable  and $1.2
billion in purchases of derivatives.

CAPITAL MANAGEMENT

       OTS capital regulations require the Bank to satisfy three minimum capital
requirements: tangible capital, core (leverage) capital, and risk-based capital.

       TANGIBLE  CAPITAL.  Tangible  capital  is the  sum of the  Bank's  common
stockholder's  equity (including  retained  earnings),  noncumulative  perpetual
preferred stock and minority  interest in equity accounts of fully  consolidated
subsidiaries,  less disallowed  intangibles.  Tangible  capital must be at least
1.5% of adjusted total assets.

       CORE CAPITAL.  Core capital generally is the sum of tangible capital plus
certain other qualifying intangibles.  Under the leverage requirement, a savings
association  is required to maintain  core  capital  equal to a minimum of 4% of
adjusted total assets.

       RISK-BASED  CAPITAL.  Risk-based  capital  equals the sum of core capital
plus  supplementary  capital.   Risk-based  capital  must  be  at  least  8%  of
risk-weighted assets.

       RISK-WEIGHTED  ASSETS.  Risk-weighted assets equal assets plus the credit
risk  equivalent  of  certain   off-balance  sheet  items,   multiplied  by  the
appropriate risk weight.

       SUPPLEMENTARY  CAPITAL.  Supplementary capital includes 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.  Supplementary capital may not exceed 100% of core capital for purposes of
the risk-based requirement.

                                    Page 64
<PAGE>

       MINIMUM  REQUIREMENTS.  These capital  requirements  discussed  above are
viewed as minimum standards by the OTS. 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
circumstances. The Bank is not subject to any such individual regulatory capital
requirement  that is higher than the minimum.  These  capital  requirements  are
currently applicable to the Bank but not to GS Holdings.

       At September 30, 2002, the Bank's tangible,  core and risk-based  capital
ratios of 8.18%, 8.18% and 15.23%, respectively, exceeded the minimum regulatory
capital   requirements.   The  following  is  a  reconciliation  of  the  Bank's
stockholder's equity to regulatory capital as of September 30, 2002:
<TABLE>
<CAPTION>
                                                                   Tangible            Core            Risk-based
                                                                   Capital            Capital           Capital
                                                                   -------            -------           -------
                                                                               (dollars in millions)
<S>                                                                  <C>               <C>                <C>
Stockholder's equity of the Bank                                     $4,356            $4,356             $4,356
Minority interest - REIT Preferred Stock                                500               500                500
Unrealized holding gain on securities, net                              (53)              (53)               (53)
Unrealized holding loss on derivative instruments, net                  191               191                191
Non-allowable capital:
       Non-qualifying loan servicing rights                             (94)              (94)               (94)
       Intangible assets                                               (611)             (611)              (611)
       Goodwill Litigation Assets                                      (159)             (159)              (159)
       Investment in non-includable subsidiaries                        (68)              (68)               (68)
Supplemental capital:
       Qualifying subordinated debentures                                --                --                 55
       General loan loss allowance                                       --                --                367
Assets required to be deducted:
       Equity in subsidiaries                                            --                --                 (7)
       Low-level recourse deduction                                      --                --                 (9)
                                                                     ------            ------             ------
Regulatory capital of the Bank                                        4,062             4,062              4,468
Minimum regulatory capital requirement                                  745             1,987              2,347
                                                                     ------            ------             ------
Excess above minimum capital requirement                             $3,317            $2,075             $2,121
                                                                     ======            ======             ======

Regulatory capital of the Bank                                         8.18%             8.18%             15.23%
Minimum regulatory capital requirement                                 1.50%             4.00%              8.00%
                                                                       ----              ----              -----
Excess above minimum capital requirement                               6.68%             4.18%              7.23%
                                                                       ====              ====              =====
</TABLE>

       The amount of adjusted  total  assets used for the  tangible and leverage
capital  ratios is $49.7 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $29.3 billion.

       Under the prompt  corrective action  regulations  mandated by the FDICIA,
the OTS must take certain actions against savings  associations that fall within
certain  undercapitalized  capital categories.  The regulation  establishes five
categories   of  capital   classification:   "well   capitalized,"   "adequately
capitalized,"   "undercapitalized,"    "significantly   undercapitalized,"   and
"critically  undercapitalized." Under the regulation,  three ratios determine an
association's capital classification:

       o      the ratio of total capital to risk-weighted assets,

       o      the ratio of core capital to risk-weighted assets and

       o      the leverage capital ratio.

                                    Page 65
<PAGE>

       The Bank met the capital requirements of a "well capitalized" institution
under the FDICIA prompt  corrective  action  standards as of September 30, 2002.
The  Bank  is  not  subject  to  any  enforcement  action  or  other  regulatory
proceedings with respect to the prompt corrective action regulation.  Management
believes  there have been no conditions or events since  September 30, 2002 that
would change the Bank's capital classification.

       At September 30, 2002, the Bank's  capital levels were  sufficient for it
to be considered "well capitalized," as presented below.

                                                             Risk-based
                                        Leverage       -------------------------
                                         Capital       Tier 1      Total Capital
                                        --------       ------      -------------

Regulatory capital of the Bank            8.18%        13.82%         15.23%
"Well capitalized" ratio                  5.00%         6.00%         10.00%
                                          ----         -----          -----
Excess above "well capitalized" ratio     3.18%         7.82%          5.23%
                                          ====         =====          =====

       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, 2002,  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, 2002.

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, 2001.

ITEM 4.  CONTROLS AND PROCEDURES

       The  Company  maintains  disclosure  controls  and  procedures  that  are
designed to ensure that  information  required to be disclosed in the  Company's
Exchange Act reports is recorded, processed,  summarized and reported within the
time periods  specified in the SEC's rules and forms,  and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer,  as appropriate,  to allow timely
decisions regarding required disclosure.

       Within 90 days prior to the date of this report,  the Company carried out
an evaluation, under the supervision and with the participation of the Company's
management,  including  the  Company's  Chief  Executive  Officer along with the
Company's  Chief  Financial  Officer,  of the  effectiveness  of the  design and
operation  of the  Company's  disclosure  controls  and  procedures  pursuant to
Exchange  Act  Rule  13a-14.  Based  upon the  foregoing,  the  Company's  Chief
Executive  Officer along with the Company's  Chief Financial  Officer  concluded
that the Company's disclosure controls and procedures are effective.  There have
been no  significant  changes in the  Company's  internal  controls  or in other
factors that could significantly affect internal controls subsequent to the date
the Company completed its evaluation.

                                    Page 66
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

       CALIFORNIA FEDERAL GOODWILL LITIGATION

       The Bank is the  plaintiff  in a  lawsuit  against  the  Government,  the
California  Federal  Goodwill  Litigation.  In the California  Federal  Goodwill
Litigation,  the Bank alleged,  among other things, that the Government breached
certain  contractual  commitments  regarding the  computation  of its regulatory
capital for which the Bank sought  damages and  restitution.  The Bank's  claims
arose from changes,  mandated by FIRREA, with respect to the rules for computing
Old California Federal's regulatory capital.

       In late 1997,  a Claims  Court Judge ruled in favor of the Bank's  motion
for partial summary  judgment as to the  Government's  liability to the Bank for
breach of contract,  and a formal order in that regard was subsequently  issued.
In late 1998, a second  Claims Court Judge ruled that  California  Federal could
not meet its burden for proving lost  profits  damages and ordered that the case
proceed to trial on the damage issue of restitution and reliance.

       On April 16,  1999,  the Claims  Court issued its decision on the damages
claim against the  Government in the  California  Federal  Goodwill  Litigation,
ruling that the Government must compensate the Bank in the sum of  approximately
$23 million.  The summary judgment  liability decision by the first Claims Court
Judge was appealed by the Government,  and the damage award by the second Claims
Court Judge was appealed by the Bank.

       On April 3, 2001, the Court of Appeals for the Federal Circuit upheld the
summary judgment  liability  decision and the  approximately  $23 million damage
award, but it also ruled that the Bank be allowed to present evidence  regarding
damages  incurred under the lost profits  theory.  The case was remanded back to
the Claims  Court for a damages  trial under the lost  profits  theory,  and the
trial concluded on October 22, 2002, with post-trial briefing to end on November
15,  2002,  sometime  after  which the Claims  Court will issue its  ruling.  In
preparation  for this trial,  the Bank has had  prepared a  supplemental  expert
report,  which  contains  alternate  damage  calculations  based upon  different
assumptions,  with the higher calculation being $587 million in lost profits and
the lower calculation being $288 million in lost profits. The Government has had
prepared  reports from four different  experts,  all of which  challenge,  for a
variety of  reasons,  the  calculations  in the Bank's  expert  report and which
essentially  contend that the Bank is not entitled to any damages other than the
approximately $23 million previously awarded by the Claims Court and affirmed by
the Federal Circuit.

       GLENDALE GOODWILL LITIGATION

       By virtue of the Glen Fed Merger, the Bank is also a plaintiff in a claim
against the United States in a second lawsuit, the Glendale Goodwill Litigation.
In the  Glendale  Goodwill  Litigation,  Glendale  Federal  sued the  Government
contending that FIRREA's treatment of supervisory  goodwill constituted a breach
by the  Government of its 1981 contract with the Bank,  under which the Bank had
merged with a Florida thrift and was permitted to include the goodwill resulting
from the merger in its  regulatory  capital.  In 1992, the Claims Court found in
favor of Glendale Federal's  position,  ruling that the Government  breached its
express contractual commitment to permit Glendale Federal to include supervisory
goodwill in its regulatory capital and that Glendale Federal is entitled to seek
financial compensation.

       The trial began in February  1997 and  concluded  in September  1998.  On
April 9, 1999,  the Claims Court  issued its  decision in the Glendale  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$908.9 million. This decision was appealed by the Government and the Bank.

       On  February  16,  2001,  the Court of Appeals  for the  Federal  Circuit
vacated the trial  court's  award of damages and  remanded  the case back to the
trial court for  determination of total reliance damages to which the Bank might
be  entitled.  On August 2, 2002,  the Claims Court  determined  that the Bank's
total reliance  damages were $380.8 million.  On August 19, 2002, the Government
filed with the Claims Court a motion for  reconsideration  of this damage award,
which the Claims Court has not yet acted upon.

                                    Page 67
<PAGE>

       BARTOLD V. GLENDALE FEDERAL BANK ET AL.

       On September 18, 1995,  four  plaintiffs  commenced an action in Superior
Court of California,  County of Orange,  alleging that the  defendants  Glendale
Federal, to which the Bank is a successor by merger, and Verdugo, a wholly owned
subsidiary  of the Bank,  failed  timely to record their release of the mortgage
interest  following payoffs of residential  mortgage loans and, in at least some
instances,  improperly  required  borrowers to pay fees for these releases.  The
plaintiffs'  complaint  seeks  relief  for  the  named  plaintiffs,  as  well as
purportedly for all others  similarly  situated in California and throughout the
United  States and the  general  public,  on causes of action for  violation  of
California Civil Code Section 2941 and California  Business and Professions Code
Section 17200, breach of contract,  fraud and unjust enrichment.  The plaintiffs
seek statutory damages of $300 for each supposed,  separate violation of Section
2941 by Glendale Federal and Verdugo, restitution,  punitive damages, injunctive
relief and attorney's fees, among other things.

       In  October  1997,  the trial  court  granted  summary  judgment  for the
defendants.  In September  2000, the California  Court of Appeals  reversed this
decision and remanded for further proceedings,  including further development of
class  certification  issues.  On March 2,  2001,  the trial  court  held that a
California class had been certified.  On June 7, 2001, the trial court dismissed
two of the  four  causes  of  action  against  the  Bank,  holding  that the OTS
pre-empted  the  California  courts from  regulating  the Bank's  procedures for
reconveying  deeds. The California Court of Appeal denied  plaintiff's  petition
for review of the trial court's decision.

       An agreement  to settle all claims on a  California  class basis has been
reached  with the  plaintiffs'  counsel.  The trial  court  granted  preliminary
approval of the  settlement and the final hearing on the settlement is scheduled
for February 2003. It is anticipated that the cost of the settlement will not be
material.

       OTHER LITIGATION

       In  addition  to  the  matters  described  above,  GS  Holdings  and  its
subsidiaries  are involved in other legal  proceedings and 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 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 68
<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  Quarterly 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  3.2 of the  Registrant's  Quarterly
                     Report on Form 10-Q for the  quarter  ended  September  30,
                     1998.)

              99.1   Certification  of Periodic  Report by  Principal  Executive
                     Officer.

              99.2   Certification  of Periodic  Report by  Principal  Financial
                     Officer.

       (b)    Reports on Form 8-K:

              None.

                                    Page 69
<PAGE>

                            GLOSSARY OF DEFINED TERMS

AICPA - American Institute of Certified Public Accountants
ALCO - Asset/Liability Management Committee
APB  - Accounting Principles Board
APB  OPINION NO. 17 - Intangible Assets
APB  OPINION NO. 25 - Accounting for Stock Issued to Employees
APB  OPINION  NO. 30 -  Reporting  the Results of  Operations  -  Reporting  the
     Effects of Disposal of a Segment of a Business, and Extraordinary,  Unusual
     and Infrequently Occurring Events and Transactions
ARM  - Adjustable-rate mortgage
BANK - California Federal Bank
BPS  - basis points
BROKERED DEPOSITS - Issued CDs through  direct  placement  programs and national
     investment banking firms
CAL  FED  ACQUISITION - Agreement and Plan of Merger among FN Holdings,  Cal Fed
     Bancorp Inc.  and  California  Federal  Bank, A Federal  Savings  Bank.  FN
     Holdings  acquired  100%  of the  outstanding  stock  of Cal  Fed  and  Old
     California  Federal,   and  First  Nationwide  merged  with  and  into  Old
     California Federal in January 1997.
CALIFORNIA FEDERAL - California Federal Bank
CALIFORNIA  FEDERAL  GOODWILL  LITIGATION  -  California  Federal Bank v. United
     States, Civil Action 92-138
CALIFORNIA FEDERAL GOODWILL  LITIGATION ASSET - an asset,  related to California
     Federal  Goodwill  Litigation,  arising  out of  the  purchase  of the  Old
     California Federal.
CD   - Certificate of deposit
CFI  - Cal Fed Investments
CITIGROUP - Citigroup Inc.
CLAIMS COURT - United States Court of Federal Claims
COFI - Cost of Funds Index (tied to the FHLB's 11th District cost of funds)
COMPANY - Golden State Holdings Inc.
CRA  - Community Reinvestment Act
EITF - Emerging Issues Task Force
EITF NO. 94-3 - Liability  Recognition for Certain Employee Termination Benefits
     and Other Costs to Exit an Activity  (including Certain Costs Incurred in a
     Restructuring)
EITF NO. 99-20 - Recognition of Interest  Income and Impairment on Purchased and
     Retained Beneficial Interests in Securitized Financial Assets
EPS  - earnings per share
FASB - Financial Accounting Standards Board
FDICIA - Federal Deposit Insurance Corporation Improvement Act
FEDERAL CIRCUIT - U.S. Court of Appeals for the Federal Circuit
FHLB - Federal Home Loan Bank of San Francisco
FHLB SYSTEM - Federal Home Loan Bank System
FIRREA - Financial Institutions Reform, Recovery and Enforcement Act of 1989 and
     its implementing regulations.
FN   HOLDINGS - First Nationwide Holdings Inc.
FN   HOLDINGS  ASSET  TRANSFER  - FN  Holdings  contributed  all of  its  assets
     (including all of the common stock of the Bank) to GS Holdings in September
     1998.
FN   HOLDINGS  NOTES - FN Holdings 12 1/4% Senior Notes,  the FN Holdings 9 1/8%
     Senior Sub Notes and the FN Holdings 10 5/8% Notes, collectively
FNMC - First Nationwide Mortgage Corporation
FTE  - Full-time equivalent staff
GAAP -accounting principles generally accepted in the United States of America
GLEN FED MERGER - Glendale Federal Bank merged with and into the Bank
GLENDALE FEDERAL - Glendale Federal Bank, Federal Savings Bank
GLENDALE GOODWILL  LITIGATION  - Glendale  Federal  Bank v. United  States,  No.
     90-772C
GLENDALE GOODWILL LITIGATION ASSET - an asset,  related to the Glendale Goodwill
     Litigation, arising out of the purchase of Glendale Federal.
GNMA - Government National Mortgage Association
GOLDEN STATE - Golden State Bancorp Inc.

                                    Page 70
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

GOLDEN STATE  ACQUISITION - FN Holdings Asset Transfer,  Holding Company Mergers
     and Glen Fed Merger, collectively
GOLDEN STATE COMMON STOCK - Golden State common stock, par value $1.00
GOLDEN STATE  MERGER - the merger,  completed on  September  11,  1998,  between
     Golden State, the publicly traded parent company of Glendale  Federal,  and
     First Nationwide Holdings Inc. and Hunter's Glen/Ford, Ltd.
GOODWILL LITIGATION  ASSETS - the California  Federal Goodwill  Litigation Asset
     and the Glendale Goodwill Litigation Asset, collectively
GOVERNMENT - United States Government
GSB  - Golden State Bancorp Inc.
GSB  INVESTMENTS - GSB Investments Corp.
GS   HOLDINGS - Golden State Holdings Inc.
GS   HOLDINGS  NOTES - On August 6, 1998,  GS Escrow  Corp,  which  subsequently
     merged  into GS  Holdings,  issued $2  billion of fixed and  floating  rate
     notes.
HOLDING  COMPANY  MERGERS  - FN  Holdings  merged  with  and into  Golden  State
     Financial  Corporation,  which  owned all of the common  stock of  Glendale
     Federal.
HUNTER'S GLEN - Hunter's Glen/Ford, Ltd.
IO   - Interest only
IRS  - Internal Revenue Service
LIBOR - London Interbank Offered Rate
LTV  - Loan-to-value
LTWTM - Litigation Tracking WarrantsTM
MERCURY MERGER SUB - Mercury Merger Sub, Inc., a subsidiary of Citigroup
MERGER - The  merger of Golden  State with and into  Mercury  Merger  Sub,  with
     Mercury Merger Sub as the surviving entity
MERGER AGREEMENT - the Agreement  and Plan of Merger that  provides  for,  among
     other things, the Merger
MSR  - Mortgage servicing rights
NOL  - net operating loss
NOTIONAL AMOUNT - the amount on which calculations, payments, and the value of a
     derivative  is based.  Notional  amounts  do not  represent  direct  credit
     exposures.
NPV  - Net portfolio value
OCI  - Other comprehensive income
OLD  CALIFORNIA  FEDERAL - California Federal Bank, A Federal Savings Bank prior
     to the Cal Fed Acquisition.
OTS  - Office of Thrift Supervision
PASS-THROUGH  INTEREST  EXPENSE  -  represents  interest  that  FNMC pays to the
     investor(s)  for  loans  serviced  by  FNMC,  which  are  paid  off  by the
     borrower(s)  before  the end of the  month.  FNMC  pays  the  shortfall  of
     interest on the respective  loans as a result of the contractual  agreement
     between the servicer (FNMC) and the investor(s) (i. e., GNMA)
PO   - Principal only
PREFERRED CAPITAL CORPORATION - California Federal Preferred Capital Corporation
REIT - Real Estate Investment Trust
REIT PREFERRED STOCK - 9 1/8% Noncumulative Exchangeable Preferred Stock, Series
     A, issued by California  Federal Preferred  Capital  Corporation in January
     1996.
REPOS - short-term securities sold under agreements to repurchase
SEC  - United States Securities and Exchange Commission
SECURITYHOLDERS  - consists  of Mafco  Holdings  Inc.,  GSB  Investments  Corp.,
     MacAndrews & Forbes Holdings Inc., Hunter's Glen/Ford, Ltd. and Gerald Ford
SECURITYHOLDERS  AGREEMENT - dated as of May 21,  2002,  by and among  Citigroup
     Inc.,  Golden State Bancorp Inc.,  Mafco  Holdings  Inc.,  GSB  Investments
     Corp.,  MacAndrews & Forbes  Holdings Inc.,  Hunter's  Glen/Ford,  Ltd. and
     Gerald Ford,  pursuant to which the  Securityholders,  among other  things,
     have agreed to vote certain  shares of Company  Common  Stock  beneficially
     owned by them,  constituting  approximately 31.5% of the outstanding shares
     of Golden State Common Stock, in favor of the Merger and against  competing
     business combination proposals.

                                    Page 71
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

SFAS - Statement of Financial Accounting Standards
SFAS NO. 4 - Reporting Gains and Losses from Extinguishment of Debt
SFAS NO. 13 - Accounting for Leases
SFAS NO. 44 - Accounting for Intangible Assets of Motor Carriers
SFAS NO. 64 - Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements
SFAS NO.  72  -  Accounting  for  Certain  Acquisitions  of  Banking  or  Thrift
     Institutions
SFAS NO. 114 - Accounting by Creditors for Impairment of a Loan
SFAS NO. 115 - Accounting for Certain Investments in Debt and Equity Securities
SFAS NO.  121 -  Accounting  for the  Impairment  of  Long-lived  Assets and for
     Long-lived Assets to be Disposed of
SFAS NO.  131  -  Disclosures  about  Segments  of  an  Enterprise  and  Related
     Information
SFAS NO. 133 - Accounting for Derivative Instruments and Hedging Activities
SFAS NO. 142 - Accounting for Goodwill and Intangible Assets
SFAS NO. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets
SFAS NO. 145 - Rescission  of SFAS No. 4, 44, and 64,  Amendment of SFAS No. 13,
     and Technical Corrections
SFAS NO. 146 - Accounting for Costs Associated with Exit or Disposal Activities
SFAS NO. 147 - Acquisitions of Certain Financial Institutions
SOP  - Statement of Position
SOP  01-6 -  Accounting  by  Certain  Entities  (Including  Entities  With Trade
     Receivables) That Lend to or Finance the Activities of Others
STOCK PLAN - Golden State Bancorp Inc. Omnibus Stock Plan
UPB  - Unpaid principal balance
VERDUGO - Verdugo Trustee Service Corporation

                                    Page 72
<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 4, 2002

                                    Page 73
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                                 CERTIFICATIONS

CERTIFICATION BY CHAIRMAN AND CHIEF EXECUTIVE OFFICER

I, Gerald J. Ford, certify that:

     1.   I have  reviewed  this  quarterly  report on Form 10-Q of Golden State
          Holdings Inc.;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weakness in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

                                            /s/  Gerald J. Ford
                                        ----------------------------------------
                                        By: Gerald J. Ford
                                            Chairman and Chief Executive Officer

November 4, 2002

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CERTIFICATION BY CHIEF FINANCIAL OFFICER

I, Richard H. Terzian, certify that:

     1.   I have  reviewed  this  quarterly  report on Form 10-Q of Golden State
          Holdings Inc.;

     2.   Based on my  knowledge,  this  quarterly  report  does not contain any
          untrue  statement of a material  fact or omit to state a material fact
          necessary to make the statements  made, in light of the  circumstances
          under which such  statements were made, not misleading with respect to
          the period covered by this quarterly report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this quarterly report,  fairly present in all
          material respects the financial  condition,  results of operations and
          cash flows of the registrant as of, and for, the periods  presented in
          this quarterly report;

     4.   The registrant's  other certifying  officers and I are responsible for
          establishing  and maintaining  disclosure  controls and procedures (as
          defined in Exchange  Act Rules  13a-14 and 15d-14) for the  registrant
          and we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated  subsidiaries,  is made known to us by others within
               those  entities,  particularly  during  the  period in which this
               quarterly report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this quarterly report (the "Evaluation Date"); and

          c)   presented  in this  quarterly  report our  conclusions  about the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.   The registrant's other certifying officers and I have disclosed, based
          on our most recent  evaluation,  to the registrant's  auditors and the
          audit  committee  of  registrant's  board  of  directors  (or  persons
          performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weakness in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.   The  registrant's  other  certifying  officers and I have indicated in
          this quarterly report whether or not there were significant changes in
          internal controls or in other factors that could significantly  affect
          internal   controls   subsequent  to  the  date  of  our  most  recent
          evaluation,   including   any   corrective   actions  with  regard  to
          significant deficiencies and material weaknesses.

                                            /s/  Richard H. Terzian
                                        ----------------------------------------
                                        By: Richard H. Terzian
                                            Chief Financial Officer

November 4, 2002

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