<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                June 30, 2000
                               -------------------------------------------------

                                       or

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

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

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

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

        Delaware                                               95-4669792
--------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or            (I.R.S. Employer
 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 July 31, 2000: 1,000 shares.


                                     Page 1
<PAGE>

                           GOLDEN STATE HOLDINGS INC.
                     SECOND QUARTER 2000 REPORT ON FORM 10-Q
                                TABLE OF CONTENTS


PART I.       FINANCIAL INFORMATION                                        PAGE

  Item 1.     Consolidated Financial Statements

              Unaudited Consolidated Balance Sheets
              June 30, 2000 and December 31, 1999........................... 3

              Unaudited Consolidated Statements of Income
              Six Months Ended June 30, 2000 and 1999....................... 4

              Unaudited Consolidated Statements of Income
              Three Months Ended June 30, 2000 and 1999..................... 5

              Unaudited Consolidated Statements of Comprehensive Income
              Six Months Ended June 30, 2000 and 1999....................... 6

              Unaudited Consolidated Statements of Comprehensive Income
              Three Months Ended June 30, 2000 and 1999..................... 7

              Unaudited Consolidated Statements of Stockholder's Equity
              Six Months Ended June 30, 2000................................ 8

              Unaudited Consolidated Statements of Cash Flows
              Six Months Ended June 30, 2000 and 1999....................... 9

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

  Item 2.     Management's Discussion and Analysis of
              Financial Condition and Results of Operations.................19

  Item 3.     Quantitative and Qualitative Disclosures About Market Risk....45


PART II.      OTHER INFORMATION

  Item 1.     Legal Proceedings.............................................46

  Item 2.     Changes in Securities.........................................46

  Item 3.     Defaults Upon Senior Securities...............................46

  Item 4.     Submission of Matters to a Vote of Security Holders...........46

  Item 5.     Other Information.............................................46

  Item 6.     Exhibits and Reports on Form 8-K..............................47

  Signatures................................................................48


                                     Page 2
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                      June 30, 2000 and December 31, 1999
                                  (Unaudited)
                 (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                 June 30,         December 31,
                       Assets                                                      2000               1999
                       ------                                                  -----------        ------------
<S>                                                                            <C>                <C>
    Cash and due from banks                                                    $   607,215        $   508,812
    Interest-bearing deposits in other banks                                            70                  5
    Short-term investment securities                                                84,361             84,061
                                                                               -----------        -----------
           Cash and cash equivalents                                               691,646            592,878

    Securities available for sale, at fair value                                   622,988          1,075,734
    Securities held to maturity                                                    608,922            185,357
    Mortgage-backed securities available for sale, at fair value                11,313,733         13,764,565
    Mortgage-backed securities held to maturity                                  3,017,935          2,149,696
    Loans held for sale, net                                                       796,307            729,062
    Loans receivable, net                                                       38,402,418         33,953,461
    Investment in Federal Home Loan Bank ("FHLB") System                         1,315,260          1,167,144
    Premises and equipment, net                                                    284,362            296,800
    Foreclosed real estate, net                                                     27,982             45,091
    Accrued interest receivable                                                    345,747            321,596
    Intangible assets (net of accumulated amortization of $215,340
         at June 30, 2000 and $183,433 at December 31, 1999)                       745,472            819,561
    Mortgage servicing rights                                                    1,421,201          1,272,393
    Other assets                                                                   913,898            667,793
                                                                               -----------        -----------
             Total assets                                                      $60,507,871        $57,041,131
                                                                               ===========        ===========


             Liabilities, Minority Interest and Stockholder's Equity
             -------------------------------------------------------
    Deposits                                                                   $23,268,266        $23,040,571
    Securities sold under agreements to repurchase                               5,609,545          5,481,747
    Borrowings                                                                  28,183,515         25,668,626
    Other liabilities                                                            1,020,272            688,870
                                                                               -----------        -----------
             Total liabilities                                                  58,081,598         54,879,814
                                                                               -----------        -----------

    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                                              1,544,568          1,542,171
         Accumulated other comprehensive loss                                     (284,743)          (276,832)
         Retained earnings (substantially restricted)                              666,447            395,977
                                                                               -----------        -----------
             Total stockholder's equity                                          1,926,273          1,661,317
                                                                               -----------        -----------
             Total liabilities, minority interest and stockholder's equity     $60,507,871        $57,041,131
                                                                               ===========        ===========
</TABLE>
    See accompanying notes to unaudited consolidated financial statements.


                                     Page 3
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                     Six Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                           Six Months Ended June 30,
                                                                                          --------------------------
                                                                                             2000            1999
                                                                                          -----------     ----------
<S>                                                                                       <C>             <C>
Interest income:
     Loans receivable                                                                     $1,343,507      $1,134,778
     Mortgage-backed securities available for sale                                           435,545         423,616
     Mortgage-backed securities held to maturity                                              90,836          95,900
     Loans held for sale                                                                      28,686          67,692
     Securities available for sale                                                            38,462          38,067
     Securities held to maturity                                                               3,995           6,303
     Interest-bearing deposits in other banks                                                  3,384           2,300
     Dividends on FHLB stock                                                                  45,110          28,184
                                                                                          ----------      ----------
         Total interest income                                                             1,989,525       1,796,840
                                                                                          ----------      ----------

Interest expense:
     Deposits                                                                                443,146         444,058
     Securities sold under agreements to repurchase                                          172,734         107,610
     Borrowings                                                                              796,225         640,160
                                                                                          ----------      ----------
         Total interest expense                                                            1,412,105       1,191,828
                                                                                          ----------      ----------
         Net interest income                                                                 577,420         605,012
     Provision for loan losses                                                                    --          10,000
                                                                                          ----------      ----------
         Net interest income after provision for loan losses                                 577,420         595,012
                                                                                          ----------      ----------

Noninterest income:
     Loan servicing fees, net                                                                 90,592          70,290
     Customer banking fees and service charges                                                98,724          91,367
     Gain on sale, settlement and transfer of loans, net                                      27,062          20,453
     (Loss) gain on sale of assets, net                                                      (16,036)         15,109
     Other income                                                                             17,804          16,819
                                                                                          ----------      ----------
         Total noninterest income                                                            218,146         214,038
                                                                                          ----------      ----------

Noninterest expense:
     Compensation and employee benefits                                                      214,948         201,785
     Occupancy and equipment                                                                  73,508          68,044
     Professional fees                                                                        17,606          27,164
     Loan expense                                                                             14,003          22,140
     Foreclosed real estate operations, net                                                   (3,378)         (2,068)
     Amortization of intangible assets                                                        31,907          35,168
     Merger and integration costs                                                                 --           7,747
     Other expense                                                                           103,012         114,768
                                                                                          ----------      ----------
         Total noninterest expense                                                           451,606         474,748
                                                                                          ----------      ----------

Income before income taxes,  minority interest and extraordinary items                       343,960         334,302
Income tax (benefit) expense                                                                  (7,890)        154,714
Minority interest                                                                             13,394          19,907
                                                                                          ----------      ----------
Income before extraordinary items                                                            338,456         159,681
Extraordinary items - gain on early extinguishment of debt,
     net of applicable taxes of $2,083 in 2000                                                 3,014              --
                                                                                          ----------      ----------
     Net income available to stockholder                                                  $  341,470      $  159,681
                                                                                          ==========      ==========
</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 June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                           Three Months Ended June 30,
                                                                                           ---------------------------
                                                                                              2000             1999
                                                                                           ----------       ----------
<S>                                                                                        <C>              <C>
Interest income:
     Loans receivable                                                                      $  697,314       $  567,505
     Mortgage-backed securities available for sale                                            206,483          219,562
     Mortgage-backed securities held to maturity                                               51,457           45,471
     Loans held for sale                                                                       15,368           33,044
     Securities available for sale                                                             19,369           19,689
     Securities held to maturity                                                                1,934            2,843
     Interest-bearing deposits in other banks                                                   2,983            1,261
     Dividends on FHLB stock                                                                   27,963           14,628
                                                                                           ----------       ----------
         Total interest income                                                              1,022,871          904,003
                                                                                           ----------       ----------

Interest expense:
     Deposits                                                                                 224,354          222,062
     Securities sold under agreements to repurchase                                            89,828           53,562
     Borrowings                                                                               418,372          331,337
                                                                                           ----------       ----------
         Total interest expense                                                               732,554          606,961
                                                                                           ----------       ----------
         Net interest income                                                                  290,317          297,042
     Provision for loan losses                                                                     --            5,000
                                                                                           ----------       ----------
         Net interest income after provision for loan losses                                  290,317          292,042
                                                                                           ----------       ----------

Noninterest income:
     Loan servicing fees, net                                                                  45,717           34,322
     Customer banking fees and service charges                                                 50,065           46,621
     Gain on sale, settlement and transfer of loans, net                                       20,400            4,864
     (Loss) gain on sale of assets, net                                                       (16,455)          14,935
     Other income                                                                               8,238            7,213
                                                                                           ----------       ----------
         Total noninterest income                                                             107,965          107,955
                                                                                           ----------       ----------

Noninterest expense:
     Compensation and employee benefits                                                      107,194            99,200
     Occupancy and equipment                                                                  36,137            30,089
     Professional fees                                                                         8,850            13,211
     Loan expense                                                                              7,960             9,962
     Foreclosed real estate operations, net                                                   (1,145)           (1,395)
     Amortization of intangible assets                                                        15,464            18,010
     Merger and integration costs                                                                 --             1,665
     Other expense                                                                            51,814            50,435
                                                                                          ----------        ----------
         Total noninterest expense                                                           226,274           221,177
                                                                                          ----------        ----------

Income before income taxes,  minority interest and extraordinary items                       172,008           178,820
Income tax expense                                                                            75,057            82,296
Minority interest                                                                              6,795            10,740
                                                                                          ----------        ----------
Income before extraordinary items                                                             90,156            85,784
Extraordinary items - gain on early extinguishment of debt,
     net of applicable taxes of $1,204 in 2000                                                 1,808                --
                                                                                          ----------        ----------
     Net income available to stockholder                                                  $   91,964        $   85,784
                                                                                          ==========        ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.


                                     Page 5
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
                     Six Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                           Six Months Ended June 30,
                                                                                           -------------------------
                                                                                             2000            1999
                                                                                           ---------       ---------
<S>                                                                                        <C>             <C>
       Net income                                                                          $ 341,470       $ 159,681

       Other comprehensive loss, net of tax:
           Unrealized holding loss on securities available for sale:
              Unrealized holding loss arising during the period                              (19,427)       (161,335)
              Less: reclassification adjustment for loss (gain)
                 included in net income                                                       10,846            (194)
                                                                                           ---------       ---------
                                                                                              (8,581)       (161,529)
           Amortization of market adjustment for securities
              transferred from available for sale to held to maturity                            670              --
                                                                                           ---------       ---------

       Other comprehensive loss                                                               (7,911)       (161,529)
                                                                                           ---------       ---------

        Comprehensive income (loss)                                                        $ 333,559       $  (1,848)
                                                                                           =========       =========
</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 June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                           Three Months Ended June 30,
                                                                                           ---------------------------
                                                                                             2000              1999
                                                                                           --------          ---------
<S>                                                                                        <C>               <C>
    Net income                                                                             $ 91,964          $  85,784

    Other comprehensive income (loss), net of tax:
        Unrealized holding gain (loss) on securities available for sale:
           Unrealized holding gain (loss) arising during the period                           1,118           (145,356)
           Less: reclassification adjustment for loss (gain) included
               in net income                                                                 10,846                (22)
                                                                                           --------          ---------
                                                                                             11,964           (145,378)
        Amortization of market adjustment for securities
           transferred from available for sale to held to maturity                              670                 --
                                                                                           --------           ---------
    Other comprehensive income (loss)                                                        12,634           (145,378)
                                                                                           --------          ---------
    Comprehensive income (loss)                                                            $104,598          $ (59,594)
                                                                                           ========          =========
</TABLE>


    See accompanying notes to unaudited consolidated financial statements.


                                     Page 7
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholder's Equity
                         Six Months Ended June 30, 2000
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                          Accumulated         Retained
                                                         Additional          Other            Earnings           Total
                                             Common        Paid-in       Comprehensive     (Substantially    Stockholder's
                                              Stock        Capital            Loss           Restricted)        Equity
                                              -----        -------            ----           ---------          ------
<S>                                            <C>       <C>               <C>                <C>              <C>
Balance at December 31, 1999                   $ 1       $1,542,171        $(276,832)         $395,977         $1,661,317

Net income                                                                                     341,470            341,470
Change in net unrealized holding loss
    on securities available for sale            --               --           (8,581)               --             (8,581)
Amortization of unrealized holding
    loss on securities held to maturity         --               --              670                --                670
Dividends to parent                             --               --               --           (71,000)           (71,000)
Impact of Golden State restricted
    common stock                                --            2,388               --                --              2,388
Tax benefits on exercise of stock
    options                                     --                9               --                --                  9
                                               ---       ----------        ---------          --------         ----------
Balance at June 30, 2000                       $ 1       $1,544,568        $(284,743)         $666,447         $1,926,273
                                               ===       ==========        =========          ========         ==========
</TABLE>



See accompanying notes to unaudited consolidated financial statements.


                                     Page 8
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                     Six Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                           Six Months Ended June 30,
                                                                                         ------------------------------
                                                                                             2000              1999
                                                                                         ------------      ------------
<S>                                                                                      <C>               <C>
  Cash flows from operating activities:
  Net income                                                                             $    341,470      $    159,681
  Adjustments to reconcile net income to net cash provided by
     operating activities:
     Amortization of intangible assets                                                         31,907            35,168
     (Accretion) amortization of purchase accounting premiums and
         discounts, net                                                                          (343)            8,427
     Accretion of discount on borrowings                                                          535               501
     Amortization of mortgage servicing rights                                                 97,236           104,981
     Provision for loan losses                                                                     --            10,000
     Loss (gain) on sale of assets, net                                                        16,036           (15,109)
     Gain on sale of foreclosed real estate, net                                               (6,324)           (5,906)
     Loss on sale, settlement and transfer of loans, net                                       27,416            89,030
     Capitalization of originated mortgage servicing rights                                   (54,478)         (109,483)
     Extraordinary items - gain on early extinguishment of debt, net                           (3,014)               --
     Depreciation and amortization of premises and equipment                                   23,766            17,590
     Amortization of deferred debt issuance costs                                               3,674             3,619
     FHLB stock dividends                                                                     (45,110)          (28,184)
     Purchases and originations of loans held for sale                                     (2,289,613)       (5,570,718)
     Net proceeds from the sale of loans held for sale                                      2,156,218         5,704,949
     (Increase) decrease in other assets                                                      (53,679)           98,939
     Increase in accrued interest receivable                                                  (22,913)           (7,103)
     Increase (decrease) in other liabilities                                                 210,338          (131,165)
     Amortization of deferred compensation expense-
         restricted common stock                                                                1,103                --
     Minority interest                                                                         13,394            19,907
                                                                                         ------------      ------------
         Net cash provided by operating activities                                       $    447,619      $    385,124
                                                                                         ------------      ------------
</TABLE>

                                                                     (Continued)


  See accompanying notes to unaudited consolidated financial statements.


                                     Page 9
<PAGE>

                   GOLDEN STATE HOLDINGS INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows (continued)
                     Six Months Ended June 30, 2000 and 1999
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                           Six Months Ended June 30,
                                                                                         ------------------------------
                                                                                             2000              1999
                                                                                         ------------      ------------
<S>                                                                                      <C>               <C>
  Cash flows from investing activities:
       Downey Acquisition                                                                $   (379,314)     $         --
       Nevada Purchase                                                                             --           458,943
       Purchases of securities available for sale                                             (33,082)         (791,189)
       Proceeds from maturities of securities available for sale                               35,469           355,033
       Purchases of securities held to maturity                                                (1,734)           (3,066)
       Principal payments and proceeds from maturities
          of securities held to maturity                                                       23,809             1,173
       Purchases of mortgage-backed securities available for sale                             (58,340)       (3,469,570)
       Principal payments on mortgage-backed securities available for sale                    953,057         2,295,935
       Principal payments on mortgage-backed securities held to maturity                      188,014           368,537
       Proceeds from sales of mortgage-backed securities available for sale                   480,159           193,732
       Proceeds from sales of loans                                                            32,820            10,450
       Net increase in loans receivable                                                   (3,304,202)          (594,812)
       Purchases of loans receivable                                                         (811,740)         (991,983)
       Purchases of FHLB stock, net                                                          (107,570)          (98,517)
       Purchases of premises and equipment                                                    (20,201)          (62,710)
       Proceeds from disposal of premises and equipment                                           719            46,218
       Proceeds from sales of foreclosed real estate                                           48,641            79,116
       Purchases of mortgage servicing rights                                                (191,998)         (245,711)
       Proceeds from sales of mortgage servicing rights                                           689            57,367
                                                                                         ------------      ------------
          Net cash used in investing activities                                            (3,144,804)       (2,391,054)
                                                                                         ------------      ------------

  Cash flows from financing activities:
       Net increase (decrease) in deposits                                                    228,661        (1,169,207)
       Proceeds from additional borrowings                                                 20,055,022        17,477,254
       Principal payments on borrowings                                                   (17,531,143)      (15,614,925)
       Net increase in securities sold under
          agreements to repurchase                                                            127,798         1,109,040
       Bank Preferred Stock Tender Offers                                                          --           (63,957)
       Debt Tender Offers                                                                          --              (253)
       Dividends on common stock                                                              (71,000)          (55,000)
       Dividends paid to minority stockholders, net of taxes                                  (13,394)          (24,371)
       Tax benefit on exercise of stock options                                                     9             1,768
                                                                                         ------------      ------------
          Net cash provided by financing activities                                         2,795,953         1,660,349
                                                                                         ------------      ------------
  Net change in cash and cash equivalents                                                      98,768          (345,581)
  Cash and cash equivalents at beginning of period                                            592,878           967,950
                                                                                         ------------      ------------
  Cash and cash equivalents at end of period                                             $    691,646      $    622,369
                                                                                         ============      ============
</TABLE>



  See accompanying notes to unaudited consolidated financial statements.


                                    Page 10
<PAGE>

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


(1)    BASIS OF PRESENTATION
       ---------------------

       The  accompanying   unaudited   consolidated  financial  statements  were
prepared in accordance with generally accepted accounting principles for interim
financial  information and the  requirements  of Regulation S-X,  Article 10 and
therefore  do not include  all  disclosures  necessary  for  complete  financial
statements.  In the opinion of management,  all adjustments  have been made that
are necessary for a fair  presentation of the financial  position and results of
operations  and  cash  flows  as of and  for the  periods  presented.  All  such
adjustments are of a normal recurring nature.  The results of operations for the
three and six months ended June 30, 2000 are not  necessarily  indicative of the
results  that may be expected  for the entire  fiscal year or any other  interim
period.  Certain  amounts for the three and six-month  periods in the prior year
have been reclassified to conform to the current period's presentation.

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

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

       Minority interest  represents  amounts  attributable to (a) the Preferred
Stock  ("REIT  Preferred   Stock")  of  California   Federal  Preferred  Capital
Corporation,  a wholly  owned  subsidiary  of the Bank,  and (b) that portion of
stockholder's  equity  of  Auto  One  Acceptance  Corporation  ("Auto  One"),  a
subsidiary  of the  Bank,  attributable  to 20% of its  common  stock.  In 1999,
minority  interest also included the Bank Preferred  Stock that had not yet been
acquired by GS Holdings.

       All  significant   intercompany   balances  and  transactions  have  been
eliminated  in  consolidation.  These  financial  statements  should  be read in
conjunction with the consolidated  financial  statements of GS Holdings included
in the  Company's  Annual  Report on Form 10-K for the year ended  December  31,
1999. All terms used but not defined  elsewhere herein have meanings ascribed to
them in the Company's Annual Report on Form 10-K.

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

(2)    ACQUISITIONS AND DIVESTITURES
       -----------------------------

       GOLDEN STATE ACQUISITION

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


                                    Page 11
<PAGE>

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


"Glen Fed Merger").  The FN Holdings Asset Transfer, the Holding Company Mergers
and the  Glen Fed  Merger are  referred  to  collectively  as the  "Golden State
Acquisition."

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

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

       Merger and integration costs associated with the Golden State Acquisition
totalled  $7.7  million  for the six  months  ended  June  30,  1999,  including
severance for terminated  California Federal employees,  expenses for California
Federal branch  closures,  and conversion and  consolidation  costs,  as well as
transition  expenses for duplicate  personnel,  facilities and computer  systems
during the  integration  period.  No such expenses were incurred  during the six
months ended June 30, 2000.

       OTHER ACQUISITIONS AND DIVESTITURES

       On February 29, 2000, Auto One acquired Downey Auto Finance  Corporation,
a subsidiary of Downey Savings and Loan Association, F.A., with prime auto loans
of approximately $370 million (the "Downey  Acquisition").  Intangible assets of
$7.7 million were recorded in connection with this acquisition.

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

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

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

       On April 30,  2000,  the  Company  reclassified  $1.1  billion and $497.9
million  carrying value of  mortgage-backed  securities and U.S.  government and
agency  securities,  respectively,  from securities  available for sale to their
respective   held-to-maturity   portfolios.   These  assets  primarily  comprise
securities  which  are  required  as part  of the  Bank's  regulatory  liquidity
portfolio.  The  Company  has both the  positive  intent and the ability to hold
these  securities  to  maturity.  The  net  unrealized  loss  related  to  these
securities  of $64.0  million,  which  is  included  as a  component  of  equity
(accumulated other comprehensive loss), is amortized to interest income over the
remaining life of the securities using the effective  interest yield method. The
effect of this  amortization on interest income is fully offset by the effect of
amortization of the related discount  recorded against the respective  assets at
the time of transfer.

(4)    CASH, CASH EQUIVALENTS, AND STATEMENTS OF CASH FLOWS
       ----------------------------------------------------

       Cash  paid   for  interest   on  deposits   and  other   interest-bearing
liabilities  during the six months ended June 30, 2000 and 1999 was $1.4 billion
and $1.1  billion,  respectively.  Net cash paid for income taxes during the six
months  ended  June 30,  2000 and 1999 was  $12.0  million  and  $74.4  million,
respectively.

       During the six months ended June 30, 2000,  noncash activity consisted of
the  reclassification  of $1.1  billion  and $497.9  million of  mortgage-backed
securities  and  U.S.  government  and  agency  securities,  respectively,  from
securities available for sale to their respective  held-to-maturity  portfolios,
transfers of $31.9  million from loans  receivable  to  foreclosed  real estate,
transfers of $24.2 million from loans held for sale (at lower of cost or market)
to loans  receivable and $5.4 million of loans made to facilitate  sales of real
estate owned.


                                    Page 12
<PAGE>

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


       Noncash  activity during the six months ended June 30, 2000 also included
the  following:  a $211.7  million  reduction of the valuation  allowance of the
Company's  deferred tax asset  representing  pre-merger  tax benefits,  of which
$161.7  million  was  retained by the  previous  owners of FN  Holdings;  and an
increase of $2.4 million in additional  paid-in capital reflecting the impact of
Golden State restricted  common stock  outstanding  under an employee  incentive
plan.

       During the six months ended June 30, 1999,  noncash activity consisted of
transfers of $227.1 million from loans receivable to mortgage-backed  securities
upon the securitization of certain of the Bank's single-family loans,  transfers
of $63.1 million from loans  receivable to foreclosed real estate,  $1.7 million
of loans made to  facilitate  sales of real estate  owned,  and transfers of $77
thousand  from  loans  held  for  sale (at  lower  of cost or  market)  to loans
receivable.

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

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

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

       Since the Company  derives a  significant  portion of its  revenues  from
interest  income,  and interest  expense is the most  significant  expense,  the
segments are reported below using net interest income.  Because the Company also
evaluates performance based on noninterest income and noninterest expense goals,
these measures of segment profit and loss are also  presented.  The Company does
not allocate income taxes to the segments.
<TABLE>
<CAPTION>
                                        Six Months Ended June 30,                 Three Months Ended June 30,
                                  ------------------------------------       ------------------------------------
                                   Community     Mortgage                    Community     Mortgage
                                    Banking       Banking        Total         Banking      Banking         Total
                                    -------       -------        -----         -------      -------         -----
                                                                    (in thousands)

<S>                                <C>            <C>           <C>            <C>          <C>           <C>
Net interest income: (1)
2000                               $675,340       $(47,912)     $627,428       $343,921     $(25,944)     $317,977
1999                                686,086        (23,852)      662,234        336,871      (12,257)      324,614

Noninterest income: (2)
2000                               $118,225       $124,418      $242,643       $ 57,949     $ 62,357      $120,306
1999                                121,201        117,977       239,178         61,546       59,830       121,376

Noninterest expense: (3)
2000                               $373,139       $ 80,787      $453,926       $187,457     $ 39,977      $227,434
1999                                385,620         91,448       477,068        180,267       42,070       222,337

</TABLE>
_______________
(1)    Includes  $50.0  million and $57.2  million for the six months ended June
       30, 2000 and 1999,  respectively,  in earnings credit provided to FNMC by
       the Bank,  primarily for  custodial  bank account  balances  generated by
       FNMC.  Also includes $122.3 million and $124.0 million for the six months
       ended  June 30,  2000 and 1999,  respectively,  in  interest  income  and
       expense on intercompany loans.

       Includes  $27.7 million and $27.6 million for the three months ended June
       30, 2000 and 1999,  respectively,  in earnings credit provided to FNMC by
       the Bank,  primarily for  custodial  bank account  balances  generated by
       FNMC.  Also includes $69.0 million and $62.6 million for the three months
       ended  June 30,  2000 and 1999,  respectively,  in  interest  income  and
       expense on intercompany loans.

                                              (Footnotes continued on next page)


                                    Page 13
<PAGE>

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


(2)    Includes  $24.5  million and $25.1  million for the six months ended June
       30, 2000 and 1999, respectively, in intercompany servicing fees. Includes
       $12.3  million and $13.4 million for the three months ended June 30, 2000
       and 1999, respectively, in intercompany servicing fees.

(3)    Includes  $2.3 million for each of the  six-month  periods ended June 30,
       2000 and 1999, in intercompany noninterest expense. Includes $1.2 million
       for each of the  three-month  periods  ended June 30,  2000 and 1999,  in
       intercompany noninterest expense.

       The  following  reconciles  the above table to the  amounts  shown on the
consolidated  financial  statements  for the six and three months ended June 30,
2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
                                                       Six Months Ended June 30,       Three Months Ended June 30,
                                                       -------------------------       ---------------------------
                                                         2000             1999            2000            1999
                                                         ----             ----            ----            ----
<S>                                                    <C>             <C>             <C>             <C>
Net interest income:
Total net interest income for reportable segments      $ 627,428       $ 662,234       $  317,977      $  324,614
Elimination of intersegment net interest income          (50,008)        (57,222)         (27,660)        (27,572)
                                                       ----------      ---------       ----------      ----------
Total                                                  $ 577,420       $ 605,012       $  290,317      $  297,042
                                                       =========       =========       ==========      ==========

Noninterest income:
Total noninterest income for reportable segments       $ 242,643       $ 239,178       $  120,306      $  121,376
Elimination of intersegment servicing fees               (24,497)        (25,140)         (12,341)        (13,421)
                                                      ----------       ---------       ----------      ----------
Total                                                  $ 218,146       $ 214,038       $  107,965      $  107,955
                                                       =========       =========       ==========      ==========

Noninterest expense:
Total noninterest expense for reportable segments      $ 453,926       $ 477,068       $  227,434      $  222,337
Elimination of intersegment expense                       (2,320)         (2,320)          (1,160)         (1,160)
                                                       ---------       ---------       ----------      ----------
Total                                                  $ 451,606       $ 474,748       $  226,274      $  221,177
                                                       =========       =========       ==========      ==========
</TABLE>

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

       In connection  with the Golden State  Acquisition,  the Company  recorded
liabilities   resulting  from  (a)  branch   consolidations   due  to  duplicate
facilities;  (b) employee  severance and  termination  benefits due to a planned
reduction in force; and (c) expenses incurred under a contractual  obligation to
terminate services provided by outside service providers  (principally  relating
to data processing  expenses).  The merger and integration  plan relative to the
Golden State  Acquisition  was in place on September 11, 1998.  Certain of these
costs  were  included  in the  allocation  of  purchase  price and  others  were
recognized in net income.  The table below reflects a summary of the activity in
the  liability  for the costs  related to such plan since  December 31, 1999 (in
thousands):
<TABLE>
<CAPTION>
                                                                   Severance and
                                                 Branch             Termination           Contract
                                             Consolidations           Benefits           Termination        Total
                                             --------------           --------           -----------        -----
<S>                                             <C>                    <C>                   <C>           <C>
Balance at December 31, 1999                    $24,051                $12,770               $25           $36,846
     Additional liabilities recorded              2,504                     --                --             2,504
     Charges to liability account                (8,015)                  (204)               --            (8,219)
                                                -------                -------               ---           -------
Balance at June 30, 2000                        $18,540                $12,566               $25           $31,131
                                                =======                =======               ===           =======
</TABLE>

                                    Page 14
<PAGE>

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


(8)    INCOME TAXES
       ------------

       During the six months  ended June 30,  2000,  GS Holdings  recorded a net
income tax benefit of $7.9 million.  Based on favorable  resolutions  of federal
income tax audits of Old California  Federal and Glendale Federal,  and based on
the current  status of Mafco's,  including the  Company's,  audits for the years
1991 through 1995,  management  changed its judgment about the  realizability of
the Company's  deferred tax asset and reduced its valuation  allowance by $211.7
million during the six-month period ended June 30, 2000. As a result of reducing
the valuation  allowance,  income tax expense was reduced by $161.7  million and
goodwill was reduced by $50.0 million.

(9)    MINORITY INTEREST
       -----------------

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

(10)   STOCKHOLDER'S EQUITY
       --------------------

       COMMON STOCK

       At June 30,  2000,  there were 1,000  shares of GS Holdings  common stock
issued and outstanding.

       Dividends  on common  stock during the six months ended June 30, 2000 and
1999 totalled $71.0 million and $55.0 million, respectively.

(11)   EXECUTIVE AND STOCK COMPENSATION
       --------------------------------

       In   connection   with  the  Golden  State   Acquisition,   the  Bank  is
administering  stock option  plans that  provided for the granting of options of
Golden State Common Stock to employees and directors.  Upon the  consummation of
the merger on September 11, 1998,  substantially all options  outstanding became
exercisable.  All pre-merger  stock option plans have expired as to the granting
of additional options.

       In the first  quarter of 2000,  Golden  State  granted  to its  employees
non-qualified  stock options equivalent to 1,333,850 shares of common stock at a
weighted  average  price of $13.99 per share under the Golden State Bancorp Inc.
Omnibus Stock Plan (the "Stock  Plan").  In the second  quarter of 2000,  Golden
State granted an  additional  12,000  non-qualified  stock options at a weighted
average price of $16.25 per share.  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 six months ended
June 30, 2000, in accordance  with the intrinsic  value  accounting  methodology
prescribed in Accounting  Principles Board Opinion No. 25,  ACCOUNTING FOR STOCK
ISSUED TO  EMPLOYEES,  whereby  compensation  expense to employees is determined
based upon the excess,  if any,  of the market  price of Golden  State's  common
stock at the measurement date over the exercise price of the award.

       During  the  three  months  ended  June 30,  2000,  14,307  options  were
exercised and 45,116 options were  cancelled or expired under all plans.  During
the six months ended June 30, 2000,  14,307  options were  exercised  and 64,366
options were cancelled or expired under all plans. At June 30, 2000,  options to
acquire  an  equivalent  of  3,828,259  shares  and  1,177,775  LTWTMs  remained
outstanding under all plans.

       During the three and six months  ended June 30,  1999, a total of 134,484
and  357,017  options,  respectively,  were  exercised  and 86,500  and  172,500
options, respectively, were cancelled or expired under all plans.


                                    Page 15
<PAGE>

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


       On January 24,  2000,  Golden State  awarded to certain of its  employees
220,327 shares of restricted stock under the Golden State Bancorp Inc. Executive
Compensation  Plan.  The  market  value on the date of the award was  $14.00 per
share. These shares generally vest over two years in one-half  increments on the
anniversary of the grant date, based upon the continued service of the employee.
At June 30,  2000, a total of 275,210  restricted  shares was  outstanding.  The
compensation  expense  related to these awards is  recognized on a straight line
basis over the vesting period for each tranche of the award with a corresponding
increase to additional  paid-in  capital.  During the three and six months ended
June 30, 2000,  $0.5 million and $1.1  million,  respectively,  in  compensation
expense was recognized related to such awards. These restricted shares have full
voting and dividend rights.

(12)   EXTRAORDINARY ITEMS
       -------------------

       During the first  quarter of 2000,  the FHLB called and the Bank  prepaid
$200  million  in FHLB  advances,  resulting  in an  extraordinary  gain of $1.2
million,  net of income taxes of $0.8 million,  on the early  extinguishment  of
such borrowings.

       Also during the first quarter of 2000, the Bank  repurchased $2.5 million
outstanding  principal  amount of the  Convertible  Subordinated  Debentures due
2001, resulting in an extraordinary gain of $41 thousand, net of income taxes of
$30 thousand, on the early extinguishment of debt.

       During the second  quarter of 2000,  the FHLB called and the Bank prepaid
$200  million  in FHLB  advances,  resulting  in an  extraordinary  gain of $1.8
million,  net of income taxes of $1.2 million,  on the early  extinguishment  of
such borrowings.

(13)   NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
       --------------------------------------

       In June 1998, the Financial Accounting Standards  Board  ("FASB")  issued
Statement of Financial  Accounting  Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 133"). SFAS No. 133 was amended by
Statement of Financial  Accounting  Standards No. 137, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS  AND  HEDGING  ACTIVITIES-DEFERRAL  OF THE  EFFECTIVE  DATE  OF FASB
STATEMENT  NO. 133 ("SFAS No.  137").  SFAS No. 137  mandates  that SFAS No. 133
shall be effective for all fiscal  quarters of all fiscal years  beginning after
June 15, 2000. SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at fair value. Changes in the fair value of derivatives are
recorded  each  period  in  current  earnings  or  other  comprehensive  income,
depending on the type of hedge transaction.

       Under SFAS No. 133, an entity  that elects to apply hedge  accounting  is
required to establish  at the  inception of the hedge the method it will use for
assessing  the  effectiveness  of the  hedging  derivative  and the  measurement
approach  for   determining  the   ineffective   portion  of  the  hedge.   Upon
implementation,  hedging  relationships  must be designated  anew and documented
pursuant to the provisions of this statement.

       For fair value hedge transactions in which the Company is hedging changes
in the fair value of assets,  liabilities  or firm  commitments,  changes in the
fair value of the derivative  instrument  will generally be offset in the income
statement  by changes  in the  hedged  item's  fair  value.  For cash flow hedge
transactions  in which the  Company is  hedging  the  variability  of cash flows
related  to a  variable-rate  asset,  liability,  or a  forecasted  transaction,
changes in the fair value of the derivative instrument will be reported in other
comprehensive  income.  The gains and losses on derivative  instruments that are
reported in other  comprehensive  income will be reclassified as earnings in the
periods in which  earnings are impacted by the  variability of the cash flows of
the hedged item.  The  ineffective  portion of all hedges will be  recognized in
current-period earnings.


                                    Page 16
<PAGE>

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


       The  Company  has  identified  various  types of  instruments  which will
qualify  as  derivatives  pursuant  to SFAS No.  133.  It is  expected  that the
derivative   instruments  (interest  rate  floors,   principal  only  swaps  and
swaptions) used to hedge the change in the fair value of the Company's  mortgage
servicing  rights  will  be  reported  as  fair  value  hedges.  The  derivative
instruments  (interest rate swaps) used to hedge the change in the cash flows of
the Company's Federal Home Loan Bank advances and reverse repurchase  agreements
will be reported as cash flow  hedges.  During the second  quarter of 2000,  the
Derivatives Implementation Group ("DIG") of the FASB issued preliminary guidance
indicating that interest rate lock  commitments,  given to potential  borrowers,
met the net settlement  criteria described in paragraph nine of SFAS No. 133 and
would  therefore be considered a derivative  instrument.  The DIG also addressed
the issue of how to measure hedge effectiveness for hedges of mortgage servicing
rights,  and agreed to  postpone a decision  on that issue  until the August DIG
meeting.  The  Company is  currently  assessing  the  impact of this  additional
guidance.

       On June 15, 2000, the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 138  ACCOUNTING  FOR CERTAIN  DERIVATIVE  INSTRUMENTS  AND CERTAIN
HEDGING ACTIVITIES, AN AMENDMENT OF FASB NO. 133 ("SFAS No. 138").

       The Board amended SFAS No. 133 by:

(a)    Expanding the normal purchases and normal sales exception,

(b)    Permitting an  entity to  hedge to a designated  benchmark  interest rate
       defined as either (i) the interest rate on direct Treasury obligations of
       the U.S. government (Treasury rate), or (ii) the London Interbank Offered
       Rate (LIBOR) swap rate,

(c)    Permitting  entities  to  hedge  recognized  foreign-currency-denominated
       assets and liabilities for which  a foreign currency  transaction gain or
       loss is recognized in earnings, and

(d)    Permitting certain internal  derivatives to qualify for  hedge accounting
       in  the  affiliate  financial  statements  even  though  these   internal
       derivatives  are  offset  on  a  net  or  aggregate  basis,  rather  than
       individually, by  third party  derivative contracts  in another member of
       the consolidated financial group.

       In addition, certain decisions arising from the DIG process that required
specific amendments to SFAS No. 133 are incorporated in SFAS No. 138.

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

       One of the qualifying criteria for hedge accounting under SFAS No. 133 is
that the hedging relationship between the hedging instrument and the hedged item
must be highly effective in achieving the offset of changes in those fair values
or cash flows that are attributable to the hedged risk, both at the inception of
the hedge and on an  ongoing  basis.  An  assessment  of this  effectiveness  is
required  at least every  three  months and  whenever  financial  statements  or
earnings are reported by the Company.

       The high-effectiveness  requirement has been interpreted to mean that the
cumulative  changes in the value of the hedging instrument since hedge inception
should be between  80% and 125% of the  inverse  cumulative  change  since hedge
inception in the fair value or cash flows of the hedged items.


                                     Page 17
<PAGE>

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


       Early application of all of the provisions of SFAS No. 133 is encouraged,
but is  permitted  only as of the  beginning  of any fiscal  quarter that begins
after  issuance  of  this  statement.   SFAS  No.  133  should  not  be  applied
retroactively to financial statements of prior periods.

       SFAS No.  133 will  significantly  change  the  accounting  treatment  of
derivative  instruments  used by the Company.  Depending on the underlying  risk
management strategy,  these accounting changes could affect reported net income,
assets,  liabilities  and  stockholder's  equity.  As a result,  the Company may
choose to reconsider its risk management strategies, since SFAS No. 133 will not
reflect  the results of many of those  strategies  in the same manner as current
accounting  practice.  The Company continues to evaluate the potential impact of
implementing  SFAS No.  133.  An  accurate  assessment  of the  Company's  hedge
effectiveness  and hence,  the net impact of adopting  SFAS No. 133, will not be
possible until the FASB, which is currently both  interpreting and amending SFAS
No. 133 with regard to the  measurement  of hedge  effectiveness,  concludes its
deliberations,  and  until  after the  Company  has  fully  implemented  hedging
strategies in accordance with the FASB's amendments and interpretations.


                                    Page 18
<PAGE>


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

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

OVERVIEW

       The  principal  business  of GS  Holdings,  through  California  Federal,
consists of operating  retail  branches  that provide  deposit  products such as
demand, transaction and savings accounts, and investment products such as mutual
funds,  annuities and  insurance.  In addition,  it engages in mortgage  banking
activities,  including originating and purchasing 1-4 unit residential loans for
sale to various  investors in the  secondary  market or for retention in its own
portfolio,  and servicing loans for itself and others.  To a lesser extent,  the
Company  originates  and/or  purchases  commercial  real estate,  commercial and
consumer  loans for  investment.  Revenues are derived  primarily  from interest
earned on loans,  interest  received on  government  and agency  securities  and
mortgage-backed  securities,  gains on sales of loans and other  investments and
fees received in connection with loan servicing,  securities brokerage and other
customer  service  transactions.  Expenses  primarily  consist  of  interest  on
customer  deposit  accounts,  interest on short-term  and long-term  borrowings,
general and  administrative  expenses  consisting of compensation  and benefits,
data  processing,  occupancy and equipment,  communications,  deposit  insurance
assessments,  advertising and marketing, professional fees and other general and
administrative expenses.

       NET INCOME

       GS Holdings reported net income for the six months ended June 30, 2000 of
$341.5 million compared with net income of $159.7 million for the  corresponding
period in 1999. Net income for the six months ended June 30, 2000 includes gains
on the early extinguishment of debt, net of tax, of $3.0 million. Net income for
the six months ended June 30, 1999  includes the following  nonrecurring  items,
net of tax: a $9.4 million gain from the 1999 Servicing Sale and $3.2 million in
minority  interest  expense  related to the  redemption of the  remaining  $60.7
million of the Bank's 10 5/8% Preferred Stock.

       GS Holdings  reported net income for the three months ended June 30, 2000
of $92.0 million compared with net income of $85.8 million for the corresponding
period in 1999.  Net income for the three  months  ended June 30, 2000  includes
gains on the early  extinguishment  of debt,  net of tax, of $1.8  million.  Net
income  for the  three  months  ended  June  30,  1999  includes  the  following
nonrecurring items, net of tax: a $9.4 million gain from the 1999 Servicing Sale
and $3.2 million in minority  interest  expense related to the redemption of the
remaining $60.7 million of the Bank's 10 5/8% Preferred Stock.


                                    Page 19
<PAGE>


       FINANCIAL CONDITION

       During the six months  ended June 30,  2000,  consolidated  total  assets
increased  $3.5  billion,  to $60.5  billion from  December 31, 1999,  and total
liabilities increased from $54.9 billion to $58.1 billion.

       During the six months ended June 30, 2000, stockholder's equity increased
$265.0  million  to $1.9  billion.  The  increase  in  stockholder's  equity  is
principally  the net result of $341.5  million  in net  income  for the  period,
partially offset by $71.0 million in dividends to parent and an $8.6 million net
unrealized loss, after tax, on securities.

       GS Holdings'  non-performing assets,  consisting of non-performing loans,
net of  purchase  accounting  adjustments,  foreclosed  real  estate,  net,  and
repossessed  assets,  decreased to $158 million at June 30, 2000  compared  with
$200 million at December 31, 1999. Total  non-performing  assets as a percentage
of the Bank's  total  assets  decreased  to 0.26% at June 30, 2000 from 0.35% at
December 31, 1999.


                                    Page 20
<PAGE>


RESULTS OF OPERATIONS

       Six months ended June 30, 2000 versus six months ended June 30, 1999

       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>
                                                                        Six Months Ended June 30, 2000
                                                                   ---------------------------------------
                                                                   Average                         Average
                                                                   Balance        Interest          Rate
                                                                   -------        --------          ----
                                                                             (dollars in millions)
ASSETS

<S>                                                                <C>            <C>               <C>
Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)         $ 1,429        $   46            6.42%
     Mortgage-backed securities available for sale                  13,158           435            6.62
     Mortgage-backed securities held to maturity                     2,390            91            7.60
     Loans held for sale, net                                          764            29            7.51
     Loans receivable, net                                          36,515         1,343            7.36
     FHLB stock                                                      1,250            45            7.26
                                                                   -------        ------
         Total interest-earning assets                              55,506         1,989            7.17
Noninterest-earning assets                                           2,887        ------
                                                                   -------
         Total assets                                              $58,393
                                                                   =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                      $22,920           443            3.89
     Securities sold under agreements to repurchase (3)              5,606           173            6.09
     Borrowings (3)                                                 26,729           796            5.97
                                                                   -------        ------
         Total interest-bearing liabilities                         55,255         1,412            5.12
                                                                                  ------
Noninterest-bearing liabilities                                        912
Minority interest                                                      497
Stockholder's equity                                                 1,729
                                                                   -------
          Total liabilities, minority interest
                and stockholder's equity                           $58,393
                                                                   =======
Net interest income                                                               $  577
                                                                                  ======
Interest rate spread                                                                                2.05%
                                                                                                   =====
Net interest margin                                                                                 2.07%
                                                                                                   =====
Return on average assets                                                                            1.17%
                                                                                                   =====
Return on average equity                                                                           39.50%
                                                                                                   =====
Average equity to average assets                                                                    2.96%
                                                                                                   =====
</TABLE>


                                    Page 21
<PAGE>

<TABLE>
<CAPTION>
                                                                        Six Months Ended June 30, 1999
                                                                   ---------------------------------------
                                                                   Average                         Average
                                                                   Balance        Interest          Rate
                                                                   -------        --------          ----
                                                                             (dollars in millions)
ASSETS

<S>                                                                <C>             <C>              <C>
Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)         $ 1,545         $   47           6.05%
     Mortgage-backed securities available for sale                  13,476            423           6.29
     Mortgage-backed securities held to maturity                     2,555             96           7.51
     Loans held for sale, net                                        2,069             68           6.54
     Loans receivable, net                                          30,967          1,135           7.33
     FHLB stock                                                      1,082             28           5.25
                                                                   -------         ------
         Total interest-earning assets                              51,694          1,797           6.95
Noninterest-earning assets                                           4,026
                                                                   -------
         Total assets                                              $55,720
                                                                   =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

     Securities and interest-bearing deposits in banks (2)         $ 1,429         $   46           6.42%

Interest-bearing liabilities:
     Deposits                                                      $24,126            444           3.71
     Securities sold under agreements to repurchase (3)              4,311            108           4.97
     Borrowings (3)                                                 23,560            640           5.48
                                                                   -------         ------
         Total interest-bearing liabilities                         51,997          1,192           4.62
                                                                                   ------
Noninterest-bearing liabilities                                      1,413
Minority interest                                                      566
Stockholder's equity                                                 1,744
                                                                   -------
         Total liabilities, minority interest
              and stockholder's equity                             $55,720
                                                                   =======
Net interest income                                                                $  605
                                                                                   ======
Interest rate spread                                                                                2.33%
                                                                                                    ====
Net interest margin                                                                                 2.30%
                                                                                                    ====
Return on average assets                                                                            0.57%
                                                                                                    ====
Return on average equity                                                                            18.31%
                                                                                                    =====
Average equity to average assets                                                                     3.13%
                                                                                                    =====
</TABLE>
----------------
(1)    Non-performing  assets  are  included in  the average  balances  for  the
       periods indicated.

(2)    Includes securities  held to  maturity,  securities  available for  sale,
       interest-bearing deposits in other banks and short-term investment
       securities.

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


                                    Page 22
<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>
                                                                   Six Months Ended June 30, 2000 vs. 1999
                                                                        Increase (Decrease) Due to
                                                                   ---------------------------------------
                                                                    Volume           Rate            Net
                                                                    ------           ----            ---
INTEREST INCOME:                                                                (in millions)

<S>                                                                 <C>              <C>            <C>
     Securities and interest-bearing deposits in banks              $ (5)            $  4           $ (1)
     Mortgage-backed securities available for sale                    (9)              21             12
     Mortgage-backed securities held to maturity                      (6)               1             (5)
     Loans held for sale, net                                        (51)              12            (39)
     Loans receivable, net                                           204                4            208
     FHLB stock                                                        5               12             17
                                                                    ----             ----           ----
          Total                                                      138               54            192
                                                                    ----             ----           ----

INTEREST EXPENSE:

     Deposits                                                        (48)              47             (1)
     Securities sold under agreements to repurchase                   37               28             65
     Borrowings                                                       91               65            156
                                                                    ----             ----           ----
          Total                                                       80              140            220
                                                                    ----             ----           ----
                Change in net interest income                       $ 58             $(86)          $(28)
                                                                    ====             ====           ====
</TABLE>

       The volume  variances in total interest income and total interest expense
for the six months ended June 30, 2000 compared to the  corresponding  period in
1999 are largely due to increased loan volume,  partially  offset by an increase
in borrowings.

       INTEREST  INCOME.  Total  interest  income was $2.0  billion  for the six
months  ended June 30, 2000,  an increase of $192.7  million from the six months
ended June 30, 1999. Total interest-earning assets for the six months ended June
30, 2000 averaged $55.5 billion, compared to $51.7 billion for the corresponding
period in 1999,  primarily  as a result of increased  loan volume.  The yield on
total  interest-earning  assets  during  the six  months  ended  June  30,  2000
increased to 7.17% from 6.95% for the six months ended June 30, 1999,  primarily
due to a higher percentage of loans to total earning assets and the repricing of
variable-rate earning assets.

       GS Holdings  earned $1.3 billion of interest  income on loans  receivable
for the six months ended June 30, 2000,  an increase of $208.7  million from the
six months  ended June 30, 1999.  The average  balance of loans  receivable  was
$36.5 billion for the six months ended June 30, 2000,  compared to $31.0 billion
for the same  period in 1999.  The  weighted  average  rate on loans  receivable
increased to 7.36% for the six months ended June 30, 2000 from 7.33% for the six
months  ended June 30,  1999.  The changes in the average  balance and  weighted
average rate reflect the repricing of variable-rate loans, offset in part by the
impact of originations of mortgages with low introductory  interest rates during
the fourth quarter of 1999 and the first quarter of 2000.

       GS Holdings  earned  $28.7  million of interest  income on loans held for
sale for the six months ended June 30,  2000,  a decrease of $39.0  million from
the six months ended June 30, 1999.  The average  balance of loans held for sale
was $764  million  for the six months  ended June 30,  2000,  a decrease of $1.3
billion from the comparable period in 1999,  primarily attributed to a reduction
in fixed-rate  originations due to the current rising interest rate environment,
coupled  with  longer  holding  periods  for loans held for sale  during the six
months  ended June 30, 1999.  The  weighted  average rate on loans held for sale
increased to 7.51% for the six months ended June 30, 2000 from 6.54% for the six
months ended June 30, 1999, primarily due to increasing market interest rates.


                                    Page 23
<PAGE>


       Interest  income on  mortgage-backed  securities  available  for sale was
$435.5  million  for the six months  ended June 30,  2000,  an increase of $11.9
million from the six months ended June 30, 1999. The average  portfolio  balance
decreased $318 million, to $13.2 billion, for the six months ended June 30, 2000
compared to the same period in 1999. The weighted  average yield on these assets
increased from 6.29% for the six months ended June 30, 1999 to 6.62% for the six
months ended June 30,  2000.  The decrease in the volume and the increase in the
weighted average yield is primarily due to the  reclassification of $1.1 billion
in  mortgage-backed  securities to the  held-to-maturity  portfolio,  run-off of
existing   portfolios   and  the  sale  of   approximately   $500   million   in
mortgage-backed  securities during the second quarter of 2000,  partially offset
by purchases during the second half of 1999.

       Interest income on mortgage-backed  securities held to maturity was $90.8
million for the six months  ended June 30, 2000, a decrease of $5.1 million from
the six months ended June 30, 1999. The average portfolio balance decreased $165
million, to $2.4 billion, for the six months ended June 30, 2000 compared to the
same period in 1999, primarily attributed to the run-off of existing portfolios,
partially  offset by the  reclassification  of $1.1  billion in  mortgage-backed
securities  from  the  available-for-  sale  portfolio.  The  run-off  in  these
securities was replaced with the origination and purchase of whole loans instead
of additional mortgage-backed securities. The weighted average rates for the six
months ended June 30, 2000 and 1999 were 7.60% and 7.51%, respectively.

       Interest  income on  securities  and  interest-bearing  deposits in other
banks was $45.8  million for the six months  ended June 30,  2000, a decrease of
$0.8  million from the six months  ended June 30,  1999.  The average  portfolio
balance was $1.4 billion and $1.5 billion for the six months ended June 30, 2000
and 1999,  respectively.  The higher weighted  average rate of 6.42% for the six
months  ended June 30, 2000  compared to 6.05% for the six months ended June 30,
1999  reflects  $2.4 million in interest  income on a federal  income tax refund
related  to Old  California  Federal  for  periods  prior  to the  Golden  State
Acquisition  for which  there is no  corresponding  asset,  partially  offset by
interest earned in 1999 on the investment of proceeds from the assumption of the
GS Holdings Notes.

       Dividends on FHLB stock were $45.1  million for the six months ended June
30, 2000,  an increase of $16.9 million from the six months ended June 30, 1999.
The average  balance  outstanding  during the six months ended June 30, 2000 and
1999 was $1.3  billion and $1.1  billion,  respectively.  The  weighted  average
dividend on FHLB stock increased to 7.26% for the six months ended June 30, 2000
from 5.25% for the six months ended June 30,  1999.  The increase in the average
balance and weighted  average  yield is due to an increase in the amount of such
stock owned by the Company as a result of an increase in  borrowings  under FHLB
advances and an increase in the dividend rate on FHLB stock.

       INTEREST  EXPENSE.  Total  interest  expense was $1.4 billion for the six
months  ended June 30, 2000,  an increase of $220.3  million from the six months
ended  June 30,  1999.  The  increase  is  primarily  the  result of  additional
borrowings   under  FHLB  advances  and  securities  sold  under  agreements  to
repurchase used to fund loans and offset the reduction in deposit balances.

       Interest expense on customer deposits,  including brokered deposits,  was
$443.1  million  for the six months  ended  June 30,  2000,  a decrease  of $0.9
million from the six months ended June 30, 1999. The average balance of customer
deposits outstanding  decreased from $24.1 billion for the six months ended June
30, 1999 to $22.9  billion for the six months ended June 30, 2000.  The decrease
in the  average  balance  is  primarily  due to  lower  certificate  of  deposit
balances,  reflecting the Bank's pricing strategy during most of 1999. Partially
offsetting  this  decrease is $543  million in  deposits  at an average  cost of
3.71%,  which were  assumed in the Nevada  Purchase in April  1999.  The overall
weighted  average  cost of deposits  increased to 3.89% for the six months ended
June 30, 2000 from 3.72% for the six months ended June 30, 1999,  primarily  due
to rising market interest rates.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled  $172.7  million for the six months ended June 30, 2000, an increase of
$65.1  million from the six months ended June 30, 1999.  The average  balance of
such borrowings for the six months ended June 30, 2000 and 1999 was $5.6 billion
and $4.3  billion,  respectively.  The increase is primarily  attributed  to the
funding of loans and the purchase of  mortgage-backed  securities  in the second
half of 1999, as well as deposit run-off.  The weighted average interest rate on
these instruments increased to 6.09% for the six months ended June 30, 2000 from
4.97% for the six months  ended June 30, 1999,  primarily  due to an increase in
market rates on new borrowings in 2000 compared to 1999.


                                    Page 24
<PAGE>


       Interest expense on borrowings totalled $796.2 million for the six months
ended June 30,  2000,  an increase of $156.1  million  from the six months ended
June 30, 1999. The average balance outstanding for the six months ended June 30,
2000 and 1999 was $26.7 billion and $23.6  billion,  respectively.  The weighted
average interest rate on these instruments increased to 5.97% for the six months
ended June 30, 2000 from 5.48% for the six months ended June 30, 1999, primarily
due to higher  prevailing  market rates in 2000. The higher volume  reflects the
increase in FHLB advances used to fund loans and the purchase of mortgage-backed
securities in the second half of 1999.

       NET INTEREST  INCOME.  Net interest income was $577.4 million for the six
months  ended June 30,  2000,  a decrease of $27.6  million  from the six months
ended June 30,  1999.  The  interest  rate spread  declined to 2.05% for the six
months  ended June 30, 2000 from 2.33% for the six months  ended June 30,  1999,
primarily   as  a  result  of   maturities   and   repayments   of  lower   rate
interest-bearing  liabilities being replaced with  interest-bearing  liabilities
having comparatively higher rates. The effect of higher rates on liabilities was
partially  offset by higher  yielding  assets  replenishing  asset  run-off in a
rising rate environment and the repricing of variable-rate assets.

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan servicing  fees,  customer  banking fees and gains on sales of assets,  was
$218.1 million for the six months ended June 30, 2000,  representing an increase
of $4.1 million from the six months ended June 30, 1999.

       Loan servicing fees, net of amortization  of mortgage  servicing  rights,
were $90.6  million for the six months  ended June 30,  2000,  compared to $70.3
million for the six months ended June 30, 1999.  The  single-family  residential
loan servicing portfolio,  excluding loans serviced for the Bank, increased from
$69.2  billion at June 30, 1999 to $78.6  billion at June 30, 2000.  Incremental
loan  servicing  fees  were  partially  offset  by  amortization  of  MSRs.  MSR
amortization  for the six months  ended June 30, 2000  decreased by $7.7 million
from the six  months  ended  June 30,  1999 due to a  reduction  in the  assumed
prepayment  rate,  partially  offset by a higher MSR basis.  Loan servicing fees
benefited  from the  slowdown  in mortgage  loan  prepayments  in 2000,  with an
average  prepayment  rate on loans serviced for others of 8.1% in the first half
of 2000, compared to 22.3% in the comparable period in 1999.

       Customer  banking  fees were $98.7  million for the six months ended June
30, 2000 compared to $91.4  million for the six months ended June 30, 1999.  The
increase  is  primarily  attributed  to  increased  emphasis  by  management  on
transaction  account growth, the impact of revenues from the deposits assumed in
the Nevada  Purchase  and higher fee income on mutual  fund,  annuity  and other
security sales through Cal Fed Investments.

       Gain on sale,  settlement  and  transfer  of loans,  net  totalled  $27.1
million for the six months ended June 30, 2000, an increase of $6.6 million from
the six months  ended June 30,  1999.  During  the second  quarter of 2000,  the
Company  recorded a $14.5  million  reduction  in its recourse  liability.  This
liability is a life-of-asset  accrual. Given the paydowns which have occurred on
the underlying loans and the improving credit and real estate market  conditions
present, the Company determined that the liability balance exceeded its estimate
of the required  accrual for the remaining life of the recourse  assets by $14.5
million.  Gains  attributed to early payoffs and settlement of commercial  loans
with unamortized  discounts were $6.3 million lower in the six months ended June
30, 2000  compared to the same period in 1999.  During the six months ended June
30, 2000,  California Federal sold $2.2 billion in single-family  mortgage loans
originated  for sale  with  servicing  rights  retained  as part of its  ongoing
mortgage  banking  operations  compared  to $5.8  billion  of such sales for the
corresponding  period  in 1999,  while  the gains on such  sales  declined  $1.6
million between the two periods.

       Net loss on sale of assets  totalled  $16.0  million  for the six  months
ended June 30, 2000,  compared to a net gain of $15.1 million for the six months
ended June 30, 1999.  The loss during 2000 is primarily  attributed  to an $18.7
million  loss from the sale of  approximately  $500  million of  mortgage-backed
securities  with an average  yield of 6.64% during the second  quarter.  While a
loss was incurred on this transaction, it is expected that the sale will benefit
both the net interest  margin and the  Company's  interest rate  sensitivity  in
future periods. The $15.1 million gain reported in 1999 primarily relates to the
$16.3 million gain on the Servicing Sale.


                                    Page 25
<PAGE>


       NONINTEREST EXPENSE. Total noninterest expense was $451.6 million for the
six months ended June 30, 2000, a decrease of $23.1 million  compared to the six
months  ended June 30, 1999.  The variance  between the two periods is primarily
attributed  to  continued  expense  reduction  efforts  by the  Company  and the
completion  of  merger  and  integration  efforts  in the  first  half of  1999.
Noninterest expense for the six months ended June 30, 2000 included decreases of
$11.8 million in other noninterest  expense,  $9.6 million in professional fees,
$8.1 million in loan expense and $7.7 million in specific merger and integration
costs incurred in 1999 in connection  with the Golden State  Acquisition.  These
decreases  were partially  offset by increases of $13.2 million in  compensation
expense and $5.5 million in occupancy and equipment expense.

       Compensation and employee benefits expense was $214.9 million for the six
months  ended June 30,  2000,  an increase of $13.2  million from the six months
ended June 30,  1999.  The  increase is primarily  attributed  to normal  salary
increases and higher employment levels in expanding lines of business, including
the impact of additional employees from the Downey Acquisition.

       Occupancy  and  equipment  expense  was $73.5  million for the six months
ended June 30, 2000,  an increase of $5.5 million from the six months ended June
30,  1999,  primarily  attributed  to $4.8  million  of  adjustments  in 1999 to
previously established accruals for vacant facilities.

       Professional  fees were $17.6  million for the six months  ended June 30,
2000,  a  decrease  of $9.6  million  from the six months  ended June 30,  1999,
primarily due to legal and consulting  fee expenses  incurred in 1999 related to
goodwill litigation and the Y2K project.

       Loan expense was $14.0  million for the six months ended June 30, 2000, a
decrease of $8.1 million from the six months ended June 30, 1999,  primarily due
to a decrease in pass-through interest expense on loans attributed to a decrease
in payoffs during 2000.  Repayment  rates on loans serviced for others  averaged
11.8% during the first half of 2000, a significant  decline from the 27% average
experienced during the first half of 1999.

       Merger and  integration  costs were $7.7 million for the six months ended
June 30,  1999,  representing  transition  expenses,  which  include  severance,
conversion and consolidation  costs incurred in connection with the Golden State
Acquisition. Such costs were not incurred during the first half of 2000.

       Amortization  of  intangible  assets was $31.9 million for the six months
ended June 30,  2000,  a decrease of $3.3 million from the six months ended June
30, 1999,  primarily  attributed to a lower goodwill base due to a $50.0 million
reduction in goodwill in the first quarter of 2000,  resulting  from a reduction
in the  valuation  allowance  against the  Company's  deferred tax asset (see "-
Provision for Income Tax"), and a $38.2 million reduction in goodwill  resulting
from an income tax refund  received during the fourth quarter of 1999 related to
Old  California  Federal.  This  decrease was partially  offset by  amortization
expense  related to the $7.7 million and $50.7  million in goodwill  recorded in
connection with the Downey Acquisition and the Nevada Purchase, respectively.

       Other  noninterest  expense was $103.0 million in 2000 compared to $114.8
million in 1999.  The decline in operating  expenses is primarily  attributed to
management's continued expense reduction efforts.

       PROVISION  FOR INCOME TAX.  During the six months ended June 30, 2000 and
1999, GS Holdings  recorded  income tax (benefit)  expense of $(7.9) million and
$154.7 million,  respectively.  Based on favorable resolutions of federal income
tax audits of Old  California  Federal  and  Glendale  Federal,  and the current
status of Mafco's,  including the  Company's,  audits for the years 1991 through
1995,  management  changed its judgment about the realizability of the Company's
deferred tax asset and reduced its valuation  allowance by $211.7 million during
the six-month  period ended June 30, 2000. As a result of reducing the valuation
allowance,  income tax expense was reduced by $161.7  million and  goodwill  was
reduced by $50.0 million.


                                    Page 26
<PAGE>


       GS Holdings' effective gross federal tax rate was (9)% and 38% during the
six  months  ended  June 30,  2000 and 1999,  respectively,  while  its  federal
statutory  tax rate was 35% during  both  periods.  The  difference  between the
effective and statutory rates was primarily the result of nondeductible goodwill
amortization. GS Holdings' effective state tax rate was 6% and 8% during each of
the six months ended June 30, 2000 and 1999,  respectively.  The  effective  tax
rate  declined  during  the  first  half of  2000  as a  result  of  changes  in
management's estimates of the expected state tax liability of the Company.

       MINORITY INTEREST.  Dividends on the REIT Preferred Stock totalling $22.8
million  were  recorded  during the six months  ended  June 30,  2000.  Minority
interest  expense  relative  to the REIT  Preferred  Stock is  reflected  net of
related income tax benefit of $9.4 million, which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.

       During the six months  ended June 30,  1999,  minority  interest  expense
included $3.2 million in net premiums paid in connection  with the redemption of
the Bank's 10 5/8%  Preferred  Stock.  Minority  interest  expense also included
dividends  on the Bank  Preferred  Stock  that had not yet been  acquired  by GS
Holdings and the REIT Preferred  Stock totalling $1.8 million and $22.8 million,
respectively.  Minority interest expense relative to the REIT Preferred Stock is
reflected net of related  income tax benefit of $9.6 million which will inure to
the Company as a result of the  deductibility  of such  dividends for income tax
purposes.  Minority interest expense for the six months ended June 30, 1999 also
included a $1.7 million benefit reversal representing that portion of Auto One's
loss  attributable  to the 20% interest in the common stock of Auto One that was
issued as part of the GSAC Acquisition.


                                    Page 27
<PAGE>


RESULTS OF OPERATIONS

       THREE MONTHS ENDED JUNE 30, 2000 VERSUS THREE MONTHS ENDED JUNE 30, 1999

       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 June 30, 2000
                                                                   ---------------------------------------
                                                                   Average                         Average
                                                                   Balance        Interest           Rate
                                                                   -------        --------           ----
                                                                             (dollars in millions)
ASSETS

<S>                                                                <C>             <C>               <C>
Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)         $ 1,431         $   24            6.79%
     Mortgage-backed securities available for sale                  12,447            207            6.64
     Mortgage-backed securities held to maturity                     2,700             51            7.62
     Loans held for sale, net                                          814             15            7.56
     Loans receivable, net                                          37,716            698            7.40
     FHLB stock                                                      1,306             28            8.61
                                                                    ------         ------
         Total interest-earning assets                              56,414          1,023            7.26
                                                                                   ------
Noninterest-earning assets                                           3,011
                                                                   -------
         Total assets                                              $59,425
                                                                   =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                      $22,948            224            3.93
     Securities sold under agreements to repurchase (3)              5,503             90            6.46
     Borrowings (3)                                                 27,684            419            6.06
                                                                   -------         ------
         Total interest-bearing liabilities                         56,135            733            5.22
                                                                                   ------
Noninterest-bearing liabilities                                        985
Minority interest                                                      498
Stockholder's equity                                                 1,807
                                                                   -------
          Total liabilities, minority interest
               and stockholder's equity                            $59,425
                                                                   =======
Net interest income                                                                $  290
                                                                                   ======
Interest rate spread                                                                                 2.04%
                                                                                                    =====
Net interest margin                                                                                  2.06%
                                                                                                    =====
Return on average assets                                                                             0.62%
                                                                                                    =====
Return on average equity                                                                            20.36%
                                                                                                    =====
Average equity to average assets                                                                     3.04%
                                                                                                    =====
</TABLE>

                                    Page 28
<PAGE>

<TABLE>
<CAPTION>
                                                                       Three Months Ended June 30, 1999
                                                                   ---------------------------------------
                                                                   Average                         Average
                                                                   Balance        Interest           Rate
                                                                   -------        --------           ----
                                                                             (dollars in millions)
ASSETS

<S>                                                                <C>             <C>               <C>
Interest-earning assets (1):
     Securities and interest-bearing deposits in banks (2)         $ 1,646         $ 23              5.78%
     Mortgage-backed securities available for sale                  13,960          220              6.29
     Mortgage-backed securities held to maturity                     2,466           45              7.37
     Loans held for sale, net                                        1,977           33              6.69
     Loans receivable, net                                          31,211          568              7.27
     FHLB stock                                                      1,120           15              5.24
                                                                   -------         ----
         Total interest-earning assets                              52,380          904              6.90
                                                                                   ----
Noninterest-earning assets                                           3,895
                                                                   -------
         Total assets                                              $56,275
                                                                   =======

LIABILITIES, MINORITY INTEREST
AND STOCKHOLDER'S EQUITY

Interest-bearing liabilities:
     Deposits                                                      $24,172          222              3.68
     Securities sold under agreements to repurchase (3)              4,302           54              4.92
     Borrowings (3)                                                 24,238          331              5.48
                                                                   -------         ----
         Total interest-bearing liabilities                         52,712          607              4.62
                                                                                   ----
Noninterest-bearing liabilities                                      1,312
Minority interest                                                      533
Stockholder's equity                                                 1,718
                                                                    ------
         Total liabilities, minority interest
             and stockholder's equity                               $56,275
                                                                    =======
Net interest income                                                                $297
                                                                                   ====
Interest rate spread                                                                                 2.28%
                                                                                                    =====
Net interest margin                                                                                  2.26%
                                                                                                    =====
Return on average assets                                                                             0.61%
                                                                                                    =====
Return on average equity                                                                            19.97%
                                                                                                    =====
Average equity to average assets                                                                     3.05%
                                                                                                    =====
</TABLE>
----------
(1)   Non-performing assets are included in the average balances for the periods
      indicated.

(2)   Includes  securities  held  to  maturity, securities  available for  sale,
      interest-bearing  deposits  in  other  banks  and   short-term  investment
      securities.

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


                                    Page 29
<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 June 30, 2000 vs. 1999
                                                                          Increase (Decrease) Due to
                                                                   -----------------------------------------
                                                                    Volume           Rate            Net
                                                                    ------           ----            ---
INTEREST INCOME:                                                                (in millions)

<S>                                                                 <C>              <C>            <C>
     Securities and interest-bearing deposits in banks              $ (1)            $  2           $  1
     Mortgage-backed securities available for sale                   (26)              13            (13)
     Mortgage-backed securities held to maturity                       5                1              6
     Loans held for sale, net                                        (23)               5            (18)
     Loans receivable, net                                           120               10            130
     FHLB stock                                                        3               10             13
                                                                    ----             ----           ----
               Total                                                  78               41            119
                                                                    ----             ----           ----

INTEREST EXPENSE:

     Deposits                                                         (9)              11              2
     Securities sold under agreements to repurchase                   17               19             36
     Borrowings                                                       51               37             88
                                                                    ----             ----           ----
               Total                                                  59               67            126
                                                                    ----             ----           ----
                  Change in net interest income                     $ 19             $(26)          $ (7)
                                                                    ====             ====           ====
</TABLE>
       The volume  variances in total interest income and total interest expense
for the three months ended June 30, 2000 compared to the corresponding period in
1999 are largely due to increased  loan volume and purchases of  mortgage-backed
securities  in the  second  half of 1999,  partially  offset by an  increase  in
borrowings and the sale of mortgage-backed securities in 2000.

       INTEREST  INCOME.  Total  interest  income was $1.0 billion for the three
months ended June 30, 2000, an increase of $118.9  million from the three months
ended June 30, 1999.  Total  interest-earning  assets for the three months ended
June  30,  2000  averaged  $56.4  billion,  compared  to $52.4  billion  for the
corresponding  period in 1999,  primarily as a result of increased  loan volume.
The yield on total  interest-earning  assets  during the three months ended June
30, 2000 increased to 7.26% from 6.90% for the three months ended June 30, 1999,
primarily due to a higher  percentage  of loans to total earning  assets and the
repricing of variable-rate earning assets.

       GS Holdings earned $697.3 million of interest income on loans  receivable
for the three months ended June 30, 2000, an increase of $129.8 million from the
three months ended June 30, 1999.  The average  balance of loans  receivable was
$37.7  billion  for the three  months  ended June 30,  2000,  compared  to $31.2
billion  for the  same  period  in  1999.  The  weighted  average  rate on loans
receivable  increased  to 7.40% for the three  months  ended June 30,  2000 from
7.27% for the three  months  ended June 30,  1999.  The  changes in the  average
balance and weighted average rate reflect the repricing of variable-rate  loans,
offset in part by the impact of originations of mortgages with low  introductory
interest rates during the fourth quarter of 1999 and the first quarter of 2000.

       GS Holdings  earned  $15.4  million of interest  income on loans held for
sale for the three months ended June 30, 2000, a decrease of $17.7  million from
the three months ended June 30, 1999. The average balance of loans held for sale
was $814  million for the three  months  ended June 30, 2000, a decrease of $1.2
billion from the comparable period in 1999,  primarily attributed to a reduction
in fixed-rate  originations due to the current rising interest rate environment,
coupled  with  longer  holding  periods for loans held for sale during the three
months  ended June 30, 1999.  The  weighted  average rate on loans held for sale
increased  to 7.56% for the three  months ended June 30, 2000 from 6.69% for the
three months ended June 30, 1999,  primarily due to increasing  market  interest
rates.


                                    Page 30
<PAGE>


       Interest  income on  mortgage-backed  securities  available  for sale was
$206.5  million for the three  months  ended June 30,  2000, a decrease of $13.1
million from the three months ended June 30, 1999. The average portfolio balance
decreased $1.5 billion,  to $12.4  billion,  for the three months ended June 30,
2000  compared to the same period in 1999.  The weighted  average yield on these
assets  increased  from 6.29% for the three  months ended June 30, 1999 to 6.64%
for the three  months  ended June 30,  2000.  The decrease in the volume and the
increase in the weighted average yield are primarily due to the reclassification
of $1.1 billion in mortgage-backed securities to the held-to-maturity portfolio,
run-off of existing  portfolios  and the sale of  approximately  $500 million of
mortgage-backed  securities during the second quarter of 2000,  partially offset
by purchases during the second half of 1999.

       Interest income on mortgage-backed  securities held to maturity was $51.5
million for the three months  ended June 30,  2000,  an increase of $6.0 million
from the three  months  ended  June 30,  1999.  The  average  portfolio  balance
increased  $234 million,  to $2.7  billion,  for the three months ended June 30,
2000  compared  to  the  same  period  in  1999,  primarily  attributed  to  the
reclassification  of  $1.1  billion  in  mortgage-backed   securities  from  the
available-for-sale  portfolio,  partially  offset  by the  run-off  of  existing
portfolios.  The run-off in these  securities was replaced with the  origination
and purchase of whole loans  instead of additional  mortgage-backed  securities.
The  weighted  average  rates for the three  months ended June 30, 2000 and 1999
were 7.62% and 7.37%, respectively.

       Interest  income on  securities  and  interest-bearing  deposits in other
banks was $24.3 million for the three months ended June 30, 2000, an increase of
$0.5 million from the three  months ended June 30, 1999.  The average  portfolio
balance was $1.4  billion and $1.6  million for each of the three  months  ended
June 30, 2000 and 1999, respectively.  The higher weighted average rate of 6.79%
for the three months ended June 30, 2000  compared to 5.78% for the three months
ended June 30, 1999 reflects $2.4 million in interest income on a federal income
tax refund  related to Old  California  Federal for periods  prior to the Golden
State Acquisition for which there is no corresponding asset, partially offset by
interest earned in 1999 on the investment of proceeds from the assumption of the
GS Holdings Notes.

       Dividends  on FHLB stock were $28.0  million for the three  months  ended
June 30, 2000, an increase of $13.3 million from the three months ended June 30,
1999.  The average  balance  outstanding  during the three months ended June 30,
2000 and 1999 was $1.3  billion and $1.1  billion,  respectively.  The  weighted
average  dividend on FHLB stock  increased  to 8.61% for the three  months ended
June 30, 2000 from 5.24% for the three months ended June 30, 1999.  The increase
in the average  balance and weighted  average yield is due to an increase in the
amount  of such  stock  owned by the  Company  as a  result  of an  increase  in
borrowings  under FHLB  advances  and an increase in the  dividend  rate on FHLB
stock.

       Interest Expense. Total interest expense was $732.6 million for the three
months ended June 30, 2000, an increase of $125.6  million from the three months
ended  June 30,  1999.  The  increase  is  primarily  the  result of  additional
borrowings   under  FHLB  advances  and  securities  sold  under  agreements  to
repurchase used to fund loans and offset the reduction in deposit balances.

       Interest expense on customer deposits,  including brokered deposits,  was
$224.4  million for the three months  ended June 30,  2000,  an increase of $2.3
million  from the three  months  ended June 30,  1999.  The  average  balance of
customer deposits outstanding  decreased from $24.2 billion for the three months
ended June 30, 1999 to $22.9  billion for the three  months ended June 30, 2000.
The decrease in the average  balance is primarily  due to lower  certificate  of
deposit  balances,  reflecting the Bank's pricing  strategy during most of 1999.
The overall weighted  average cost of deposits  increased to 3.93% for the three
months  ended June 30, 2000 from 3.68% for the three months ended June 30, 1999,
primarily due to rising market interest rates.

       Interest  expense on  securities  sold  under  agreements  to  repurchase
totalled  $89.8 million for the three months ended June 30, 2000, an increase of
$36.3 million from the three months ended June 30, 1999. The average  balance of
such  borrowings  for the three  months  ended  June 30,  2000 and 1999 was $5.5
billion and $4.3 billion,  respectively. The increase is primarily attributed to
the  funding of loans and the  purchase  of  mortgage-backed  securities  in the
second half of 1999, as well as deposit  run-off.  The weighted average interest
rate on these instruments increased to 6.46% for the three months ended June 30,
2000 from 4.92% for the three months ended June 30,  1999,  primarily  due to an
increase in market rates on new borrowings in 2000 compared to 1999.


                                    Page 31
<PAGE>


       Interest  expense on  borrowings  totalled  $418.4  million for the three
months ended June 30, 2000,  an increase of $87.0  million from the three months
ended June 30, 1999. The average balance  outstanding for the three months ended
June 30, 2000 and 1999 was $27.7 billion and $24.2  billion,  respectively.  The
weighted average interest rate on these  instruments  increased to 6.06% for the
three  months ended June 30, 2000 from 5.48% for the three months ended June 30,
1999, primarily due to higher prevailing market rates in 2000. The higher volume
reflects  the increase in FHLB  advances  used to fund loans and the purchase of
mortgage-backed securities in the second half of 1999.

       NET INTEREST INCOME. Net interest income was $290.3 million for the three
months  ended June 30,  2000,  a decrease of $6.7  million from the three months
ended June 30, 1999.  The interest  rate spread  declined to 2.04% for the three
months  ended June 30, 2000 from 2.28% for the three months ended June 30, 1999,
primarily   as  a  result  of   maturities   and   repayments   of  lower   rate
interest-bearing  liabilities being replaced with  interest-bearing  liabilities
having comparatively higher rates. The effect of higher rates on liabilities was
partially  offset by higher  yielding  assets  replenishing  asset  run-off in a
rising rate environment and the repricing of variable-rate assets.

       NONINTEREST  INCOME.  Total noninterest income,  consisting  primarily of
loan servicing  fees,  customer  banking fees and gains on sales of assets,  was
$108.0  million  for the three  months  ended  June 30,  2000,  representing  an
increase of less than $0.1 million from the three months ended June 30, 1999.

       Loan servicing fees, net of amortization  of mortgage  servicing  rights,
were $45.7  million for the three months ended June 30, 2000,  compared to $34.3
million for the three months ended June 30, 1999. The single-family  residential
loan servicing portfolio,  excluding loans serviced for the Bank, increased from
$69.2  billion at June 30, 1999 to $78.6  billion at June 30, 2000.  Incremental
loan  servicing  fees  were  partially  offset  by  amortization  of  MSRs.  MSR
amortization  for the quarter  decreased  by $3.1  million from the three months
ended June 30, 1999 due to a reduction in the assumed prepayment rate, partially
offset by a higher MSR basis. Loan servicing fees benefited from the slowdown in
mortgage loan  prepayments  in 2000,  with an average  prepayment  rate on loans
serviced for others of 9.2% in the second quarter of 2000,  compared to 20.0% in
the comparable period in 1999.

       Customer  banking fees were $50.1 million for the three months ended June
30, 2000 compared to $46.6 million for the three months ended June 30, 1999. The
increase  is  primarily  attributed  to  increased  emphasis  by  management  on
transaction  account  growth and higher fee income on mutual  fund,  annuity and
other security sales through Cal Fed Investments.

       Gain on sale,  settlement  and  transfer  of loans,  net  totalled  $20.4
million for the three months ended June 30, 2000,  an increase of $15.5  million
from the three months ended June 30,  1999.  During the second  quarter of 2000,
the Company recorded a $14.5 million reduction in its recourse liability. See "-
Six  Months  Ended  June 30,  2000  versus  Six  Months  Ended  June 30,  1999 -
Noninterest  Income."  During the three months  ended June 30, 2000,  California
Federal sold $1.1 billion in  single-family  mortgage loans  originated for sale
with  servicing  rights  retained  as  part  of  its  ongoing  mortgage  banking
operations  compared to $2.6 billion of such sales for the corresponding  period
in 1999.  The gain on residential  loan sales  increased $4.8 million during the
three months ended June 30, 2000 compared to the same period in 1999,  primarily
as a result of an $8.8 million adjustment  recorded during the second quarter of
1999 to reflect the lower of cost or market  valuation on loans held for sale at
June 30, 1999.  Gains  attributed to early payoffs and  settlement of commercial
loans with  unamortized  discounts  were $3.8 million  lower in the three months
ended June 30, 2000 compared to the same period in 1999.

       Net loss on sale of assets  totalled  $16.5  million for the three months
ended  June 30,  2000,  compared  to a net gain of $14.9  million  for the three
months ended June 30, 1999,  primarily  attributed to an $18.7 million loss from
the sale of approximately $500 million of mortgage-backed  securities during the
second  quarter of 2000. See "- Six Months Ended June 30, 2000 versus Six Months
Ended June 30, 1999 - Noninterest Income."


                                    Page 32
<PAGE>


       NONINTEREST EXPENSE. Total noninterest expense was $226.3 million for the
three months ended June 30,  2000,  an increase of $5.1 million  compared to the
three  months  ended June 30,  1999.  The  variance  between  the two periods is
primarily  attributed to normal  inflation  rates and  investments  in expanding
lines of business.  Noninterest expense for the three months ended June 30, 2000
included  increases of $8.0  million in  compensation  expense,  $6.0 million in
occupancy  and equipment and $1.4 million in other  noninterest  expense.  These
increases  were  partially  offset by decreases of $4.4 million in  professional
fees,  $2.0 million in loan  expense and $1.7 million in merger and  integration
costs incurred in 1999 in connection with the Golden State Acquisition.

       Compensation  and employee  benefits  expense was $107.2  million for the
three  months  ended June 30,  2000,  an increase of $8.0 million from the three
months ended June 30,  1999.  The  increase is  primarily  attributed  to normal
salary  increases and higher  employment  levels in expanding lines of business,
including the impact of additional employees from the Downey Acquisition.

       Occupancy and  equipment  expense was $36.1 million and $30.1 million for
the three  months  ended June 30,  2000 and 1999,  respectively.  This  increase
reflects $4.8 million of adjustments in 1999 to previously  established accruals
for vacant facilities and an acceleration of depreciation on computer  equipment
during the second quarter of 2000.

       Professional  fees were $8.9  million for the three months ended June 30,
2000,  a decrease of $4.4  million  from the three  months  ended June 30, 1999,
primarily  due to expenses  incurred in 1999  attributed  to the Y2K project and
goodwill litigation.

       Loan expense was $8.0 million for the three months ended June 30, 2000, a
decrease of $2.0 million  from the three  months ended June 30, 1999,  primarily
due to a decrease in  pass-through  interest  expense on loans  attributed  to a
decrease in payoffs  during 2000.  Repayment  rates on loans serviced for others
averaged 13% during the second  quarter of 2000, a significant  decline from the
24% average experienced during the same period in 1999.

       Merger and integration costs were $1.7 million for the three months ended
June 30,  1999,  representing  transition  expenses,  which  include  severance,
conversion and consolidation  costs incurred in connection with the Golden State
Acquisition. Such costs were not incurred during 2000.

       Amortization of intangible  assets was $15.5 million for the three months
ended June 30, 2000, a decrease of $2.5 million from the three months ended June
30, 1999,  primarily  attributed to a lower goodwill base due to a $50.0 million
reduction in goodwill in the first quarter of 2000,  resulting  from a reduction
in the valuation allowance against the Company's deferred tax asset, and a $38.2
million reduction resulting from an income tax refund received during the fourth
quarter  of  1999  related  to Old  California  Federal.  These  decreases  were
partially offset by amortization expense related to the $7.7 million in goodwill
recorded in connection with the Downey Acquisition.

       PROVISION FOR INCOME TAX. During the three months ended June 30, 2000 and
1999,  GS  Holdings  recorded  income  tax  expense of $75.1  million  and $82.3
million, respectively.

       GS Holdings'  effective gross federal tax rate was 38% during each of the
three months ended June 30, 2000 and 1999, while its federal  statutory tax rate
was 35% during both periods.  The difference between the effective and statutory
rates was  primarily  the  result of  nondeductible  goodwill  amortization.  GS
Holdings' effective state tax rate was 6% and 8% during each of the three months
ended June 30, 2000 and 1999,  respectively.  The  effective  tax rate  declined
during  the  second  quarter  of 2000 as a result  of  changes  in  management's
estimates of the expected state tax liability of the Company.

       MINORITY INTEREST.  Dividends on the REIT Preferred Stock totalling $11.4
million were  recorded  during the three  months  ended June 30, 2000.  Minority
interest  expense  relative  to the REIT  Preferred  Stock is  reflected  net of
related income tax benefit of $4.6 million, which will inure to the Company as a
result of the deductibility of such dividends for income tax purposes.


                                    Page 33
<PAGE>


       During the three months ended June 30, 1999,  minority  interest  expense
included $3.2 million in net premiums paid in connection  with the redemption of
the Bank's 10 5/8%  Preferred  Stock.  Minority  interest  expense also included
dividends  on the Bank  Preferred  Stock  that had not yet been  acquired  by GS
Holdings and the REIT Preferred  Stock totalling $0.9 million and $11.4 million,
respectively.  Minority interest expense relative to the REIT Preferred Stock is
reflected net of related  income tax benefit of $4.8 million which will inure to
the Company as a result of the  deductibility  of such  dividends for income tax
purposes.

PROVISION FOR LOAN LOSSES

       The adequacy of the allowance for loan losses is  periodically  evaluated
by  management to maintain the allowance at a level that is sufficient to absorb
expected  loan losses.  The allowance for loan losses is increased by provisions
for loan  losses as well as by balances  acquired  through  acquisitions  and is
decreased  by  charge-offs  (net of  recoveries).  The Company  charges  current
earnings with a provision for estimated credit losses on loans  receivable.  The
provision considers both specifically identified problem loans as well as credit
risks not  specifically  identified in the loan  portfolio.  See "-- Problem and
Potential   Problem  Assets"  for  a  discussion  of  the  methodology  used  in
determining the adequacy of the allowance for loan losses.  The Company recorded
no provision  for loan losses  during the six months  ended June 30,  2000.  The
Company recorded provisions for loan losses of $10 million and $5 million during
the six and three months ended June 30, 1999, respectively.

       The decrease in the provision for loan losses during the six-month period
ended June 30, 2000  compared to the same period in 1999  reflects  management's
evaluation of the adequacy of the allowance  based on, among other things,  past
loan loss experience and known and inherent risks in the portfolio, evidenced in
part by the continued decline in the Company's level of  non-performing  assets.
In addition,  management's  periodic evaluation of the adequacy of the allowance
for loan losses considers  potential  adverse  situations that have occurred but
are not yet known that may affect the borrower's ability to repay, the estimated
value of underlying collateral and economic conditions.

       Activity in the allowance for loan losses is as follows (in thousands):
<TABLE>
<CAPTION>
                                                       Six Months Ended June 30,       Three Months Ended June 30,
                                                       -------------------------       ---------------------------
                                                         2000            1999             2000            1999
                                                         ----            ----             ----            ----

<S>                                                    <C>             <C>              <C>             <C>
Balance - beginning of period                          $554,893        $588,533         $543,188        $583,214
   Provision for loan losses                                 --          10,000               --           5,000
   Charge-offs                                          (20,297)        (21,483)          (7,827)        (11,179)
   Recoveries                                             1,518           1,989              753           1,334
   Reclassification                                          --            (670)              --              --
                                                       --------        --------         --------        --------
Balance - end of period                                $536,114        $578,369         $536,114        $578,369
                                                       ========        ========         ========        ========
</TABLE>

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


                                    Page 34
<PAGE>


PROBLEM AND POTENTIAL PROBLEM ASSETS

       The  Company   considers  a  loan  impaired  when,   based  upon  current
information  and events,  it is "probable" that it will be unable to collect all
amounts due (i.e.,  both  principal and interest)  according to the  contractual
terms of the loan agreement.  Any insignificant delay or insignificant shortfall
in  amount  of  payments  will not cause a loan to be  considered  impaired.  In
determining  impairment,  the  Company  considers  large  non-homogeneous  loans
including nonaccrual loans,  troubled debt restructurings,  and performing loans
that exhibit,  among other  characteristics,  high LTV ratios, low debt-coverage
ratios or other indications that the borrowers are experiencing increased levels
of financial  difficulty.  Loans  collectively  reviewed for  impairment  by the
Company include all single-family  loans,  business banking loans under $100,000
and performing  multi-family  and commercial  real estate loans under  $500,000,
excluding loans which have entered the work-out process.

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

       Cash receipts on impaired loans not  performing  according to contractual
terms are generally  used to reduce the carrying  value of the loan,  unless the
Company  believes it will recover the remaining  principal  balance of the loan.
Impairment  losses  are  included  in  the  allowance  for  loan  losses.   Upon
disposition of an impaired loan, loss of principal,  if any, is recorded through
a charge-off to the allowance for loan losses.

       At June 30,  2000,  loans that were  considered  to be impaired  totalled
$100.2 million (of which $18.9 million were on nonaccrual  status).  The average
recorded  investment in impaired  loans during the six and  three-month  periods
ended  June 30,  2000 was  approximately  $113.5  million  and  $104.4  million,
respectively.  For the six and  three-month  periods  ended  June 30,  2000,  GS
Holdings  recognized interest income on those impaired loans of $4.1 million and
$2.0  million,  respectively,  which  included  $0.4  million and $0.2  million,
respectively,  of  interest  income  recognized  using the cash basis  method of
income recognition.


                                    Page 35
<PAGE>


       The  following  table  presents  the  Company's   non-performing   loans,
foreclosed real estate,  repossessed  assets,  troubled debt  restructurings and
impaired  loans as of the dates  indicated.  These  categories  are not mutually
exclusive; certain loans are included in more than one classification. Purchased
sub-prime auto loans are reflected as  non-performing,  impaired or restructured
using each individual loan's contractual unpaid principal balance.
<TABLE>
<CAPTION>
                                                                             June 30, 2000
                                                          --------------------------------------------------
                                                          Non-performing       Impaired         Restructured
                                                          --------------       --------         ------------
                                                                             (in millions)
<S>                                                            <C>               <C>                 <C>
 Real Estate:
   1-4 unit residential                                        $100              $  1                $ 1
   5+ unit residential                                            4                30                 --
   Commercial and other                                           4                46                 --
   Land                                                          --                --                 --
   Construction                                                  --                --                 --
                                                               ----              ----                ---
       Total real estate                                        108                77                  1
Non-real estate                                                  16                23                 --
                                                               ----              ----                ---
       Total loans                                              124 (a)          $100 (b)            $ 1
                                                                                 ====                ===
Foreclosed real estate, net                                      28
Repossessed assets                                                6
                                                               ----
       Total non-performing assets                             $158
                                                               ====

                                                                           December 31, 1999
                                                          --------------------------------------------------
                                                          Non-performing       Impaired         Restructured
                                                          --------------       --------         ------------
                                                                             (in millions)
 Real Estate:
   1-4 unit residential                                        $126              $ --                $ 2
    5+ unit residential                                           6                34                  5
    Commercial and other                                          8                67                 18
    Land                                                         --                 2                 --
    Construction                                                 --                --                 --
                                                               ----              ----                ---
       Total real estate                                        140               103                 25
Non-real estate                                                  11                21                 --
                                                               ----              ----                ---
       Total loans                                              151 (a)          $124 (b)            $25
                                                                                 ====                ===
Foreclosed real estate, net                                      45
Repossessed assets                                                4
                                                               ----
       Total non-performing assets                             $200
                                                               ====
</TABLE>
--------------
(a)    Includes loans securitized with recourse on non-performing status of $2.0
       million  at  December  31,  1999.  There  are no loans  securitized  with
       recourse on non-performing status at June 30, 2000.

(b)    Includes $18.9 million of non-performing  loans at both June 30, 2000 and
       December 31, 1999. Also includes $10.0 million and $13.7 million of loans
       classified as troubled debt  restructurings at June 30, 2000 and December
       31, 1999, respectively.

       There were no accruing  loans  contractually  past due 90 days or more at
June 30, 2000 or December 31, 1999.

       The Company's  non-performing  assets,  consisting  of nonaccrual  loans,
repossessed assets and foreclosed real estate, net, decreased to $158 million at
June 30, 2000, from $200 million at December 31, 1999.  Non-performing assets as
a percentage  of the Bank's  total  assets  decreased to 0.26% at June 30, 2000,
from 0.35% at December 31, 1999.


                                    Page 36
<PAGE>


       The Company  places a high degree of  emphasis on the  management  of its
asset  portfolio.  The Company has three  distinct asset  management  functions:
performing  loan asset  management,  problem  loan asset  management  and credit
review.  Each of these three  functions  is charged with the  responsibility  of
reducing the risk profile within the  commercial,  multi-family  and other asset
portfolios by applying asset management and risk evaluation  techniques that are
consistent  with the  Company's  portfolio  management  strategy and  regulatory
requirements. In addition to these asset management functions, the Company has a
specialized credit risk management group that is charged with the development of
credit policies and performing credit risk analyses for all asset portfolios.

       The  following  table  presents  non-performing  real  estate  assets  by
geographic region of the country as of June 30, 2000:
<TABLE>
<CAPTION>
                                                                                 Total
                                     Non-performing        Foreclosed       Non-performing
                                       Real Estate        Real Estate,        Real Estate      Geographic
                                     Loans, Net (2)          Net (2)            Assets        Concentration
                                     --------------         --------            ------        -------------
                                                               (dollars in millions)

<S>                                       <C>                 <C>                <C>                <C>
Region:
         California                       $ 67                $14                $ 81               60%
         Northeast (1)                      12                  3                  15               11
         Other regions                      29                 11                  40               29
                                          ----                ---                ----              ---
              Total                       $108                $28                $136              100%
                                          ====                ===                ====              ===
</TABLE>
-------------
(1)    Consists of Connecticut,  Massachusetts,  New Hampshire,  New Jersey, New
       York, Pennsylvania, Rhode Island, Delaware, Maine and Vermont.

(2)    Net of purchase accounting adjustments.

       At  June  30,  2000,  the  Company's  largest  non-performing  asset  was
approximately $2.9 million, and it had two non-performing assets over $2 million
in size with balances averaging $2.6 million.  At June 30, 2000, the Company had
3,426   non-performing   assets  below  $2  million  in  size,   including   876
non-performing 1-4 unit residential assets.

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

       The formula  allowance is determined by applying loss factors against all
non-impaired  loans. Loss factors may be adjusted for significant  factors that,
in management's  judgment,  affect the collectibility of the portfolio as of the
evaluation  date.  Loss factors are  calculated  based on migration  models that
estimate the probability that loans will become delinquent and ultimately result
in foreclosure over a period of between one and 2.5 years, depending on the loan
type, and the rates of loss that have been experienced on foreclosed  loans. The
foreclosure  migration and loss  severity  rates are then averaged over the past
eight  years in order to  capture  experience  across a period  that  management
believes  approximates a business  cycle. A contingency  factor is then added to
provide for the modeling risk associated with imprecision in estimating inherent
loan losses.


                                    Page 37
<PAGE>


       The  specific   allowances  are  established  against  individual  loans,
including  impaired  loans in  accordance  with  SFAS  No.  114,  ACCOUNTING  BY
CREDITORS FOR IMPAIRMENT OF A LOAN.  Specific allowances are established against
individual residential 1-4 mortgage loans,  commercial loans and commercial 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 due according to the contractual terms of the loan
agreement. 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 an estimation of collateral deficiency, including consideration of costs that
will likely be incurred through the disposal of any repossessed  collateral.  In
other words, management estimates the fair value of collateral,  net of the cost
of disposition of the collateral, and the fair value is compared to the net book
value of the loan.  If the net book value  exceeds  the fair  value,  a specific
allowance is established in an amount 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 more objective processes used to derive the
formula and  specific  portions of the  allowance.  The  unallocated  portion is
necessarily  more  subjective and requires a high degree of management  judgment
and  experience.  Management  has  identified  several  factors  that impact the
potential for credit losses that are not considered in either the formula or the
specific  allowance  segments.  These factors consist of industry and geographic
loan  concentrations,  changes in the  composition  of loan  portfolios  through
acquisitions and new business strategies, changes in underwriting processes, and
trends in problem  loan and loss  recovery  rates.  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 June 30,  2000,  the  allowance  for  loan  losses  was $536  million,
consisting of a $379 million formula allowance, a $26 million specific allowance
and a $131 million unallocated allowance.

       Although the loan loss  allowance has been  allocated by type of loan for
internal valuation purposes,  $510 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.  A summary of the activity in the total allowance
for loan losses by loan type is as follows:
<TABLE>
<CAPTION>
                                                                   5+ Unit
                                                                 Residential
                                                1 - 4 Unit      and Commercial      Consumer
                                               Residential       Real Estate       and Other           Total
                                               -----------       -----------       ---------           -----
                                                                         (in millions)

<S>                                                <C>              <C>               <C>              <C>
Balance - December 31, 1999                        $235             $276              $44              $555
     Provision for loan losses                       --               (1)               1                --
     Charge-offs                                     (2)              (4)              (7)              (13)
     Recoveries                                      --               --                1                 1
                                                   ----             ----              ---              ----
Balance - March 31, 2000                            233              271               39               543
     Provision for loan losses                       --               (1)               1                --
     Charge-offs                                     (2)              (2)              (4)               (8)
     Recoveries                                      --                --               1                 1
                                                   ----             ----              ---              ----
Balance - June 30, 2000                            $231             $268              $37              $536
                                                   ====             ====              ===              ====
</TABLE>

                                    Page 38
<PAGE>


ASSET AND LIABILITY MANAGEMENT

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

       GS Holdings,  through the Bank,  actively pursues  investment and funding
strategies intended to minimize the sensitivity of its earnings to interest rate
fluctuations.  The Company measures the interest rate sensitivity of its balance
sheet  through gap and duration  analysis,  as well as net  interest  income and
market value simulation. 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.  An  important  decision  is  the  selection  of  interest-bearing
liabilities  and the  generation  of  interest-earning  assets  which best match
relative to interest  rate  changes.  In order to reduce  interest  rate risk by
increasing  the  percentage  of  interest  sensitive  assets,  the  Company  has
continued its emphasis on the  origination of adjustable  rate mortgage  ("ARM")
products for its portfolio.  Where possible, the Company seeks to originate real
estate and other loans that reprice frequently.  At June 30, 2000, approximately
78% of the Company's loan portfolio consisted of ARMs.

       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. Certain ARMs now offered by the Company have a fixed
monthly  payment  for a given  period,  with any  changes  as a result of market
interest  rates  reflected  in the unpaid  principal  balance  through  negative
amortization.

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


                                    Page 39
<PAGE>


       The  following  table  sets  forth the  projected  maturities  based upon
contractual  maturities as adjusted for  projected  prepayments  and  "repricing
mechanisms"  (provisions  for  changes  in the  interest  rates  of  assets  and
liabilities).  Prepayment rates are assumed in each period on substantially  all
of the Company's loan portfolio based upon expected loan prepayments.  Repricing
mechanisms on the Company's  assets are subject to limitations,  such as caps on
the  amount  that  interest   rates  and  payments  on  its  loans  may  adjust.
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 June 30, 2000 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
     and short-term investment
     securities (1) (2)                           $    84       $     --       $   --         $   --       $    84
Securities held to maturity (1)                        76            190          343             --           609
Securities available for sale (3)                     623             --           --             --           623
Mortgage-backed securities
     available for sale (3)                        11,314             --           --             --        11,314
Mortgage-backed securities
     held to maturity (1) (4)                       2,039            349          629             --         3,017
Loans held for sale, net (3)                          796             --           --             --           796
Loans receivable, net (1) (5)                      20,830         13,150        4,826             --        38,806
Investment in FHLB                                  1,315             --           --             --         1,315
                                                  -------       --------       ------         ------       -------
       Total interest-earning assets               37,077         13,689        5,798             --        56,564
Noninterest-earning assets                             --             --           --         $3,944         3,944
                                                  -------       --------       ------         ------       -------
                                                  $37,077       $ 13,689       $5,798         $3,944       $60,508
                                                  =======       ========       ======         ======       =======

INTEREST-BEARING LIABILITIES:
Deposits (6)                                      $20,944       $  2,321       $    3         $   --       $23,268
Securities sold under agreements to
     repurchase                                     5,410            200           --             --         5,610
FHLB advances (1)                                  14,590         11,325           --             --        25,915
Other borrowings (1)                                  175          2,001           92             --         2,268
                                                  -------       --------       ------         ------       -------
     Total interest-bearing liabilities            41,119         15,847           95             --        57,061
Noninterest-bearing liabilities                        --             --           --          1,021         1,021
Minority interest                                      --             --           --            500           500
Stockholder's equity                                   --             --           --          1,926         1,926
                                                  -------       --------       ------         ------       -------
                                                  $41,119       $ 15,847       $   95         $3,447       $60,508
                                                  =======       ========       ======         ======       =======

Gap before interest rate swap agreements          $(4,042)      $ (2,158)      $5,703                      $  (497)
Interest rate swap agreements                       3,400         (2,500)        (900)                          --
                                                  -------       --------       ------
Gap                                               $  (642)      $ (4,658)      $4,803                      $  (497)
                                                  =======       ========       ======                      =======

Cumulative gap                                    $  (642)      $ (5,300)      $ (497)                     $  (497)
                                                  =======       ========       ======                      =======

Gap as a percentage of total assets                 (1.06)%        (7.70)%       7.94%                       (0.82)%
                                                    =====          =====        =====                        =====

Cumulative gap as a percentage of total assets      (1.06)%        (8.76)%      (0.82)%                      (0.82)%
                                                    =====          =====        =====                        =====
</TABLE>

                                                                     (Continued)


                                    Page 40
<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 June 30, 2000. The
       actual  maturity  and  rate   sensitivity  of  these  assets  could  vary
       substantially if future prepayments differ from prepayment estimates.

(2)    Consists of $84 million of short-term investment securities and less than
       $0.1 million of interest-bearing deposits in other banks.

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

(4)    Excludes underlying non-performing loans of $1 million.

(5)    Excludes allowance  for loan  losses of  $536 million and  non-performing
       loans of $122 million, net of $10 million related to specific allowances.

(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 June 30, 2000, GS Holdings' cumulative gap totalled ($497) million. At
December 31, 1999, GS Holdings' cumulative gap totalled ($693) 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.

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

LIQUIDITY

       The standard measure of liquidity in the savings industry is the ratio of
cash and short-term U.S. Government securities and other specified securities to
deposits  and  borrowings  due within one year.  The OTS  established  a minimum
liquidity  requirement  for the Bank of 4.00%.  California  Federal  has been in
compliance with the liquidity  regulations  during the six months ended June 30,
2000 and the year ended December 31, 1999.

       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 cash  flow  needs,  including  paying
dividends on its preferred  stock owned by the Company,  and may be distributed,
subject to certain  restrictions,  to GS  Holdings.  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 26 of the "Notes to Consolidated  Financial Statements" in
the Company's 1999 Form 10-K.


                                    Page 41
<PAGE>


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

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

       The Company  anticipates that cash and cash equivalents on hand, the cash
flows  from  assets as well as other  sources  of funds  will  provide  adequate
liquidity  for its  operating,  investing  and  financing  needs and the  Bank's
regulatory  liquidity  requirements for the foreseeable  future.  In addition to
cash and cash  equivalents  of $691.6  million at June 30, 2000, the Company has
substantial additional borrowing capacity with the FHLB and other sources.

       The consolidated  Company's  primary uses of funds are the origination or
purchase of loans, the purchase of  mortgage-backed  securities,  the funding of
maturing  certificates of deposit,  demand deposit withdrawals and the repayment
of  borrowings.  Certificates  of deposit  scheduled to mature during the twelve
months ending June 30, 2001 aggregate $10.0 billion. The Company may renew these
certificates,  attract new replacement  deposits,  replace such funds with other
borrowings,  or it may  elect  to  reduce  the  size of the  balance  sheet.  In
addition, at June 30, 2000, GS Holdings had FHLB advances, securities sold under
agreements to repurchase and other borrowings aggregating $20.2 billion maturing
or repricing within twelve months. The Company may elect to pay off such debt or
to replace such borrowings with additional FHLB advances,  securities sold under
agreements to repurchase or other borrowings at prevailing rates.

       As presented in the  accompanying  unaudited  consolidated  statements of
cash flows, the sources of liquidity vary between  periods.  The primary sources
of funds  during  the six  months  ended  June 30,  2000 were  $20.1  billion in
proceeds  from  additional  borrowings,  $2.2 billion in proceeds  from sales of
loans held for sale,  $1.1  billion in  principal  payments  on  mortgage-backed
securities  available  for sale and held to  maturity,  and  $480.2  million  in
proceeds  from  sales of  mortgage-backed  securities  available  for sale.  The
primary uses of funds were $17.5 billion in principal payments on borrowings,  a
$3.3 billion net  increase in loans  receivable,  $2.3 billion in purchases  and
originations  of loans  held for sale,  $811.7  million  in  purchases  of loans
receivable and $379.3 million for the Downey Acquisition.

MORTGAGE BANKING OPERATIONS

       During the six months ended June 30, 2000 and 1999, the Company,  through
the   Bank's   wholly   owned   mortgage   bank   subsidiary,   FNMC,   acquired
mortgage-servicing  rights on loan  portfolios of $8.1 billion and $9.3 billion,
respectively.  The 1-4 unit  residential  loans  serviced for others  (including
loans  sub-serviced  for  others  and  excluding  loans  serviced  for the Bank)
totalled  $78.6  billion at June 30, 2000,  an increase of $5.7 billion and $9.4
billion from December 31, 1999 and June 30, 1999,  respectively.  During the six
months ended June 30, 2000 and 1999,  the Bank,  through FNMC,  originated  $7.4
billion and $9.6  billion,  respectively,  and sold  (generally  with  servicing
retained) $2.2 billion and $5.8 billion,  respectively,  of 1-4 unit residential
loans. Gross revenues from mortgage loan servicing activities for the six months
ended June 30, 2000 totalled $158.3  million,  an increase of $17.4 million from
the six months ended June 30, 1999. Gross loan servicing fees for the six months
ended June 30, 2000 were reduced by $97.2 million of  amortization  of servicing
rights to arrive at net loan servicing fees of $61.0 million.


                                    Page 42
<PAGE>


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

       The Company owned several  derivative  instruments at June 30, 2000 which
were used to hedge against prepayment risk in its mortgage servicing  portfolio.
These derivative instruments included Constant Maturity Swap interest rate floor
contracts,  swaptions and principal only swaps.  The estimated fair value of all
derivatives  used to hedge  prepayment  risk was $33.0 million at June 30, 2000.
The interest rate floor contracts had a notional amount of $1.2 billion,  strike
rates  between  5.70% and 7.62%,  mature in the years 2004 and 2005,  and had an
estimated  fair  value  of $18.2  million  at June 30,  2000.  Premiums  paid to
counterparties  in exchange for cash payments when the 10-year Constant Maturity
Swap rate falls below the strike  rate are  recorded as part of the MSR asset on
the balance sheet. The swaption contracts had a notional amount of $1.1 billion,
strike rates between 6.75% and 7.88%, expire in the years 2002 and 2003, and had
an  estimated  fair value of $26.7  million at June 30, 2000.  Premiums  paid to
counterparties in exchange for the right to enter into an interest rate swap are
recorded  as part of the MSR asset on the  balance  sheet.  Principal  only swap
agreements had notional amounts of $198.3 million and an estimated fair value of
$(11.8) million at June 30, 2000.

       The  following is a summary of activity in MSRs and the MSR Hedge for the
six months ended June 30, 2000 (in millions):
<TABLE>
<CAPTION>
                                                                                                         Total MSR
                                                                        MSRs            MSR Hedge         Balance
                                                                        ----            ---------         -------
<S>                                                                    <C>                 <C>             <C>
      Balance at December 31, 1999                                     $1,232              $40             $1,272
         Additions - purchases                                            178               --                178
         Originated servicing                                              55               --                 55
         Swaption sales                                                    (4)              (8)               (12)
         Servicing Sale/Transfer                                           (1)              --                 (1)
         Floor sales                                                       (1)              (4)                (5)
         Premiums paid                                                     --               25                 25
         Payments made to counterparties, net                               6               --                  6
          Amortization                                                    (90)              (7)               (97)
                                                                       ------              ---             ------
      Balance at June 30, 2000                                         $1,375              $46             $1,421
                                                                       ======              ===             ======
</TABLE>
       Capitalized  MSRs are amortized in proportion to, and over the period of,
estimated net servicing income. SFAS No. 125 requires enterprises to measure the
impairment of MSRs based on the  difference  between the carrying  amount of the
MSRs and their  current fair value.  At June 30, 2000 and December 31, 1999,  no
allowance for impairment of the MSRs was necessary.

CAPITAL RESOURCES

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

       TANGIBLE  CAPITAL.  Tangible  capital is the sum of 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.


                                    Page 43
<PAGE>


       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.

       MINIMUM  REQUIREMENTS.  These capital  requirements  discussed  above are
viewed as minimum  standards by the OTS, and most  associations  are expected to
maintain capital levels well above the minimum. In addition, the OTS regulations
provide  that  minimum   capital  levels  higher  than  those  provided  in  the
regulations may be established by the OTS for individual  savings  associations,
depending upon their  circumstances.  These capital  requirements  are currently
applicable  to the Bank but not to GS  Holdings.  The Bank is not subject to any
such individual regulatory capital requirement that is higher than the minimum.

       At June 30,  2000,  the Bank's  regulatory  capital  levels  exceeded the
minimum  regulatory  capital  requirements,  with tangible,  core and risk-based
capital  ratios of 6.06%,  6.06% and 12.95%,  respectively.  The  following is a
reconciliation of the Bank's  stockholder's  equity to regulatory  capital as of
June 30, 2000:
<TABLE>
<CAPTION>
                                                                      Tangible           Coree          Risk-based
                                                                       Capital          Capital           Capital
                                                                       -------          -------           -------
                                                                                 (dollars in millions)

<S>                                                                    <C>              <C>               <C>
 Stockholder's equity of the Bank                                      $ 3,849          $ 3,849           $ 3,849
 Minority interest - REIT Preferred Stock                                  500              500               500
 Unrealized holding loss on securities, net                                283              283               283
 Non-allowable capital:
       Intangible assets                                                  (745)            (745)             (745)
       Goodwill Litigation Assets                                         (159)            (159)             (159)
       Investment in non-includable subsidiaries                           (60)             (60)              (60)
       Excess deferred tax asset                                           (38)             (38)              (38)
 Supplemental capital:
       Qualifying subordinated debentures                                   --               --                93
       General loan loss allowance                                          --               --               397
 Assets required to be deducted:
          Land loans with more than 80% LTV ratio                           --               --                (4)
       Equity in subsidiaries                                               --               --                (6)
          Low-level recourse deduction                                      --               --               (10)
                                                                       -------          -------           -------
 Regulatory capital of the Bank                                          3,630            3,630             4,100
 Minimum regulatory capital requirement                                    898            2,395             2,533
                                                                       -------          -------           -------
 Excess above minimum capital requirement                              $ 2,732          $ 1,235           $ 1,567
                                                                       =======          =======           =======

 Regulatory capital of the Bank                                           6.06%            6.06%            12.95%
 Minimum regulatory capital requirement                                   1.50             4.00              8.00
                                                                          ----             ----             -----
 Excess above minimum capital requirement                                 4.56%            2.06%             4.95%
                                                                          ====             ====             =====
</TABLE>

       The amount of adjusted  total  assets used for the  tangible and leverage
capital  ratios is $59.9 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $31.7 billion.


                                    Page 44
<PAGE>


       The Bank is also  subject to the  "prompt  corrective  action"  standards
prescribed  in FDICIA and related OTS  regulations,  which,  among other things,
define specific capital categories based on an association's capital ratios. The
capital  categories,  in declining  order, are "well  capitalized,"  "adequately
capitalized,"   "undercapitalized,"    "significantly   undercapitalized,"   and
"critically  undercapitalized." Under the regulation, the ratio of total capital
to risk-weighted  assets, core capital to risk-weighted  assets and the leverage
capital ratio are used to determine an association's capital classification. The
Bank met the capital requirements of a "well capitalized"  institution under the
FDICIA prompt  corrective  action standards as of June 30, 2000. The Bank is not
presently subject to any enforcement action or other regulatory  proceeding with
respect to the prompt corrective action regulation.

       At June 30, 2000, the Bank's capital levels were  sufficient for it to be
considered "well capitalized," as presented below.
<TABLE>
<CAPTION>
                                                                               Risk-based
                                                     Leverage         ---------------------------
                                                     Capital          Tier 1        Total Capital
                                                     -------          ------        -------------
<S>                                                   <C>             <C>              <C>
       Regulatory capital of the Bank                 6.06%           11.44%           12.95%
       "Well capitalized" ratio                       5.00             6.00            10.00
                                                      ----            -----            -----
       Excess above "well capitalized" ratio          1.06%            5.44%            2.95%
                                                      ====            =====            =====
</TABLE>

       OTS  capital  regulations  allow a savings  association  to include a net
deferred tax asset in regulatory capital, subject to certain limitations. To the
extent  that the  realization  of a  deferred  tax  asset  depends  on a savings
association's  future  taxable  income,  such  deferred tax asset is limited for
regulatory  capital  purposes  to the lesser of the amount  that can be realized
within one year or 10 percent of core capital.  At June 30, 2000, $38 million of
the net tax benefit was determined to be  attributable  to the amount of taxable
income that may be realized in periods beyond one year. Accordingly, such amount
has been excluded from the Bank's regulatory capital at June 30, 2000.

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, 1999.


                                    Page 45
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

       Goodwill Litigation Against the Government

       On April 9, 1999,  the Claims Court issued its decision on a claim by the
Bank against the United States  Government  (the  "Government")  in the lawsuit,
GLENDALE FEDERAL BANK,  FEDERAL SAVINGS BANK V. UNITED STATES,  Civil Action No.
90-772-C (the "Glendale Goodwill  Litigation"),  ruling that the Government must
compensate the Bank in the sum of $908.9 million.  This decision was appealed by
the Government and the Bank.  After all appellate  briefs were filed by both the
Government  and the Bank,  oral argument on the appeal took place in conjunction
with the argument in the  California  Federal  Goodwill  Litigation  (as defined
herein) on July 7, 2000.

       On April 16, 1999, the Claims Court issued its decision on a claim by the
Bank against the  Government in the lawsuit,  CALIFORNIA  FEDERAL BANK V. UNITED
STATES, Civil Action No. 92-138C (the "California Federal Goodwill Litigation"),
ruling that the Government must compensate the Bank in the sum of $23.0 million.
The summary judgment liability decision by the first Claims Court Judge has been
appealed by the Government and the damage award by the second Claims Court Judge
has been  appealed by the Bank.  After all  appellate  briefs  were filed,  oral
argument in the Federal Circuit Court of Appeals took place in conjunction  with
the appellate argument in the Glendale Goodwill Litigation on July 7, 2000.

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

       OTHER LITIGATION

       In  addition  to the  matters  described  above,  Golden  State  and  its
subsidiaries are involved in other legal proceedings on claims incidental to the
normal  conduct of their  business.  Although  it is  impossible  to predict the
outcome of any  outstanding  legal  proceedings,  management  believes that such
legal proceedings and claims,  individually or in the aggregate, will not have a
material effect on 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 46
<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.)

         27.1   Financial Data Schedule.

     (b) Reports on Form 8-K:

         None.


                                    Page 47
<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)



August 9, 2000


                                    Page 48