<PAGE>


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

                                    FORM 10-K

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


                  For the fiscal year ended: December 31, 2000
                                             -----------------

                         Commission file number: 1-12639



                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------


         Maryland                                               94-3254883
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                              Identification no.)
--------------------------------------------------------------------------------


200 Crescent Court, Suite 1350, Dallas, Texas                     75201
  (Address of principal executive offices)                      (Zip code)
--------------------------------------------------------------------------------

       Registrant's telephone number, including area code: (214) 871-5131

           Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange
          Title of each class                    on which registered
          -------------------                    -------------------
    9-1/8% Noncumulative Exchangeable            New York Stock Exchange
      Preferred Stock, Series A

        Securities registered pursuant to Section 12(g) of the Act: None

     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. Yes [X] No [ ]

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

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of the close of business on March 16, 2001: N/A

     Number of shares outstanding of registrant's common stock $0.01 par value
on March 16, 2001: 1,000 shares

                       Documents Incorporated by Reference
                       -----------------------------------
                                      None


                                     Page 1
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                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                         2000 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS


<TABLE>
<CAPTION>

                                     PART I
                                                                                                      Page
                                                                                                      ----
<S>                                                                                                    <C>
ITEM 1.   Business......................................................................................3
               General..................................................................................3
               Description of Common Stock..............................................................3
               Description of Series A Preferred Shares.................................................4
               Dividend Policy.........................................................................10
               The Bank................................................................................10
               Residential Mortgage Loans..............................................................11
               Credit Risk Management Policies.........................................................12
               Delinquencies and Nonperforming Loans...................................................12
               Geographic Distribution.................................................................13
               Servicing of Residential Mortgage Loans.................................................13
               Capital and Leverage Policies...........................................................13
               Employees...............................................................................14
               Competition.............................................................................14
               Environmental Matters...................................................................14
               Tax Status of the Company...............................................................14
ITEM 2.   Properties...................................................................................15
ITEM 3.   Legal Proceedings............................................................................15
ITEM 4.   Submission of Matters to a Vote of Security Holders..........................................15

                                     PART II

ITEM 5.   Market for the Registrant's Common Equity and Related Stockholder Matters....................16
ITEM 6.   Selected Financial Data......................................................................17
ITEM 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations........18
               Overview................................................................................18
               Results of Operations...................................................................18
               Residential Mortgage Loans..............................................................20
               Allowance for Loan Losses...............................................................20
               Interest Rate Risk......................................................................20
               Significant Concentration of Credit Risk................................................21
               Liquidity Risk Management...............................................................21
               Impact of Inflation and Changing Prices.................................................22
               Other Matters...........................................................................22
               Year 2000...............................................................................23
ITEM 7A.  Quantitative and Qualitative Disclosures about Market Risk...................................24
ITEM 8.   Financial Statements and Supplementary Data..................................................25
ITEM 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.........25

                                    PART III

ITEM 10.  Directors and Executive Officers of the Registrant...........................................26
ITEM 11.  Executive Compensation.......................................................................27
ITEM 12.  Security Ownership of Certain Beneficial Owners and Management...............................27
ITEM 13.  Certain Relationships and Related Transactions...............................................29

                                     PART IV

ITEM 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................30

Signatures ............................................................................................31

Audited Financial Statements..........................................................................F-1
</TABLE>

                                       2


<PAGE>

Forward-Looking Statements. This Report contains forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995, that
pertain to our future operating results. Words such as "anticipate," "believe,"
"expect," "intend," and other similar expressions are intended to identify these
statements. Forward-looking statements are not historical facts and are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control. Our
actual results could differ materially from those in the forward-looking
statements due to such factors as (i) the Company's dependence upon the
operations of its affiliated servicer and upon the financial condition and
operations of its parent, California Federal Bank; (ii) regulatory restrictions
on the Company's operations; (iii) interest rate changes; (iv) declines in real
estate values and increases in uncollected or uncollectable mortgage loans; (v)
the concentration of the Company's portfolio in loans secured by residential
properties located in California; (vi) the inclusion of high balance mortgage
loans in the Company's portfolio; (vii) changes made by the Company's Board of
Directors in the Company's investment and operating policies and strategies,
including whether or not to incur indebtedness; and (viii) failure to qualify as
a real estate investment trust for federal income tax purposes. In January 1997,
we filed an S-11 Registration Statement with the SEC that discusses these
factors in greater detail. We assume no obligation to update any of our
forward-looking statements.

                                     PART I

ITEM 1    BUSINESS

GENERAL

California Federal Preferred Capital Corporation (the "Company"), is a Maryland
corporation incorporated on November 19, 1996 which was created for the purpose
of acquiring, holding and managing real estate assets. The Company's outstanding
common stock is wholly-owned by California Federal Bank (the "Bank"). The Bank
is wholly-owned indirectly by Golden State Bancorp Inc. ("Golden State"). The
Company has elected to be treated as a Real Estate Investment Trust ("REIT") for
Federal income tax purposes and intends to comply with the provisions of the
Internal Revenue Code of 1986 (the "IRC"), as amended. Accordingly, in general,
the Company is not subject to Federal income tax to the extent it distributes
its income to shareholders and as long as certain asset, income and stock
ownership tests are met in accordance with the IRC.

On January 31, 1997, the Company commenced its operations with the consummation
of an initial public offering of 20,000,000 shares of the Company's 9c%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares"), $0.01 par value, which raised $500 million. The Series A Preferred
Shares are traded on the New York Stock Exchange ("NYSE") under the trading
symbol "CFP." Concurrent with the issuance of the Series A Preferred Shares, the
Bank contributed additional capital of $500 million to the Company.

The Company used the proceeds raised from the initial public offering of the
Series A Preferred Shares and the additional capital contributed by the Bank to
purchase from the Bank the Company's initial portfolio of residential mortgage
loans at their estimated fair value. The residential mortgage loans were
recorded in the accompanying financial statements at the Bank's carrying value
which approximated their estimated fair values. Pursuant to a servicing
agreement (the "Servicing Agreement"), the Bank's wholly-owned mortgage banking
subsidiary, First Nationwide Mortgage Corporation ("FNMC"), services the
Company's residential mortgage loans.

DESCRIPTION OF COMMON STOCK

     Dividends

Holders of common stock are entitled to receive dividends if, when and as
authorized and declared by the Company's Board of Directors (the "Board") out of
assets legally available therefor, provided that, so long as any shares of
preferred stock are outstanding, no dividends or other distributions (including
redemptions and purchases) may be made with respect to the common stock unless
full dividends on the shares of all series of preferred stock, including
accumulations in the case of any cumulative preferred stock, have been paid. In
order to remain qualified as a REIT, the Company must distribute annually at
least 95% of its annual REIT taxable income to the stockholders. See "-- Tax
Status of the Company."


                                       3
<PAGE>

     Voting Rights

Subject to the rights, if any, of the holders of any class or series of
preferred stock, including the Series A Preferred Shares, all voting rights are
vested in the common stock. The holders of common stock are entitled to one vote
per share. All of the issued and outstanding shares of common stock are
currently held by the Bank.

     Rights Upon Liquidation

In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after there have been paid or set aside for
the holders of all series of preferred stock the full preferential amounts to
which such holders are entitled, the holders of common stock will be entitled to
share equally and ratably in any assets remaining after the payment of all debts
and liabilities.

DESCRIPTION OF SERIES A PREFERRED SHARES

     General

The Series A Preferred Shares form a series of the preferred stock of the
Company, which preferred stock may be issued from time to time in one or more
series with such designations, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms and conditions of redemption as are determined by the
Board.

The holders of the Series A Preferred Shares have no preemptive rights with
respect to any shares of the stock of the Company or any other securities of the
Company convertible into or carrying rights or options to purchase any such
shares. The Series A Preferred Shares are perpetual and will not be convertible
into shares of common stock or any other class or series of stock of the Company
and will not be subject to any sinking fund or other obligation of the Company
for its repurchase or retirement. The Series A Preferred Shares will be
exchanged automatically on a one-for-one basis for Bank Preferred Shares (as
defined herein) upon the occurrence of the Exchange Event (as defined herein).

The transfer agent, registrar and dividend disbursement agent for the Series A
Preferred Shares is American Stock Transfer & Trust Co. The registrar for shares
of Series A Preferred Shares will send notices to stockholders of any meetings
at which holders of the Series A Preferred Shares have the right to elect
directors of the Company or to vote on any other matter.

     Dividends

Holders of Series A Preferred Shares are entitled to receive, if, when and as
authorized and declared by the Board out of assets of the Company legally
available therefor, noncumulative cash dividends at the rate of 9 1/8% per annum
of the initial liquidation preference of $25.00 per share. Dividends on the
Series A Preferred Shares are payable, if authorized and declared, quarterly in
arrears on the last day of March, June, September and December. Dividends in
each quarterly period accrue from the first day of such period. Each authorized
and declared dividend is payable to holders of record as they appear on the
stock register of the Company on such record dates, not more than 45 calendar
days nor less than 10 calendar days preceding the payment dates thereof, as
shall be fixed by the Board.

The right of holders of Series A Preferred Shares to receive dividends is
noncumulative. Accordingly, if the Board fails to declare a dividend on the
Series A Preferred Shares for a quarterly dividend period, then holders of the
Series A Preferred Shares have no right to receive a dividend for that period,
and the Company has no obligation to pay a dividend for that period, whether or
not dividends are declared and paid for any future period.

If any Series A Preferred Shares are outstanding, no full dividends or other
distributions shall be authorized, declared or paid or set apart for payment on
any common stock or other capital stock of the Company ranking junior to
("Junior Stock") or on a parity with ("Parity Stock") the Series A Preferred
Shares for any quarterly period unless full dividends have been or
contemporaneously are authorized, declared and paid, or authorized and declared
and a sum sufficient for the payment thereof is set apart for such payments on
the Series A Preferred Shares for (i) the immediately preceding quarterly
dividend period, in the case of Parity Stock, and (ii) the then-current
quarterly dividend period, in the case of Junior Stock. When dividends are not
paid in full (or a sum sufficient for such full payment is not so set apart) for
any

                                       4
<PAGE>

quarterly dividend period upon the Series A Preferred Shares and the shares of
Parity Stock, all dividends authorized and declared on the Series A Preferred
Shares and the shares of Parity Stock shall only be authorized and declared pro
rata based upon the respective amounts that would have been paid on the Series A
Preferred Shares and any shares of Parity Stock had dividends been authorized
and declared in full.

In addition to the foregoing restriction, the Company shall not authorize,
declare, pay or set apart funds for any dividends or other distributions (other
than in common stock or other Junior Stock) with respect to any common stock or
other Junior Stock or repurchase, redeem or otherwise acquire, or set apart
funds for repurchase, redemption or other acquisition of, any common stock or
other Junior Stock through a sinking fund or otherwise, unless and until (i)
full dividends on the Series A Preferred Shares for the four most recent
preceding quarterly dividend periods (or such lesser number of quarterly
dividend periods during which shares of Series A Preferred Shares have been
outstanding) are authorized and declared and paid or a sum sufficient for
payment has been paid over to the dividend disbursing agent for payment of such
dividends and (ii) the Company has authorized and declared a cash dividend on
the Series A Preferred Shares at the annual dividend rate for the then-current
quarterly dividend period, and sufficient funds have been paid over to the
dividend disbursing agent for the payment of such cash dividend for such
then-current quarterly dividend period.

     Automatic Exchange

Each Series A Preferred Share will be exchanged automatically for one newly
issued share of Bank preferred stock if the appropriate federal regulatory
agency directs in writing (the "Directive") an exchange of the Series A
Preferred Shares for Bank preferred stock because (i) the Bank becomes
"undercapitalized" under prompt corrective action regulations, (ii) the Bank is
placed into conservatorship or receivership or (iii) the appropriate federal
regulatory agency, in its sole discretion, anticipates the Bank becoming
"undercapitalized" in the near term (the "Exchange Event"). Upon the Exchange
Event, each holder of Series A Preferred Shares shall be unconditionally
obligated to surrender to the Bank all certificates representing the Series A
Preferred Shares of such holder, and the Bank shall be unconditionally obligated
to issue to such holder in exchange for such certificate(s), a certificate or
certificates representing an equal number of shares of Bank preferred stock (the
"Automatic Exchange"). Any Series A Preferred Shares purchased or redeemed by
the Company prior to the Time of Exchange (as defined herein) shall not be
deemed outstanding and shall not be subject to the Automatic Exchange.

The Automatic Exchange shall occur as of 8:00 a.m. Eastern time on the effective
date of such exchange set forth in the Directive, or, if such date is not set
forth in the Directive, as of 8:00 a.m. Eastern time on the first business day
immediately following the date of issuance of the Directive (the "Time of
Exchange"). As of the Time of Exchange, all shares of Series A Preferred Shares
will be canceled without any further action by the Company, all rights of the
holders of Series A Preferred Shares as stockholders of the Company will cease,
and such persons shall thereupon and thereafter be deemed to be and shall be for
all purposes the holders of Bank preferred stock. The Company will mail notice
of the occurrence of the Exchange Event to each holder of Series A Preferred
Shares within 30 days of such event, and the Bank will deliver to each such
holder certificates for Bank preferred stock upon surrender of such holder's
certificates for Series A Preferred Shares. Until such replacement stock
certificates are delivered (or in the event such replacement certificates are
not delivered), certificates previously representing Series A Preferred Shares
shall be deemed for all purposes to represent Bank preferred stock. Once the
Directive is issued, no action will be required to be taken by holders of Series
A Preferred Shares, by the Bank or by the Company in order to effect the
Automatic Exchange as of the Time of Exchange.

Holders of Series A Preferred Shares, by purchasing such shares of Series A
Preferred Shares, are deemed to have agreed to be bound by the unconditional
obligation to exchange such shares of Series A Preferred Shares for Bank
preferred stock upon the occurrence of the Exchange Event. The obligation of the
holders of Series A Preferred Shares to surrender such shares and the obligation
of the Bank to issue Bank preferred stock in exchange for Series A Preferred
Shares shall be enforceable by the Bank and such holders, respectively, against
the other.

Absent the occurrence of the Exchange Event, no shares of Bank preferred stock
will be issued. Upon the occurrence of the Exchange Event, the Bank preferred
stock to be issued as part of the Automatic Exchange would constitute a newly
issued series of preferred stock of the Bank and would have the same dividend
rights, liquidation preference, redemption options and other attributes as to
the Bank as holders of Series A Preferred Shares have as to the Company. Any
accrued and unpaid dividends on the Series A Preferred Shares as of the Time of
Exchange would be deemed to

                                       5
<PAGE>

be accrued and unpaid dividends on the Bank preferred stock. The Bank preferred
stock would rank pari passu in terms of dividend payment and liquidation
preference with any outstanding shares of preferred stock of the Bank. The Bank
has registered the Bank preferred stock with the Office of Thrift Supervision
("OTS"). The Bank preferred stock will not be registered with the Commission and
will be offered pursuant to an exemption from registration under Section 3(a)(5)
of the Securities Act. Absent the occurrence of the Exchange Event, however, the
Bank will not issue any Bank preferred stock, although the Bank will be able to
issue preferred stock in series other than that of the Bank preferred stock
discussed herein. In the event of the issuance of Bank preferred stock,
application will be made to list the Bank preferred stock on the NYSE. However,
there can be no assurance as to the liquidity of the trading markets for the
Bank preferred stock, if issued, or that an active public market for the Bank
preferred stock would develop or be maintained.

Holders of Series A Preferred Shares cannot exchange their Series A Preferred
Shares for Bank preferred stock voluntarily. In addition, absent the occurrence
of the Automatic Exchange, holders of Series A Preferred Shares will have no
dividend, voting, liquidation preference or other rights with respect to any
security of the Bank; such rights as are conferred by the Series A Preferred
Shares exist solely as to the Company.

     Voting Rights

Except as indicated below, the holders of Series A Preferred Shares are not
entitled to vote. In the event the holders of Series A Preferred Shares are
entitled to vote, each Series A Preferred Share will be entitled to one vote.

If full dividends on shares of Series A Preferred Shares shall not have been
paid for six quarterly dividend periods, the maximum authorized number of
directors of the Company shall thereupon be increased by two. Subject to
compliance with any requirement for regulatory approval of (or non-objection to)
persons serving as directors, the holders of Series A Preferred Shares, voting
together as a class with the holders of any Parity Stock upon which the same
voting rights as those of the Series A Preferred Shares have been conferred and
are irrevocable, shall have the exclusive right to elect the two additional
directors at the Company's next annual meeting of shareholders and at each
subsequent annual meeting until full dividends have been authorized, declared
and paid or authorized and declared and a sum sufficient for payment thereof is
set apart for payment on the Series A Preferred Shares for four consecutive
quarterly dividend periods. The term of such directors elected thereby shall
terminate, and the total number of directors shall be decreased by two, upon the
first annual meeting of stockholders after the payment or the authorization or
declaration and setting aside for payment of full dividends on the Series A
Preferred Shares for four consecutive quarterly dividend periods.

So long as any shares of Series A Preferred Shares are outstanding, the Company
shall not, without the consent or vote of the holders of at least two-thirds of
the outstanding shares of Series A Preferred Shares, voting separately as a
class, (a) amend, alter or repeal or otherwise change any provision of the
Charter (including the terms of the Series A Preferred Shares) if such
amendment, alteration, repeal or change would materially and adversely affect
the rights, preferences, powers or privileges of the Series A Preferred Shares,
or (b) authorize, create or increase the authorized amount of or issue any class
or series of any equity securities of the Company, or any warrants, options or
other rights convertible or exchangeable into any class or series of any equity
securities of the Company, ranking prior to the Series A Preferred Shares,
either as to dividend rights or rights on liquidation, dissolution or winding up
of the Company or (c) merge, consolidate, reorganize or effect any other
business combination involving the Company, unless the resulting corporation
will thereafter have no class or series of equity securities either authorized
or outstanding ranking prior to the Series A Preferred Shares as to dividends or
as to the distribution of assets upon liquidation, dissolution or winding up,
except the same number of shares of such equity securities with the same
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications or terms or
conditions or redemption as the shares of equity securities of the Company that
are authorized and outstanding immediately prior to such transaction, and each
holder of Series A Preferred Shares immediately prior to such transaction shall
receive shares with the same preferences, conversion or other rights, voting
powers, restrictions, limitations as to the dividends or other distributions,
qualifications or terms or conditions or redemption of the resulting corporation
as the Series A Preferred Shares held by such holder immediately prior thereto.


                                       6
<PAGE>

     Redemption

The Series A Preferred Shares are not redeemable prior to January 31, 2002
(except upon the occurrence of a Tax Event or a Change of Control, each as
defined herein). On or after such date, the Series A Preferred Shares are
redeemable by the Company or its successor or any acquiring or resulting entity
with respect to the Company (including by any parent or subsidiary of the
Company, any such successor, or any such acquiring or resulting entity), as
applicable, at its option, in whole or in part, at any time or from time to
time, at the redemption prices set forth below in cash, plus authorized,
declared and unpaid dividends to the date of redemption, without interest:

          If Redeemed During the                        Redemption Price
          12-month Period                               Per Share of the
          Beginning January 31,                     Series A Preferred Shares
          ---------------------                     -------------------------
          2002...........................                   $26.14
          2003...........................                    25.91
          2004...........................                    25.68
          2005...........................                    25.46
          2006...........................                    25.23
          2007 and thereafter............                    25.00

The Company also has the right at any time, upon the occurrence of a Tax Event,
to redeem the Series A Preferred Shares, in whole (but not in part) at a
redemption price of $25.00 per share, plus all accumulated and unpaid dividends
for the then current quarter to the date of redemption, without interest. "Tax
Event" means the receipt by the Company of an opinion of a nationally recognized
legal counsel to the Company experienced in such matters to the effect that, as
a result of (i) any amendment to, clarification of, or change (including any
announced prospective change) in, the laws, treaties or any regulations
thereunder of the United States or any political subdivision or taxing authority
thereof or therein affecting taxation, (ii) any judicial decision, official
administrative pronouncement, published or private ruling, regulatory procedure,
notice or announcement (including any notice or announcement of intent to adopt
such procedures or regulations) ("Administrative Action") or (iii) any amendment
to, clarification of, or change in the official position or the interpretation
of such Administrative Action or any interpretation or pronouncement that
provides for a position with respect to such Administrative Action that differs
from the theretofore generally accepted position, in each case, by any
legislative body, court, governmental authority or regulatory body, irrespective
of the manner in which such amendment, clarification or change is made known,
which amendment, clarification, or change is effective or such pronouncement or
decision is announced on or after the date of issuance of the Series A Preferred
Shares, there is more than an insubstantial risk that (a) dividends paid or to
be paid by the Company with respect to the stock of the Company are not, or will
not be, fully deductible by the Company for United States federal income tax
purposes or (b) the Company is, or will be, subject to more than a de minimis
amount of other taxes, duties or other governmental charges.

Upon a Change of Control, the Series A Preferred Shares are redeemable on or
prior to January 31, 2002, at the option of the Company or its successor or any
acquiring or resulting entity with respect to the Company (including by any
parent or subsidiary of the Company, any such successor, or any such acquiring
or resulting entity), as applicable, in whole, but not in part, at a redemption
price per share equal to (i) $25.00, plus (ii) an amount equal to all
authorized, declared and unpaid dividends, if any, to the date fixed for
redemption, without interest, and without duplication, an additional amount
equal to the amount of dividends that would be payable on the Series A Preferred
Shares in respect of the period from the first day of the quarterly dividend
period in which the date fixed for redemption occurs to the date fixed for
redemption (assuming all such dividends were to be authorized and declared),
plus (iii) the Applicable Premium (as defined herein), payable in cash.

The Company or any such successor or any acquiring or resulting entity will be
entitled to issue a notice of redemption after the Company or a parent company
has entered into a definitive binding agreement with a third party that will
result in a Change of Control, provided that (i) the date fixed for redemption
is not earlier than the date on which the related Change of Control occurs and
(ii) the obligation to effect such redemption is contingent upon the occurrence
of such Change of Control.

"Applicable Premium" means the greater of (i) $1.14 and (ii) the excess of (A)
the present value of (1) an amount equal to the amount of dividends that would
be payable on the preferred shares in respect of the period from the date fixed
for redemption through January 31, 2002 (assuming all such dividends were to be
authorized and declared) plus (2) $26.14, computed using a discount rate equal
to the Treasury Rate (as defined herein) plus 75 basis points, over (B) $25.00.


                                       7
<PAGE>

"Change of Control" means the occurrence of any of the following events:

     (i) any Person (as defined herein) other than a Permitted Holder (as
     defined herein) shall be the "beneficial owner" (as defined in Rules 13d-3
     and 13d-5 under the Exchange Act), directly or indirectly, of a majority in
     the aggregate of the total voting power of the voting stock of the Bank,
     whether as a result of issuance of securities of the Bank, any merger,
     consolidation, liquidation or dissolution of the Bank, any direct or
     indirect transfer of securities by a Permitted Holder (as defined herein),
     or otherwise; or

     (ii) a sale, transfer, conveyance or other disposition, in a single
     transaction or in a series of related transactions (other than to an
     affiliate of the Bank or any of its subsidiaries), in either case occurring
     outside the ordinary course of business, of more than 75% of the assets and
     75% of the deposit liabilities of the Bank shown on the consolidated
     balance sheet of the Bank as of the end of the most recent fiscal quarter
     ending at least 45 days prior to such transaction (or the first in such
     related series of transactions); or

     (iii) a transaction or series of related transactions as a result of which
     20% or more of the voting stock or common stock (or capital stock
     convertible or exchangeable into 20% of the voting stock or common stock)
     of the Bank is held by one or more Persons other than Golden State Holdings
     Inc. (successor to First Nationwide Holdings Inc.) or its wholly owned
     subsidiaries.

"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivisions thereof.

"Permitted Holder" means Ronald O. Perelman (or in the event of his incompetence
or death, his estate, heirs, executor, administrator, committee or other
personal representative (collectively, "heirs")) or any entity controlled,
directly or indirectly, by Ronald O. Perelman or his heirs.

"Treasury Rate" means the yield to maturity at the time of computation of United
States Treasury securities with a constant maturity (as compiled and published
in the most recent Federal Reserve Statistical Release H. 15 (519)) which has
become publicly available at least two business days prior to the date fixed for
redemption (or, if such Statistical Release is no longer published, any publicly
available source of similar market data)) most nearly equal to the period of
time to January 31, 2002; provided, however, that if such period is not equal to
the constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the weekly
average yields of United States Treasury securities for which such yields are
given, except that, if such remaining life is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.

If redemption is being effected by the Company, on and as of the date fixed for
redemption, dividends shall cease to accrue on the Series A Preferred Shares
called for redemption, and they shall be deemed to cease to be outstanding,
provided that the redemption price (including any authorized and declared but
unpaid dividends to the date fixed for redemption, without interest) has been
duly paid or provided for. If redemption is being effected by an entity other
than the Company, on and as of the redemption date such entity shall be deemed
to own the Series A Preferred Shares being redeemed for all purposes of the
Company's charter, provided that the redemption price (including the amount of
any authorized and declared but unpaid dividends to the date fixed for
redemption) has been duly paid or provided for.

Notice of any redemption will be mailed at least 30 days, but not more than 60
days, prior to any redemption date to each holder of Series A Preferred Shares
to be redeemed at such holder's registered address.

The Company's ability to redeem any Series A Preferred Shares, whether as a
result of a Change of Control or otherwise, is subject to compliance with
applicable regulatory requirements, including the prior approval of the OTS,
relating to the redemption of capital instruments. Under current policies of the
OTS, such approval would be granted only if the redemption were to be made out
of the proceeds of the issuance of another capital instrument or if the OTS
determines that the condition and circumstances of the Bank warrant the
reduction of a source of permanent capital.


                                       8
<PAGE>

     Rights Upon Liquidation

In the event of any voluntary or involuntary liquidation, dissolution or winding
up of the Company, the holders of the Series A Preferred Shares at the time
outstanding are entitled to receive in respect of each share, out of assets of
the Company legally available for distribution to its stockholders under
applicable law, before any distribution of assets is made to holders of any
Junior Stock and subject to the rights of the holders of any class or series of
equity securities having preference with respect to distributions upon
liquidation and the rights of the Company's general creditors, liquidating
distributions in the amount of $25.00 per share, plus authorized, declared and
unpaid dividends thereon, if any, without interest.

After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of Series A Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidation distributions on all outstanding Series A Preferred Shares and the
corresponding amounts payable on any Parity Stock, then the holders of the
Series A Preferred Shares and any Parity Stock shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled. For such purposes, the
consolidation or merger of the Company with or into any other entity, or the
sale, lease or conveyance of all or substantially all of the assets of the
Company, shall not be deemed to constitute a liquidation, dissolution or winding
up of the Company.

     Restrictions on Ownership and Transfer

In order for the Company to qualify, and to continue to qualify, as a REIT under
the IRC, not more than 50% of the value of its outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the IRC to include certain entities) during the last half of a taxable year
(other than the first year) (the "Five or Fewer Test"). The Five or Fewer Test
is applied using certain constructive ownership rules. Certain significant
shareholders of Golden State (i.e., Ronald O. Perelman and Gerald J. Ford)
("Significant Shareholders"), through their constructive ownership of a
beneficial interest in the Bank, constitute two individuals for the purposes of
this test and, under the Internal Revenue Service ("IRS") rules for determining
percentages of ownership, are deemed to own constructively approximately 23% of
the value of the outstanding shares of stock in the Company during the last half
of the taxable year. Presently, there are no restrictions which prevent either
(i) any Significant Shareholder from increasing or decreasing its percentage
ownership of the Company, (ii) any Significant Shareholder from increasing or
decreasing its percentage ownership of the Bank (and thus its percentage
ownership in the Company) or (iii) any other person from becoming a significant
constructive shareholder of the Company by acquiring an equity interest in the
Bank. Moreover, any increase or decrease in the value of the common stock as
compared to the value of the preferred stock will increase or decrease the
percentage of ownership held by the Significant Shareholders.

The Company's charter, subject to certain exceptions, provides that no
individual or entity other than a Significant Shareholder may own, or be deemed
to own by virtue of the attribution rules of the IRC, stock of the Company in
amounts in excess of the lesser of 2.5% of the number of issued and outstanding
shares of preferred stock, including the Series A Preferred Shares, or 1.25% of
the value of all classes of issued and outstanding shares of the Company (the
"Ownership Limit"). However, certain entities whose interests are widely held
(generally, an entity in which no Person actually or constructively owns more
than 9.9% of the value) will be permitted to own up to the lesser of 20% of the
number of the issued and outstanding shares of preferred stock, including the
Series A Preferred Shares, or 10% of the value of all of the classes of issued
and outstanding shares of stock of the Company, if they satisfy certain
notification requirements. The Board may (but will not be required to), upon the
receipt of a ruling from the IRS or the advice of counsel satisfactory to it,
waive the Ownership Limit with respect to a holder if such holder's ownership
will not then or in the future jeopardize the Company's status as a REIT.

The constructive ownership rules of the IRC are complex and may cause preferred
stock owned, directly or indirectly, by one individual or entity to be deemed to
be owned by other related individuals or entities. Similarly, under the
constructive ownership rules, an individual or entity that owns stock of the
Bank will be deemed to own a proportionate share of the common stock of the
Company owned by the Bank. As a result, the acquisition by an individual or
entity of stock of the Company in amounts below the Ownership Limit (or the
acquisition of an entity that owns such shares) may cause that individual or
entity (or another individual or entity) to violate the Ownership Limit. In
addition, other events, such as changes in relative values of the common and
preferred stock, could cause an individual or entity to violate the Ownership
Limit.


                                       9
<PAGE>

The Company's charter provides that any shares in excess of the Ownership Limit
("Excess Shares") will automatically be transferred, by operation of law, to a
trustee as a trustee of a trust for the exclusive benefit of a charitable
beneficiary to be named by the Company as of the day prior to the day the
prohibited transfer took place. Any distributions paid prior to the discovery of
the prohibited transfer are to be repaid by the original transferee to the
Company and by the Company to the trustee; subject to applicable law, any vote
of the holder of the shares while the shares were held by the original
transferee prior to the Company's discovery thereof shall be void ab initio and
the original transferee shall be deemed to have given its proxy to the trustee.
Any unpaid distributions with respect to the original transferee will be
rescinded as void ab initio. In liquidation, the original transferee
stockholder's ratable share of the Company's assets would be limited to the
price paid by the original transferee for the Excess Shares or, if no value was
given, the price per share equal to the closing market price on the date of the
purported transfer. The trustee of the trust shall promptly sell the shares to
any person whose ownership is not prohibited, whereupon the interest of the
trust shall terminate. Proceeds of the sale shall be paid to the original
transferee up to its purchase price (or, if the original transferee did not
purchase the shares, the value on its date of acquisition) and any remaining
proceeds shall be paid to a charity to be named by the Company.

All certificates representing shares of preferred stock will bear a legend
referring to the restrictions described above.

The Ownership Limit provisions will not be automatically removed even if the
REIT rules are changed so as to eliminate any ownership concentration limitation
or if the ownership concentration limitation is increased. The foregoing
restrictions on transferability and ownership will not apply, however, if the
Company determines that it is no longer in the best interests of the Company to
attempt to qualify, or continue to qualify, as a REIT.

In addition, the REIT provisions of the IRC require that the stock of the
Company must be beneficially owned by 100 or more persons during at least 335
days of a taxable year (the "One Hundred Persons Test"). The Charter contains
restrictions in order to ensure compliance with the One Hundred Persons Test.
Specifically, such provisions require that if any transfer of shares of stock of
the Company would cause the Company to be beneficially owned by fewer than 100
persons, such transfer shall be null and void and the intended transferee will
acquire no rights to the stock.

The Company's charter requires that any person who beneficially owns 1.0% (or
such lower percentage as may be required by the IRC or the Treasury regulations)
of the outstanding shares of any class or series of preferred stock of the
Company must provide certain information to the Company within 30 days of June
30 and December 31 of each year. In addition, each stockholder shall upon demand
be required to disclose to the Company in writing such information as the
Company may request in order to determine the effect, if any, of such
stockholder's actual and constructive ownership on the Company's status as a
REIT and to ensure compliance with the Five or Fewer and One Hundred Persons
Tests.

DIVIDEND POLICY

In order to remain qualified as a REIT, the Company must distribute annually at
least 95% of its REIT taxable income to its stockholders for the years ended
December 31, 2000 and prior. For years ended after December 31, 2000, the
Company must distribute 90% of its REIT taxable income to its stockholders. The
Company currently expects to distribute dividends annually to satisfy these REIT
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Results of Operations" for a discussion of dividends
declared and paid to the common stockholder and to the holders of the Series A
Preferred Shares during the years ended December 31, 2000, 1999 and 1998.

Dividends are declared at the discretion of the Board of Directors after
considering the Company's distributable funds, financial requirements, tax
considerations and other factors. The Company's distributable funds consist
primarily of interest payments received in respect of the residential mortgage
loans held by it, and the Company anticipates that most of such assets will bear
interest at adjustable rates. See " Management's Discussion and Analysis of
Financial Condition and Results of Operations - Interest Rate Risk."

THE BANK

The Bank, which is headquartered in San Francisco, California, provides
diversified financial services to consumers and small businesses in California
and Nevada. The Bank's principal business consists of operating retail branches
that


                                       10
<PAGE>


provide deposit products such as demand, transaction and savings accounts, and
selling 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 Bank originates and/or purchases
commercial real estate, commercial and consumer loans for investment.

The Bank is chartered as a federal stock savings bank under the Home Owners'
Loan Act of 1933 ("HOLA") and regulated by the OTS and the Federal Deposit
Insurance Corporation ("FDIC"), which insures the deposit accounts of the Bank,
up to applicable limits through the Savings Association Insurance Fund ("SAIF").
The Bank is also a member of the Federal Home Loan Bank System ("FHLB System").

As of December 31, 2000, the Bank had assets totalling $60.4 billion, deposits
totalling $23.5 billion and operated retail branch offices at 354 locations in
California and Nevada.

Because the Company is a subsidiary of the Bank, federal regulatory authorities
have the right to examine the Company and its activities. Payment of dividends
on the Series A Preferred Shares could be subject to regulatory limitations if
the Bank became "undercapitalized" for purposes of the OTS prompt corrective
action regulations, which is currently defined as having a total risk-based
capital ratio of less than 8.0%, a tier 1 risk-based capital ratio of less than
4.0% or a core capital (or leverage) ratio of less than 4.0%. At December 31,
2000, the Bank's total risk-based capital ratio was 13.08%, its tier 1
risk-based capital ratio was 11.58% and its core capital (or leverage) ratio was
6.30%.

If the Exchange Event occurs, the Bank would likely be prohibited from paying
dividends on the Bank preferred shares. In all circumstances following the
Exchange Event, the Bank's ability to pay dividends would be subject to various
restrictions under OTS regulations, a resolution of the Bank's board of
directors and certain contractual provisions.

The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. FNMC services the Company's residential mortgage loans in
its role as Servicer under the Servicing Agreement. See "-- Servicing of
Residential Mortgage Loans."

The Bank and its affiliates may have interests which are not identical to those
of the Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation, (i) future acquisitions of
residential mortgage loans from, or sales of residential mortgage loans to, the
Bank, FNMC or their affiliates and (ii) the modification of the Servicing
Agreement.

It is the intention of the Company and the Bank that any agreements and
transactions between the Company on the one hand and the Bank or one of its
affiliates on the other hand are fair to all parties and consistent with market
terms for such types of transactions. The requirement in the Company's charter
that certain actions of the Company be approved by a majority of the independent
directors is also intended to promote fair dealings between the Company and the
Bank and its affiliates. However, there can be no assurance that such agreements
or transactions will be on terms as favorable to the Company as would have been
obtained from unaffiliated third parties.

RESIDENTIAL MORTGAGE LOANS

The Company's portfolio of mortgage loans consisted of 1-4 unit residential
mortgage loans totalling $970.4 million and $967.3 million at December 31, 2000
and 1999, respectively, which were primarily adjustable rate mortgages ("ARMs")
which adjust periodically based on changes in various indices including the FHLB
Eleventh District Cost of Funds, the one-year Treasury rate and the six-month
Treasury rate. Certain types of residential mortgage loans contain an option for
the mortgagor to convert the ARM to a fixed rate loan for the remainder of the
term.

The Company currently intends to invest in residential mortgage loans only. The
Company's current policy prohibits the acquisition of any mortgage loan which is
delinquent at the time of the proposed acquisition or which meets certain
criteria for non-performance during the preceding 12 months. The Company
currently expects that substantially all of the residential mortgage loans to be
acquired will be adjustable rate loans; however, the Company may from time to
time acquire fixed interest rate residential mortgage loans. The Company
anticipates it will continue to acquire all of its residential mortgage loans
from the Bank or affiliates of the Bank as whole loans secured by first
mortgages or deeds of trust on single-family (one-to-four-unit) residential real
estate properties, although mortgage loans may be acquired from unaffiliated
third parties. The Company may from time to time acquire fixed rate or variable
rate mortgage-backed securities issued or guaranteed by agencies of the federal
government or government sponsored agencies. The mortgage



                                       11
<PAGE>

loans underlying the mortgage-backed securities will be secured by single-family
residential, multifamily or commercial real estate properties located throughout
the United States.

The Company may choose to dispose of any residential mortgage loan which
subsequent to its acquisition by the Company (i) becomes classified, (ii) falls
into nonaccrual status, (iii) has to be renegotiated due to the financial
deterioration of the borrower or (iv) is more than 30 days past due in the
payment of principal or interest more than once in any 12 month period. The Bank
has indicated to the Company that it does not intend to purchase any residential
mortgage loans of the Company that fall into any of the foregoing categories;
accordingly, the Company currently anticipates that any such residential
mortgage loan may be sold at its then current fair value by the Company only to
a subsidiary of the Bank or an unrelated third party. The Company does not
generally intend to dispose of any residential mortgage loans.

CREDIT RISK MANAGEMENT POLICIES

The Company expects that each residential mortgage loan acquired from the Bank
or one of its affiliates in the future will represent a first lien position and
will be originated by the Bank or such affiliate or by financial institutions
acquired by the Bank by merger in the ordinary course of its or their real
estate lending activities based on the underwriting standards generally applied
(at the time of origination) for the originator's own account.

The Company also intends that all residential mortgage loans held by the Company
will be serviced pursuant to the Servicing Agreement between the Company and
FNMC dated January 31, 1997. See "-- Servicing of Residential Mortgage Loans."

DELINQUENCIES AND NONPERFORMING LOANS

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

The following table reflects residential mortgage loans with past due principal
and interest payments as of December 31, 2000 and 1999:


<TABLE>
<CAPTION>
                                             2000                                      1999
                             --------------------------------------   --------------------------------------------
                              Principal Balance        Percent        Principal Balance             Percent
                              (in thousands)       of Total Loans       (in thousands)           of Total Loans
------------------------------------------------------------------------------------------------------------------
<S>                              <C>                  <C>                  <C>                      <C>
       30 to 59 days past due      $1,775               0.18%                $  950                   0.10%
       60 to 89 days past due       1,162               0.12                  1,199                   0.12
       90 days or more past due     1,628               0.17                  1,042                   0.11
                                   ------               ----                 ------                   ----
                                   $4,565               0.47%                $3,191                   0.33%
                                   ======               ====                 ======                   ====

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


It is the Company's policy to place a loan on nonaccrual status when a borrower
is 90 days or more delinquent. There were no accruing loans contractually past
due 90 days or more at December 31, 2000 and 1999.

For loans on nonaccrual at December 31, 2000 and 1999, the Company recognized
$59,000 and $27,000 of interest income during the years ended December 31, 2000
and 1999, respectively. The Company would have recognized $120,000 and $81,000
of interest income during the years ended December 31, 2000 and 1999,
respectively, on such loans had the borrowers performed under the contractual
terms of the loans.

The allowance for loan losses is a general allowance which is increased by
charges to income and decreased by charge-offs (net of recoveries) and is
comprised of specific allowances for identified problem loans and an unallocated
allowance. Management's periodic evaluation of the adequacy of the allowance is
based on such factors as the Bank's and the Company's past loan loss experience,
known and inherent risks in the residential mortgage 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Allowance for Loan Losses."


                                       12
<PAGE>

GEOGRAPHIC DISTRIBUTION

At December 31, 2000, the Company's total residential mortgage loan portfolio
included $816.6 million of loans secured by residential real estate properties
located in California. These loans may be subject to a greater risk of default
than other comparable residential mortgage loans in the event of natural hazards
or other adverse conditions in California that may affect the ability of
residential property owners in California to make payments of principal and
interest on underlying mortgages. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Significant Concentration of
Credit Risk."

SERVICING OF RESIDENTIAL MORTGAGE LOANS

The Company entered into the Servicing Agreement with FNMC pursuant to which
FNMC, in its capacity as servicer under the Servicing Agreement ("Servicer"),
performs the actual servicing of the residential mortgage loans held by the
Company in accordance with normal industry practice. The Servicing Agreement can
be terminated without cause with at least 30 days written prior notice to the
Servicer and payment to the Servicer of a termination fee equal to 2% of the
outstanding principal balances of the loans. The servicing fee ranges from 0.25%
to 0.50% per year of the outstanding principal balances. The Servicer is also
entitled to a 1% disposition fee on the aggregate proceeds obtained in the sale
of a defaulted residential mortgage loan.

The Servicer collects and remits principal and interest payments, administers
mortgage escrow accounts, submits and pursues insurance claims and initiates and
supervises foreclosure proceedings on the residential mortgage loans it
services. The Servicer also provides accounting and reporting services required
by the Company for such residential mortgage loans. The Servicer is required to
follow such collection procedures as are customary in the industry. The Servicer
may, in its discretion, arrange with a defaulting borrower a schedule for the
liquidation of delinquencies, provided that any primary mortgage insurance
coverage is not adversely affected. The Servicer may from time to time
subcontract all or a portion of its servicing obligations under the Servicing
Agreement to the Bank or other affiliates of the Bank, or to an unrelated third
party subject to approval of the majority of the independent directors of the
Company. FNMC will not be discharged or relieved in any respect from performing
its obligations under the Servicing Agreement in connection with subcontracting
any of the obligations thereunder.

The Servicer is required to pay all expenses related to the performance of its
duties under the Servicing Agreement. The Servicer is required to make advances
of the principal and interest, taxes and required insurance premiums that are
not collected from borrowers with respect to any residential mortgage loan,
unless it determines that such advances are nonrecoverable from the borrower,
insurance proceeds or other sources with respect to such residential mortgage
loan. If such advances are made, the Servicer generally will be reimbursed prior
to the Company out of proceeds related to such residential mortgage loan. The
Servicer is also entitled to reimbursement by the Company for expenses incurred
by it in connection with the liquidation of defaulted residential mortgage loans
and in connection with the restoration of mortgaged property.

As is customary in the mortgage loan servicing industry, the Servicer is
entitled to retain any late payment charges, prepayment fees or penalties,
assumption fees and ARM conversion fees collected in connection with the
residential mortgage loans. The Servicer receives any benefit derived from
interest earned on collected principal and interest payments between the date of
collection and the date of remittance to the Company and, to the extent
permitted under applicable law, from interest earned on tax and insurance
impound funds with respect to residential mortgage loans.

CAPITAL AND LEVERAGE POLICIES

To the extent that the Board of Directors determines that additional funding is
required, the Company may raise such funds through additional equity offerings,
debt financing or retention of cash flow (after consideration of provisions of
the IRC requiring the distribution by a REIT of a certain percentage of taxable
income and taking into account taxes that would be imposed on undistributed
taxable income), or a combination of these methods.

At December 31, 2000 and 1999, the Company had no debt outstanding, and the
Company does not currently intend to incur any indebtedness. However, the
organizational documents of the Company do not contain any limitation on the
amount or percentage of debt, funded or otherwise, the Company might incur,
except that the incurrence by the Company of debt for borrowed money in excess
of 20% of the Company's total stockholders' equity will require the approval of
a majority of the independent directors. Any such debt incurred may include
intercompany advances made by the Bank to the Company.

                                       13
<PAGE>

The Company may also issue additional series of preferred stock. However, the
Company may not issue additional shares of preferred stock senior to the Series
A Preferred Shares without the consent of holders of at least two-thirds of the
outstanding shares of preferred stock at that time, including the Series A
Preferred Shares, and the Company may not issue additional shares of preferred
stock on a parity with the Series A Preferred Shares without the approval of a
majority of the Company's independent directors. In addition, the Company does
not currently intend to issue any additional series of preferred stock unless it
simultaneously receives additional capital contributions from the Bank equal to
the aggregate offering price of such additional preferred stock plus the
Company's expenses (including underwriting discounts or placement fees) in
connection with the issuance of such additional shares of preferred stock.

EMPLOYEES

The Company has four executive officers. See "Directors and Executive Officers
of the Registrant." The Company does not require significantly more employees
because it has retained FNMC to perform certain functions pursuant to the
Servicing Agreement. All of the executive officers of the Company are also
executive officers of the Bank and/or its affiliates. The Company maintains
corporate records and audited financial statements that are separate from those
of the Bank and its affiliates.

COMPETITION

The Company does not engage in the business of originating residential mortgage
loans. The Company does anticipate that it will purchase residential mortgage
loans in addition to those in the current loan portfolio and that substantially
all of these residential mortgage loans will be purchased from the Bank or
affiliates of the Bank. Accordingly, the Company does not compete, and does not
expect to compete, with mortgage conduit programs, investment banking firms,
savings and loan associations, banks, thrift and loan associations, finance
companies, mortgage bankers or insurance companies in the acquisition of its
residential mortgage loans.

ENVIRONMENTAL MATTERS

In the event that the Company is forced to foreclose on a defaulted residential
mortgage loan to recover its investment in such residential mortgage loan, the
Company may be subject to environmental liabilities in connection with the
underlying real property which could exceed the value of the real property.
Although the Company intends to continue to exercise due diligence to discover
potential environmental liabilities prior to the acquisition of any property
through foreclosure, hazardous substances or waste, contaminants, pollutants or
sources thereof (as defined by state and federal laws and regulations) may be
discovered on properties during the Company's ownership or after a sale thereof
to a third party. If such hazardous substances are discovered on a property
which the Company has acquired through foreclosure or otherwise, the Company may
be required to remove those substances and clean up the property. There can be
no assurance that in such a case the Company would not incur full recourse
liability for the entire costs of any removal and clean-up, that the cost of
such removal and clean-up would not exceed the value of the property or that the
Company could recoup any such costs from any third party. The Company may also
be liable to tenants and other users of neighboring properties. In addition, the
Company may find it difficult or impossible to sell the property prior to or
following any such clean-up.

TAX STATUS OF THE COMPANY

The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the IRC, commencing with its taxable year ended December 31, 1997. As a REIT,
the Company generally is not subject to Federal income tax on its net income and
capital gains that it distributes to the holders of its common stock and
preferred stock, including the Series A Preferred Shares. The Company must also
meet certain organizational, stock ownership and operational requirements. If in
any taxable year the Company fails to qualify as a REIT, the Company would not
be allowed a deduction for distributions to stockholders in computing its
taxable income and would be subject to Federal and state income tax (including
any applicable alternative minimum tax) on its taxable income at regular
corporate rates. In addition, the Company would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost.


                                       14
<PAGE>

ITEM 2.   PROPERTIES

None.

ITEM 3.   LEGAL PROCEEDINGS

The Company is not the subject of any material litigation. None of the Company,
the Bank or any of its affiliates is currently involved in nor, to the Company's
knowledge, is currently threatened with any material litigation with respect to
the residential mortgage loans included in the portfolio other than routine
litigation arising in the ordinary course of business, most of which is covered
by liability insurance.

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

None.










                                       15
<PAGE>

                                     PART II

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

All of the Company's common shares are owned by the Bank. There is no
established public trading market for the Company's common stock.

During 2000, 1999 and 1998, dividends on the Company's common stock totalled
$20.5 million, $18.6 million and $30.5 million, respectively. For a discussion
of the Company's dividend distribution policy and any restrictions on the
payment of dividends with respect to its common stock, see "Business -- Dividend
Policy."
















                                       16
<PAGE>



ITEM 6.   SELECTED FINANCIAL DATA

The data presented below represents selected financial data relative to the
Company for, and as of the end of, the years ended December 31, 2000, 1999 and
1998 (dollars in thousands).

<TABLE>
<CAPTION>

STATEMENTS OF INCOME:                                                2000               1999               1998
                                                                     ----               ----               ----
<S>                                                             <C>                <C>                <C>
Interest income, net of servicing fee expense                     $    69,856        $    65,403        $    72,268
Net interest income                                               $    69,856        $    65,403        $    72,179
Net interest income after provision for loan losses               $    69,856        $    65,403        $    69,869
Net income                                                        $    69,795        $    65,481        $    69,840
Average yield on residential mortgage loans                              6.93%              6.49%              7.19%

BALANCE SHEETS:

Residential mortgage loans, net                                   $   970,398        $   967,286        $   945,970
Total assets                                                      $ 1,000,217        $   996,522        $   995,746
Total stockholders' equity                                        $   999,851        $   996,181        $   994,910
Number of preferred shares outstanding                             20,000,000         20,000,000         20,000,000
Number of common shares outstanding                                     1,000              1,000              1,000
</TABLE>




                                       17
<PAGE>

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

OVERVIEW

The Company's principal business objective is to acquire, hold and manage
residential mortgage loans that will generate net income for distribution to
stockholders. The Company currently intends to invest in residential mortgage
loans only. The Company's current policy prohibits the acquisition of any
mortgage loan which is delinquent at the time of the proposed acquisition or
which meets certain criteria for non-performance during the preceding 12 months.
The Company currently expects that substantially all of the residential mortgage
loans to be acquired will be adjustable rate loans; however, the Company may
from time to time acquire fixed interest rate residential mortgage loans. The
Company anticipates it will continue to acquire all of its residential mortgage
loans from the Bank or affiliates of the Bank as whole loans secured by first
mortgages or deeds of trust on 1-4 unit residential real estate properties,
although mortgage loans may be acquired from unaffiliated third parties. The
Company may from time to time acquire fixed rate or variable rate
mortgage-backed securities issued or guaranteed by agencies of the federal
government or government sponsored agencies. The mortgage loans underlying the
mortgage-backed securities will be secured by single-family residential,
multifamily or commercial real estate properties located throughout the United
States.

On January 31, 1997, the Company commenced its operations upon the initial
public offering of 20,000,000 shares of the Company's Series A Preferred Shares,
which raised $500 million. The Series A Preferred Shares are traded on the NYSE
under the trading symbol "CFP." Concurrent with the sale of the Series A
Preferred Shares, the Bank contributed additional capital of $500 million to the
Company. All common shares are held by the Bank.

The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. FNMC services the Company's residential mortgage loans in
its role as Servicer under the Servicing Agreement.

The Bank and its affiliates may have interests which are not identical to those
of the Company. Consequently, conflicts of interest may arise with respect to
transactions, including without limitation, (i) future acquisitions of
residential mortgage loans from, or sales of residential mortgage loans to, the
Bank, FNMC or their affiliates and (ii) the modification of the Servicing
Agreement.

It is the intention of the Company and the Bank that any agreements and
transactions between the Company on the one hand and the Bank or one of its
affiliates on the other hand are fair to all parties and consistent with market
terms for such types of transactions. The requirement in the Company's charter
that certain actions of the Company be approved by a majority of the independent
directors is also intended to promote fair dealings between the Company and the
Bank and its affiliates. However, there can be no assurance that such agreements
or transactions will be on terms as favorable to the Company as would have been
obtained from unaffiliated third parties.

RESULTS OF OPERATIONS

     Years ended December 31, 2000 versus December 31, 1999

Net Income. The Company reported net income for the year ended December 31, 2000
of $69.8 million compared with net income of $65.5 million for the year ended
December 31, 1999. This increase in 2000 compared with 1999 is attributable to
an increase in net interest income.

During each of the years ended December 31, 2000 and 1999, the Company declared
and paid dividends of $45.6 million on the outstanding Series A Preferred
Shares. Net income available to the common stockholder for the years ended
December 31, 2000 and 1999 totalled $24.2 million and $19.9 million,
respectively. During the years ended December 31, 2000 and 1999, the Company
declared and paid dividends of $20.5 million and $18.6 million, respectively, to
the Bank as common stockholder.

Net Interest Income. The Company reported interest income, net of servicing fee
expense, of $69.9 million for the year ended December 31, 2000, an increase of
$4.5 million from the $65.4 million reported for the year ended December 31,
1999. This increase in interest income is attributed to a higher average yield
on the residential mortgage loan portfolio. The higher yield of 6.93% on
residential mortgage loans during the year ended December 31, 2000 as compared
to 6.49% for the same period in 1999 is primarily due to the repricing of
variable rate loans resulting from comparatively higher market interest rates in
2000 versus 1999 and the purchase of new loans at higher current market interest
rates. The average outstanding balance of residential mortgage loans during the
year ended December 31, 2000

                                       18
<PAGE>

was $905,000 lower than during the same period in 1999. Interest income, net of
servicing fee expense during the year ended December 31, 2000 is comprised of
$68.7 million ($72.4 million gross interest less $3.7 million servicing fee
expense) from residential mortgage loans and $1.1 million from short-term
investments, representing an average yield after servicing fees on residential
mortgage loans of 6.93% and on earning assets of 6.90%, based on average
outstanding asset balances of $992.5 million and $1,011.7 million, respectively.
Interest income, net of servicing fee expense during the year ended December 31,
1999 is comprised of $64.4 million ($68.1 million gross interest less $3.7
million servicing fee expense) from residential mortgage loans and $964,000 from
short-term investments, representing an average yield after servicing fees on
residential mortgage loans of 6.49% and on earning assets of 6.45%, based on
average outstanding asset balances of $993.4 million and $1,013.9 million,
respectively.

The computation of the average yield on residential mortgage loans and on
earning assets is based on daily average outstanding asset balances that include
nonaccruing loans and the amount of principal payments collected by FNMC but not
yet remitted to the Company, which is included in due from affiliates on the
balance sheets.

Provision for Loan Losses. The Company recorded no provision for loan losses in
either of the years ended December 31, 2000 and 1999. The determination to
record no such provision for loan losses during these periods is the result of
management's evaluation of the adequacy of the allowance for loan losses based
on, among other things, the Bank's and the Company's past loan loss experience,
known and inherent risks in the residential mortgage loan portfolio, adverse
situations that have occurred but are not yet known and that may affect the
borrower's ability to repay, the estimated value of the underlying collateral,
and economic conditions.

    Years ended December 31, 1999 versus December 31, 1998

Net Income. The Company reported net income for the year ended December 31, 1999
of $65.5 million compared with net income of $69.8 million for the year ended
December 31, 1998. This decrease in 1999 compared with 1998 is attributable to a
decrease in net interest income, partially offset by a decrease in the provision
for loan losses. During the year ended December 31, 1998, the Company reported
interest expense of $89,000 related to borrowings from the Bank.

During each of the years ended December 31, 1999 and 1998, the Company declared
and paid dividends of $45.6 million on the outstanding Series A Preferred
Shares. Net income available to the common stockholder for the years ended
December 31, 1999 and 1998 totalled $19.9 million and $24.2 million,
respectively. During the years ended December 31, 1999 and 1998, the Company
declared and paid dividends of $18.6 million and $30.5 million, respectively, to
the Bank as common stockholder.

Net Interest Income. The Company reported interest income, net of servicing fee
expense, of $65.4 million for the year ended December 31, 1999, a decrease of
$6.9 million from the $72.3 million reported for the year ended December 31,
1998. This decrease in interest income is attributed to a lower average yield on
the residential mortgage loan portfolio. The lower yield of 6.49% on residential
mortgage loans during the year ended December 31, 1999 as compared to 7.19% for
the same period in 1998 is primarily due to the repricing of variable rate loans
resulting from comparatively lower market interest rates in 1999 versus 1998 and
the purchase of new loans at lower current market interest rates. The average
outstanding balance of residential mortgage loans during the year ended December
31, 1999 was $1.5 million higher than during the same period in 1998. Interest
income, net of servicing fee expense during the year ended December 31, 1999 is
comprised of $64.4 million ($68.1 million gross interest less $3.7 million
servicing fee expense) from residential mortgage loans and $964,000 from
short-term investments, representing an average yield after servicing fees on
residential mortgage loans of 6.49% and on earning assets of 6.45%, based on
average outstanding asset balances of $993.4 million and $1,013.9 million,
respectively. Interest income, net of servicing fee expense during the year
ended December 31, 1998 is comprised of $71.3 million ($75.0 million gross
interest less $3.7 million servicing fee expense) from residential mortgage
loans and $963,000 from short-term investments, representing an average yield
after servicing fees on residential mortgage loans of 7.19% and on earning
assets of 7.14%, based on average outstanding asset balances of $991.9 million
and $1,012.1 million, respectively. Net interest income after interest expense
($89,000) and provision for loan losses ($2.3 million) was $69.9 million for the
year ended December 31, 1998.

The computation of the average yield on residential mortgage loans and on
earning assets is based on daily average outstanding asset balances that include
nonaccruing loans and the amount of principal payments collected by FNMC but not
yet remitted to the Company, which is included in due from affiliates on the
balance sheets.

                                       19
<PAGE>

Provision for Loan Losses. The Company established a provision for loan losses
of $2.3 million for the year ended December 31, 1998. The Company recorded no
provision for loan losses for the year ended December 31, 1999. The decrease in
the provision for loan losses from 1998 to 1999 is the result of management's
evaluation of the adequacy of the allowance for loan losses based on, among
other things, the Bank's and the Company's past loan loss experience, known and
inherent risks in the residential mortgage 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 the underlying collateral, and economic
conditions.

RESIDENTIAL MORTGAGE LOANS

The Company used the proceeds from its offering of Series A Preferred Shares,
coupled with a capital contribution from the Bank, to purchase the Company's
initial portfolio of residential mortgage loans at their estimated fair value.
The Company reinvests principal collections in additional residential mortgage
loans purchased from either the Bank or its affiliates on a periodic basis.

It is the Company's policy to place a loan on nonaccrual status when a borrower
is 90 days or more delinquent. There were no accruing loans contractually past
due 90 days or more at December 31, 2000 and 1999. See "Business - Delinquencies
and Nonperforming Loans."

ALLOWANCE FOR LOAN LOSSES

As of December 31, 2000, the Company has allocated $209,000 of allowance for
loan losses against specific problem loans, with the remaining $7.4 million
available to absorb potential loan losses from the entire residential mortgage
loan portfolio. The Company deems its allowance for loan losses as of December
31, 2000 to be adequate. Although the Company considers that it has sufficient
allowances to absorb losses that currently may exist in the portfolio, the
precise loss is subject to continuing review based on quality indicators,
industry and geographic concentrations, changes in business conditions, and
other external factors such as competition, legal and regulatory requirements.
The Company will continue to reassess the adequacy of the allowance for loan
losses.

The following table reflects the activity in the Company's allowance for loan
losses for the years ended December 31, 2000, 1999 and 1998 (in thousands):

                                         2000         1999         1998
                                         ----         ----         ----
     Balance - beginning of year       $  7,883     $  8,413     $  7,310
     Provision for loan losses               --           --        2,310
     Charge-offs                           (242)        (530)      (1,207)
                                       --------     --------     --------
     Balance - end of year             $  7,641     $  7,883     $  8,413
                                       ========     ========     ========

The Company's allowance coverage ratio (allowance for loan losses to loans) at
December 31, 2000, 1999 and 1998 was 0.78%, 0.81% and 0.88%, respectively, while
the Company's ratio of allowance for loan losses to non-performing loans at
December 31, 2000, 1999 and 1998 was 469%, 757% and 538%, respectively.

INTEREST RATE RISK

The Company's income consists primarily of interest payments on residential
mortgage loans. The Company anticipates that most of its residential mortgage
loans will bear interest at adjustable rates. If there is a decline in interest
rates (as measured by the indices upon which the interest rates of the
residential mortgage loans are based), then the Company will experience a
decrease in income available to be distributed to its stockholders. In such an
interest rate environment the Company may experience an increase in prepayments
on its residential mortgage loans and may find it more difficult to purchase
additional residential mortgage loans bearing rates sufficient to support
payment of the dividends on the Series A Preferred Shares. In addition, certain
residential mortgage loan products which the Company holds will allow borrowers
in such an interest rate environment to convert an adjustable rate mortgage to a
fixed rate mortgage, thus "locking in" a lower fixed interest rate. Because the
dividend rate on the Series A Preferred Shares is fixed, there can be no
assurance that an interest rate environment in which there is a significant
decline in interest rates would not adversely affect the Company's ability to
pay such dividends.

Residential mortgage loans which have interest rates that adjust monthly based
upon the FHLB Eleventh District Cost of Funds limit payment changes to no more
than 7.5% of the payment amount per year. This may lead to monthly payments
which are less than the amount necessary to amortize the loan to maturity at the
interest rate in effect for any

                                       20
<PAGE>

particular month. In the event that the monthly payment is not sufficient to pay
interest accruing on the loan during the month, this deficiency is added to the
loan's principal balance (i.e., negative amortization). The total outstanding
principal balance for a particular loan is generally not allowed to exceed 125%
of the original loan amount as a result of negative amortization. Every five
years and at any time the loan reaches its maximum amount, the loan payment is
recalculated to the payment sufficient to repay the unpaid principal balance in
full at the maturity date. At December 31, 2000 and 1999, residential mortgage
loans included approximately $172.2 million and $208.6 million, respectively, of
principal balance that had the potential to negatively amortize. At December 31,
2000 and 1999, approximately $18.9 million and $31.9 million, respectively, of
residential mortgage loans had negatively amortized such that the current
principal balance of the loan exceeds the original principal balance. The
current principal balance exceeded the original principal balance by
approximately $712,000 and $1.0 million, as of December 31, 2000 and 1999,
respectively. If there is an increase in interest rates on such residential
mortgage loans (as measured by the indices upon which the interest rates of the
residential mortgage loans are based), the Company may experience a decrease in
cash available to be distributed to its common stockholder where such increase
in the interest rate does not coincide with a corresponding adjustment of the
borrowers' monthly payments.

SIGNIFICANT CONCENTRATION OF CREDIT RISK

Certain geographic regions of the United States from time to time may experience
natural disasters or weaker regional economic conditions and housing markets
and, consequently, may experience higher rates of loss and delinquency on
residential mortgage loans generally. Any concentration of the residential
mortgage loans in such a region may present risks in addition to those generally
present with respect to residential mortgage loans.

The Company's exposure to geographic concentrations directly affects the credit
risk of the residential mortgage loans within the portfolio. The following table
shows the residential mortgage loan portfolio by geographical area as of
December 31, 2000:

<TABLE>
<CAPTION>
                                                                                   Book Value
                                                                                 (in thousands)      Percent
                                                                                 --------------      -------
<S>                                                                               <C>                  <C>
     California                                                                   $  816,622           83.5%
     Florida                                                                          27,587            2.8
     New York                                                                         17,693            1.8
     Nevada                                                                           15,147            1.5
     Hawaii                                                                           13,544            1.4
     Texas                                                                            12,247            1.3
     Other states (35 states and Washington, D.C.; no state has more than 1%)         75,199            7.7
                                                                                  ----------          -----
                                                                                  $  978,039          100.0%
                                                                                  ==========          =====
</TABLE>

The 83.5% of the Company's total residential mortgage loan portfolio comprised
of loans secured by residential real estate properties located in California may
be subject to a greater risk of default than other comparable residential
mortgage loans in the event of natural hazards or other adverse conditions in
California that may affect the ability of residential property owners in
California to make payments of principal and interest on underlying mortgages.

LIQUIDITY RISK MANAGEMENT

The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and to
capitalize on opportunities for the Company's business expansion. In managing
liquidity, the Company takes into account various legal limitations placed on a
REIT. See " -- Other Matters."

The Company's principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional residential mortgage loans and to pay
dividends on the Series A Preferred Shares. The acquisition of additional
residential mortgage loans is funded with the proceeds obtained from repayment
of principal balances by individual mortgagees. The payment of dividends on the
Series A Preferred Shares will be made from legally available funds, principally
arising from the operating activities of the Company. The Company's cash flows
from operating activities principally consist of the collection of interest on
the residential mortgage loans. The Company does not have and does not
anticipate having any material capital expenditures.


                                       21
<PAGE>

In order to remain qualified as a REIT, the Company must distribute annually at
least 90% of its adjusted REIT taxable income, as provided for under the IRC, to
its common and preferred stockholders. The Company currently expects to
distribute dividends annually to satisfy these REIT requirements.

The Company anticipates that cash and cash equivalents on hand and the cash flow
from the residential mortgage loans will provide adequate liquidity for its
operating, investing and financing needs.

Net cash provided by operating activities for the year ended December 31, 2000,
totalled $70.7 million, an increase of $3.6 million from net cash provided by
operating activities for the year ended December 31, 1999. The increase was
principally due to the increase in interest income on residential mortgage
loans.

Net cash provided by operating activities for the year ended December 31, 1999,
totalled $67.1 million, a decrease of $5.8 million from net cash provided by
operating activities for the year ended December 31, 1998. The decrease was
principally due to the decrease in interest income on residential mortgage
loans.

Net cash used in investing activities for the year ended December 31, 2000,
totalled $1.6 million, compared to net cash provided by investing activities of
$68,000 for the year ended December 31, 1999. Cash flows used in investing
activities in 2000 included purchases of mortgage loans and accrued interest
receivable of $160.7 million and $693,000, respectively. Cash flows provided by
investing activities in 2000 included mortgage loan principal repayments of
$158.7 million and proceeds from sales of foreclosed real estate of $1.1
million.

Net cash provided by investing activities for the year ended December 31, 1999,
totalled $68,000, compared to net cash used of $687,000 for the year ended
December 31, 1998. Cash flows used in investing activities in 1999 included
purchases of mortgage loans and accrued interest receivable of $311.8 million
and $1.2 million, respectively. Cash flows provided by investing activities in
1999 included mortgage loan principal repayments of $311.5 million and proceeds
from sales of foreclosed real estate of $1.6 million.

Net cash used in financing activities for the year ended December 31, 2000,
totalled $66.1 million, an increase of $1.9 million from net cash used in
financing activities for the year ended December 31, 1999. The increase was due
to the increase in common stock dividends paid in 2000 compared to 1999.

Net cash used in financing activities for the year ended December 31, 1999,
totalled $64.2 million, a decrease of $11.9 million from net cash used in
financing activities for the year ended December 31, 1998. The decrease was due
to the decrease in common stock dividends paid in 1999 compared to 1998.

IMPACT OF INFLATION AND CHANGING PRICES

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

OTHER MATTERS

As of December 31, 2000, the Company was in full compliance with the REIT tax
rules and believes that it will continue to qualify as a REIT under the
provisions of the IRC. The Company calculates:

a.   its Qualified REIT Assets, as defined in the Code, to be 98% of its total
     assets, as compared to the Federal tax requirements that at least 75% of
     its total assets must be Qualified REIT assets;

b.   that 98% of its revenue qualifies for the 75% source of income test and 99%
     of its revenue qualifies for the 95% source of income test under the REIT
     rules; and

The Company also met all REIT requirements regarding the ownership of its stock
and anticipates meeting the annual distribution requirements.



                                       22
<PAGE>

YEAR 2000

The Bank was responsible for addressing issues related to required changes in
computer systems for the year 2000 ("Year 2000") for the Bank and its
affiliates, including the Company. The Bank completed all major milestones in
executing its comprehensive plan to make its computer systems, applications and
facilities Year 2000 ready. No significant Year 2000-related events were
reported, and it was not necessary to activate any of the Bank's contingency
plans.

The Bank has completed all activities associated with the Year 2000 project. All
costs related to Year 2000 were expensed on the books of the Bank.












                                       23
<PAGE>

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposure is interest rate risk. As of December
31, 2000 the Company's residential loan portfolio totalled $970.4 million, had a
fair value of $968.5 million and a weighted average interest rate, net of the
service fee rate, of 7.36%. The portfolio consisted primarily of ARM loans.
Certain types of residential mortgage loans contain an option for the mortgagor
to convert the ARM loan to a fixed rate loan for the remainder of the term. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Interest Rate Risk."















                                       24
<PAGE>


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements of the Company at December 31, 2000 and 1999
and for the years ended December 31, 2000, 1999 and 1998 are included in this
report at the pages indicated.

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

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

None.















                                       25
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company's Board of Directors is currently composed of eight members, three
of whom are not current officers or employees of the Company or current
directors, officers or employees of the Bank or any affiliate or the Bank (the
"Independent Directors"). The Company's charter provides that the Independent
Directors will consider the interests of the holders of both the Company's
common stock and preferred stock, including the Series A Preferred Shares, in
determining whether any proposed action requiring their approval is in the best
interests of the Company.

The following persons are directors and/or executive officers of the Company
(ages as of March 1, 2001):

            NAME         AGE    POSITION AND OFFICES HELD
            ----         ---    -------------------------
Gerald J. Ford            56    Chairman, Chief Executive Officer and Director
Carl B. Webb              51    President, Chief Operating Officer and Director
Christie S. Flanagan      62    Executive Vice President, General Counsel and
                                  Director
P. Richard Frieder        66    Director
Robert Nichols            56    Director
James R. Staff            53    Director
Richard H. Terzian        64    Executive Vice President, Chief Financial
                                  Officer and Director
R. Gerald Turner          55    Director

Each of the executive officers has held his position with the Company since its
inception in November 1996. The following is a summary of the experience of the
executive officers and directors of the Company:

Mr. Ford has been Chairman of the Board, Chief Executive Officer and a Director
of the Bank and its predecessors since 1988 and Chairman of the Board and Chief
Executive Officer of Golden State Bancorp Inc. ("Golden State") since September
1998. Mr. Ford has also been Chairman of the Board and Chief Executive Officer
of Golden State Holdings Inc. since 1998. Mr. Ford is Chairman of the Board of
FNMC. Mr. Ford is also Chairman of the Board and Chief Executive Officer of
Liberte Investors Inc. Mr. Ford is also a Director of Auto One Acceptance
Corporation ("Auto One"), Freeport-McMoRan Copper & Gold Co. and McMoRan
Exploration Co.

Mr. Webb has served as President, Chief Operating Officer and a Director of the
Bank and its predecessors since 1988, and as the President, Chief Operating
Officer and a Director of Golden State since September 1998. Mr. Webb has also
been President and Chief Operating Officer of Golden State Holdings Inc. since
1998. Mr. Webb also serves as a Director of FNMC and Auto One.

Mr. Flanagan has been Executive Vice President and General Counsel of Golden
State since September 1998 and Group Executive Vice President and General
Counsel of the Bank since June 2000. He served as Executive Vice President and
General Counsel of the Bank from 1994 until June 2000. He also serves as
Director of FNMC and Auto One. Mr. Flanagan was previously managing partner of
the law firm of Jenkins & Gilchrist, P.C. and is currently of counsel to the
firm.

Mr. Frieder has been a Director of the Company since January 1997. He has been
President and Chief Executive Officer of KSD Industries, Inc., a company engaged
in the manufacturing and sale of household hardware, for the past 26 years. Mr.
Frieder is also an attorney admitted to practice in the State of Pennsylvania.

Mr. Nichols has been a Director of the Company since January 1997. He has been
Chairman of the Board of Conley, Lott, Nichols Machinery Company, a Dallas based
company engaged in machinery sales, since 1978.

Mr. Staff has been Executive Vice President and the Chief Financial Advisor of
Golden State since September 1998 and Group Executive Vice President and Chief
Financial Advisor of the Bank since June 2000. He served as Executive Vice
President and Chief Financial Advisor of the Bank from 1994 until June 2000. He
also serves as a Director of FNMC and Auto One. Prior to joining the Bank, Mr.
Staff was associated with the public accounting firm of KPMG LLP, most recently
as a partner specializing in financial services.

Mr. Terzian has been Executive Vice President and Chief Financial Officer of
Golden State since September 1998 and Group Executive Vice President and Chief
Financial Officer of the Bank since June 2000. He served as Executive Vice
President and Chief Financial Officer of the Bank from April 1995 until June
2000. Mr. Terzian is also a Director of

                                       26
<PAGE>

the Federal Home Loan Bank of San Francisco. Prior to joining the Bank, Mr.
Terzian served as Chief Financial Officer of Dime Bancorp, Inc and its
subsidiary, The Dime Savings Bank of New York, FSB.

Dr. Turner has been a Director of the Company since January 2001 and the
President of Southern Methodist University in Dallas, Texas since June 1995. He
was Chancellor of the University of Mississippi in Oxford, Mississippi from 1984
to 1995. Dr. Turner also serves as a Director of J.C. Penney Company, Inc. and
ChemFirst Inc.

ITEM 11.  EXECUTIVE COMPENSATION

The Company pays the Independent Directors of the Company for their services as
directors an annual compensation of $15,000 plus a fee of $2,000 for attendance
(in person or by telephone) at each meeting of the Board of Directors.
Independent Directors who are members of the audit committee receive a fee of
$1,000 for attendance (in person or by telephone) at each meeting of the audit
committee.

The Company does not pay any compensation to its officers or employees or to
directors who are not Independent Directors.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock of the Company

All of the common stock of the Company is held by the Bank.

Preferred Stock of the Company

The following table sets forth information as of March 1, 2001, concerning the
shares of Series A Preferred Shares beneficially owned by each director and/or
executive officer named in Item 10 and by all directors and/or executive
officers of the Company as a group.

<TABLE>
<CAPTION>

                                                                     AMOUNT AND NATURE       PERCENT
                                                                            OF                 OF
                    NAME OF BENEFICIAL OWNER                        BENEFICIAL OWNERSHIP      CLASS
                    ------------------------                        --------------------      -----
<S>                                                                   <C>                    <C>
Christie S. Flanagan ............................................         4,440                 *
Gerald J. Ford ..................................................         8,000                 *
P. Richard Frieder ..............................................             0                 *
Robert Nichols ..................................................             0                 *
James R. Staff ..................................................         8,000                 *
Richard H. Terzian ..............................................             0                 *
R. Gerald Turner ................................................             0                 *
Carl B. Webb ....................................................        12,000                 *
All directors and executive officers as a group (8 persons) .....        32,440                 *
</TABLE>


-------
*  Less than one percent of the outstanding shares in each case.










                                       27
<PAGE>

Common Stock of Golden State

The Company is an indirect subsidiary of Golden State. The following table sets
forth information as of March 1, 2001, concerning the shares of Golden State
common stock beneficially owned by each director and/or executive officer named
in Item 10 and by all directors and/or executive officers of the Company as a
group.

<TABLE>
<CAPTION>
                                                                     AMOUNT AND NATURE     PERCENT
                                                                            OF               OF
                    NAME OF BENEFICIAL OWNER                        BENEFICIAL OWNERSHIP    CLASS
                    ------------------------                        --------------------    -----
<S>                                                                   <C>                  <C>
Christie S. Flanagan ...........................................             37,326(1)         *
Gerald J. Ford .................................................         19,342,591(2)       14.32%
P. Richard Frieder .............................................             12,000(3)         *
Robert Nichols .................................................                  0            *
James R. Staff .................................................             35,993(4)         *
Richard H. Terzian .............................................             28,280(5)         *
R. Gerald Turner ...............................................                  0            *
Carl B. Webb ...................................................            179,716(6)         *
All directors and executive officers as a group (8 persons) ....         19,635,906(7)       14.54%
</TABLE>


--------
 *   Less than one percent of the outstanding shares in each case.

(1)  Includes 7,969 restricted shares of common stock and 17,667 options to
     purchase shares of common stock.

(2)  Includes 48,120 restricted shares of common stock owned by Mr. Ford and
     132,667 options to purchase shares of common stock. Also includes
     19,140,744 shares of common stock owned by Hunter's Glen/Ford, Ltd. Mr.
     Ford and a corporate entity controlled by Mr. Ford are the general partners
     of Hunter's Glen/Ford, Ltd. Accordingly, Mr. Ford may be deemed to be the
     beneficial owner of all of the shares of common stock owned by Hunter's
     Glen/Ford, Ltd.

(3)  Mr. Frieder's shares are jointly held with his spouse.

(4)  Includes 7,969 restricted shares of common stock and 23,334 options to
     purchase shares of common stock.

(5)  Includes 4,433 shares of restricted stock and 4,000 shares held jointly
     with Mr. Terzian's spouse. Also includes 17,334 options to purchase shares
     of common stock.

(6)  Includes 21,895 restricted shares of common stock and 96,334 options to
     purchase common stock.

(7)  Includes 90,386 restricted shares granted to executive officers pursuant to
     the Golden State Bancorp Inc. Omnibus Stock Plan. Also includes 16,000
     shares as to which voting and investment power are shared.


                                       28
<PAGE>

Litigation Tracking Warrants(TM) of Golden State

The following table sets forth information as of March 1, 2001 concerning the
number of Litigation Tracking Warrants(TM) of Golden State (sometimes referred
to as "LTWs") beneficially owned by each director and/or executive officer named
in Item 10 and by all directors and/or executive officers of the Company as a
group.

<TABLE>
<CAPTION>
                                                                 AMOUNT AND NATURE        PERCENT
                                                                         OF                  OF
                    NAME OF BENEFICIAL OWNER                    BENEFICIAL OWNERSHIP       CLASS
                    ------------------------                    --------------------       -----
<S>                                                                <C>                   <C>
Christie S. Flanagan ........................................             7,000               *
Gerald J. Ford ..............................................         1,903,000(1)           2.3%
P. Richard Frieder ..........................................                 0               *
Robert Nichols ..............................................                 0               *
James R. Staff ..............................................                 0               *
Richard H. Terzian ..........................................                 0               *
R. Gerald Turner ............................................                 0               *
Carl B. Webb ................................................                 0               *
All directors and executive officers as a group (8 persons) .         1,910,000              2.3%
</TABLE>

--------

*    Less than one percent of the outstanding warrants in each case.

(1)  Includes 1,000,000 LTWs purchased and held of record by Turtle Creek
     Revocable Trust, a revocable trust organized under the laws of the State of
     Texas of which Gerald J. Ford is the sole grantor and trustee. Accordingly,
     Mr. Ford may be deemed to be the beneficial owner of all of the LTWs owned
     by Turtle Creek Revocable Trust. Also includes 903,000 LTWs owned by
     Hunter's Glen/Ford, Ltd. Mr. Ford and a corporate entity controlled by Mr.
     Ford are the general partners of Hunter's Glen/Ford, Ltd. Accordingly, Mr.
     Ford may be deemed to be the beneficial owner of all of the LTWs owned by
     Hunter's Glen/Ford, Ltd.

Change in Control of Golden State

As of March 1, 2001, GSB Investments Corp. owned 31.83% of the outstanding
common stock of Golden State. The shares of common stock of Golden State owned
by GSB Investments Corp. are pledged to secure obligations of GSB Investments
Corp. or its affiliates.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

FNMC services the residential mortgage loans included in the Company's portfolio
and is entitled to receive fees in connection with the related servicing
agreement. Loan servicing fees paid to FNMC for the years ended December 31,
2000, 1999 and 1998 totalled $3.6 million, $3.7 million and $3.7 million,
respectively. See "Business - Servicing of Residential Mortgage Loans."



                                       29
<PAGE>

                                    PART IV

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

(a) 1.    FINANCIAL STATEMENT SCHEDULES

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


     3.1    Amended and Restated Charter of the Registrant (Incorporated by
            reference to Exhibit 3.1 to the Registrant's Quarterly Report on
            Form 10-Q for the quarter ended March 31, 1997 (the "March 1997 Form
            10-Q")).
     3.2    By-laws of the Registrant, as amended (Incorporated by reference to
            Exhibit 3(b) to Amendment No. 2 to the Registrant's Registration
            Statement on Form S-11 (File No. 333-11609)).
     10.1   Mortgage Loan Purchase and Warranties Agreement, dated as of January
            24, 1997, by and between California Federal Preferred Capital
            Corporation and California Federal Bank, A Federal Savings Bank.
            (Incorporated by reference to Exhibit 10.1 to the March 1997 Form
            10-Q).
     10.2   Servicing Agreement, entered into as of January 31, 1997, by and
            between First Nationwide Mortgage Corporation and California Federal
            Preferred Capital Corporation. (Incorporated by reference to Exhibit
            10.2 to the March 1997 Form 10-Q).
     10.3   Promissory Note, entered into as of September 29, 1998, between
            California Federal Bank, A Federal Savings Bank, lender, and
            California Federal Preferred Capital Corporation, borrower
            (Incorporated by reference to the Registrant's Quarterly Report on
            Form 10-Q for the quarter ended September 30, 1998).
     24.1   Power of Attorney executed by P. Richard Frieder.
     24.2   Power of Attorney executed by Robert Nichols.
     24.3   Power of Attorney executed by R. Gerald Turner.
     27.1   Financial Data Schedule


(b)       REPORTS ON FORM 8-K

None.



                                       30
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: March 19, 2001

                               CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

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

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

<TABLE>
<CAPTION>

               NAME                     TITLE                                     DATE

<S>                                     <C>                                       <C>
        /s/ Gerald J. Ford              Chairman of the Board, Chief              March 19, 2001
----------------------------------      Executive Officer and Director
          Gerald J. Ford


         /s/ Carl B. Webb               President, Chief Operating                March 19, 2001
----------------------------------      Officer and Director
           Carl B. Webb


     /s/ Christie S. Flanagan           Executive Vice President,                 March 19, 2001
----------------------------------      General Counsel and Director
       Christie S. Flanagan


      /s/ Richard H. Terzian            Executive Vice President, Chief           March 19, 2001
----------------------------------      Financial Officer and Director
        Richard H. Terzian              (Principal Financial Officer)


                 *                      Director                                  March 19, 2001
----------------------------------
        P. Richard Frieder


                 *                      Director                                  March 19, 2001
----------------------------------
          Robert Nichols


                 *                      Director                                  March 19, 2001
----------------------------------
         R. Gerald Turner


        /s/ James R. Staff              Director                                  March 19, 2001
----------------------------------
          James R. Staff

</TABLE>


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



                                             By: /s/ Eric K. Kawamura
                                                 ----------------------------
                                                 Eric K. Kawamura
                                                 Attorney-in-Fact


                                       31
<PAGE>

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

The Board of Directors
California Federal Preferred Capital Corporation:

We have audited the accompanying balance sheets of California Federal Preferred
Capital Corporation (the "Company") as of December 31, 2000 and 1999 and the
related statements of income, stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of California Federal Preferred
Capital Corporation as of December 31, 2000 and 1999 , and the results of its
operations and its cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.

                                                           KPMG LLP



McLean, Virginia
January 16, 2001


<PAGE>


                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                                 BALANCE SHEETS
                           December 31, 2000 and 1999
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                       2000              1999
                                                                                       ----              ----
ASSETS

<S>                                                                           <C>               <C>
Residential mortgage loans, net                                                 $   970,398       $   967,286
Cash and cash equivalents                                                             8,526             5,485
Due from affiliates                                                                  15,109            18,065
Accrued interest receivable                                                           5,615             4,649
Foreclosed real estate, net                                                             569             1,037
                                                                                -----------       -----------

     TOTAL ASSETS                                                               $ 1,000,217       $   996,522
                                                                                ===========       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Due to affiliates                                                               $        56       $        96
Accounts payable and accrued liabilities                                                310               245
                                                                                -----------       -----------

     Total Liabilities                                                                  366               341
                                                                                -----------       -----------

Commitments and contingencies                                                            --                --

Stockholders' Equity:

Preferred stock, par value $0.01 per share, liquidation preference $500,000,
  30,000,000 shares authorized, 20,000,000 shares issued and outstanding            500,000           500,000
Common stock, par value $0.01 per share, 30,000,000 shares authorized,
  1,000 shares issued and outstanding                                                    --                --
Additional paid-in capital                                                          500,000           500,000
Accumulated deficit                                                                    (149)           (3,819)
                                                                                -----------       -----------

     Total Stockholders' Equity                                                     999,851           996,181
                                                                                -----------       -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $ 1,000,217       $   996,522
                                                                                ===========       ===========

</TABLE>


See accompanying notes to financial statements.

                                      F-2

<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                              STATEMENTS OF INCOME
                  Years Ended December 31, 2000, 1999 and 1998
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                 2000           1999           1998
                                                                 ----           ----           ----
<S>                                                            <C>            <C>            <C>
INTEREST INCOME

Residential mortgage loans                                     $  72,375      $  68,121      $  74,984
  Less: servicing fee expense                                     (3,643)        (3,682)        (3,679)
                                                               ---------      ---------      ---------
                                                                  68,732         64,439         71,305
Short-term investments                                             1,124            964            963
                                                               ---------      ---------      ---------
  Interest income, net of servicing fee expense                   69,856         65,403         72,268


INTEREST EXPENSE


Borrowing from Bank                                                   --             --             89
                                                               ---------      ---------      ---------
  Net interest income                                             69,856         65,403         72,179

Provision for loan losses                                             --             --          2,310
                                                               ---------      ---------      ---------
  Net interest income after provision for loan losses             69,856         65,403         69,869
                                                               ---------      ---------      ---------

NONINTEREST EXPENSE

Directors fees                                                        50             52             52
Professional fees                                                     69             87             65
Foreclosed real estate operations, net                              (151)          (190)          (206)
Other                                                                 93            (27)           118
                                                               ---------      ---------      ---------

  Total noninterest expense (income)                                  61            (78)            29
                                                               ---------      ---------      ---------

NET INCOME                                                        69,795         65,481         69,840

Preferred stock dividends                                         45,625         45,625         45,625
                                                               ---------      ---------      ---------

NET INCOME AVAILABLE TO COMMON
  STOCKHOLDER                                                  $  24,170      $  19,856      $  24,215
                                                               =========      =========      =========
</TABLE>

See accompanying notes to financial statements.

                                      F-3
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 2000, 1999 and 1998
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                 Retained
                                                                   Additional    Earnings         Total
                                       Preferred      Common        Paid-in    (Accumulated    Stockholders'
                                         Stock         Stock        Capital       Deficit)       Equity
                                      -----------   -----------   -----------   -----------    -----------
<S>                                   <C>           <C>           <C>           <C>            <C>
BALANCE AT DECEMBER  31, 1997         $   500,000   $      --     $   500,000   $     1,146    $ 1,001,146

Net income                                   --            --            --          69,840         69,840

Dividends paid on 9 1/8%
  noncumulative exchangeable
  preferred stock, series A                  --            --            --         (45,625)       (45,625)

Dividends paid on common stock               --            --            --         (30,451)       (30,451)
                                      -----------   -----------   -----------   -----------    -----------

BALANCE AT DECEMBER  31, 1998             500,000          --         500,000        (5,090)       994,910

Net income                                   --            --            --          65,481         65,481

Dividends paid on 9 1/8%
  noncumulative exchangeable
  preferred stock, series A                  --            --            --         (45,625)       (45,625)

Dividends paid on common stock               --            --            --         (18,585)       (18,585)
                                      -----------   -----------   -----------   -----------    -----------

BALANCE AT DECEMBER  31, 1999             500,000          --         500,000        (3,819)       996,181

Net income                                   --            --            --          69,795         69,795

Dividends paid on 9 1/8%
  noncumulative exchangeable
  preferred stock, series A                  --            --            --         (45,625)       (45,625)

Dividends paid on common stock               --            --            --         (20,500)       (20,500)
                                      -----------   -----------   -----------   -----------    -----------

BALANCE AT DECEMBER  31, 2000         $   500,000   $      --     $   500,000   $      (149)   $   999,851
                                      ===========   ===========   ===========   ===========    ===========

</TABLE>



See accompanying notes to financial statements.

                                      F-4
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION

                            STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 2000, 1999 and 1998
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                2000         1999         1998
                                                                                ----         ----         ----
<S>                                                                           <C>          <C>          <C>
OPERATING ACTIVITIES:

Net income                                                                    $  69,795    $  65,481    $  69,840
Adjustments to reconcile net income to net cash provided by
  operating activities:
    Amortization of purchase discounts and premiums, net                            934        1,119          350
    Provision for loan losses                                                      --           --          2,310
    Provision for losses on foreclosed real estate                                 --             15           18
    Interest capitalized on negatively amortizing loans                            (114)        (224)      (1,032)
    Gain on sales of foreclosed real estate, net                                   (151)        (205)        (224)
    Decrease/(increase) in due from affiliates                                      517         (207)        (795)
    (Increase)/decrease in accrued interest receivable                             (273)       1,638        1,932
    Increase/(decrease) in accounts payable and accrued liabilities                  65          121         (225)
    (Decrease)/increase in due to affiliates                                        (40)        (616)         712
                                                                              ---------    ---------    ---------

Net cash provided by operating activities                                        70,733       67,122       72,886
                                                                              ---------    ---------    ---------

INVESTING ACTIVITIES:

Purchase of mortgage loans                                                     (160,675)    (311,757)    (352,109)
Mortgage loan principal repayments                                              158,703      311,462      350,632
Purchase of accrued interest receivable                                            (693)      (1,243)      (1,577)
Proceeds from sales of foreclosed real estate                                     1,098        1,606        2,367
                                                                              ---------    ---------    ---------

Net cash (used in) provided by investing activities                              (1,567)          68         (687)
                                                                              ---------    ---------    ---------

FINANCING ACTIVITIES:

Proceeds from note payable to Bank                                                 --           --         11,406
Repayment of note payable to Bank                                                  --           --        (11,406)
Common stock dividends paid                                                     (20,500)     (18,585)     (30,451)
Preferred stock dividends paid                                                  (45,625)     (45,625)     (45,625)
                                                                              ---------    ---------    ---------


Net cash used in financing activities                                           (66,125)     (64,210)     (76,076)
                                                                              ---------    ---------    ---------

NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS                              3,041        2,980       (3,877)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    5,485        2,505        6,382
                                                                              ---------    ---------    ---------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                      $   8,526    $   5,485    $   2,505
                                                                              =========    =========    =========

Supplemental disclosures of cash flow information:

     Cash paid for interest                                                   $    --      $    --             89
     Non-cash investing activities:
       Mortgage loan principal reductions due to foreclosure                        479        1,670        2,452
       Mortgage loan principal increase (decrease) for timing difference
         between principal repayments received by servicer and related cash
         received by Company during the period                                    2,439       23,586      (20,849)
</TABLE>


See accompanying notes to financial statements.

                                      F-5
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


(1) Organizational and Basis of Presentation

California Federal Preferred Capital Corporation, formerly First Nationwide
Preferred Capital Corporation (the "Company"), is a Maryland corporation which
was created for the purpose of acquiring, holding and managing real estate
assets. The Company's outstanding common stock is wholly-owned by California
Federal Bank (the "Bank").

The Company commenced its operations in 1997 with the consummation of an initial
public offering of 20,000,000 shares of the Company's 9 1/8% Noncumulative
Exchangeable Preferred Stock, Series A (the "Series A Preferred Shares"), $0.01
par value, which raised $500 million. The Series A Preferred Shares are traded
on the New York Stock Exchange under the trading symbol "CFP." Concurrent with
the issuance of the Series A Preferred Shares, the Bank contributed additional
capital of $500 million to the Company.

The Company used the proceeds raised from the initial public offering of the
Series A Preferred Shares and the additional capital contributed by the Bank to
purchase from the Bank the Company's initial portfolio of residential mortgage
loans at their estimated fair value. The residential mortgage loans were
recorded in the accompanying financial statements at the Bank's carrying value
which approximated their estimated fair values. Pursuant to a servicing
agreement (the "Servicing Agreement") with the Bank's wholly-owned mortgage
banking subsidiary, First Nationwide Mortgage Corporation ("FNMC") services the
Company's mortgage assets.

The accompanying financial statements include certain amounts from prior years
which have been reclassified to conform to the current year's presentation.

(2) Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform to generally
accepted accounting principles and prevailing industry practices. The following
summarizes the more significant of these policies:

     (a) Residential Mortgage Loans

     Residential mortgage loans are carried at the principal amount outstanding,
     net of unamortized purchase discounts and premiums. Discounts or premiums
     are accreted or amortized to income using the interest method over the
     contractual term of the loans. Unaccreted or unamortized discounts or
     premiums on loans sold or paid in full are recognized in income at the time
     of sale or payoff. It is the Company's policy to place a loan on nonaccrual
     status when a borrower is 90 days or more delinquent. When a loan is placed
     on nonaccrual status, the accrued and unpaid interest receivable is
     reversed. Amortization or accretion of premiums or discounts associated
     with loans that are on nonaccrual status is discontinued. Income is
     subsequently recognized only to the extent that cash payments are received.
     When, in management's judgment, the borrower's ability to make periodic
     interest and principal payments resumes, the loan is returned to accrual
     status.

     The Company considers a loan to be impaired when it is "probable" that a
     creditor will be unable to collect all amounts due (i.e., both principal
     and interest) according to the contractual terms of the loan agreement. The
     measurement of impairment may be based on (i) the present value of the
     expected future cash flows of the impaired loan discounted at the loan's
     original effective interest rate, (ii) the observable market price of the
     impaired loan, or (iii) the fair value of the collateral of a
     collateral-dependent loan. Large groups of smaller balance homogeneous
     loans are collectively evaluated for impairment. The Company collectively
     reviews its portfolio of residential mortgage loans for impairment due to
     its homogeneous composition.

                                      F-6

<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


     Residential mortgage loans consist primarily of adjustable rate mortgages
     ("ARMs") which adjust periodically based on changes in various indices
     including the FHLB Eleventh District Cost of Funds, the one-year Treasury
     rate and the six-month Treasury rate. Certain types of residential mortgage
     loans contain an option for the mortgagor to convert the ARM to a fixed
     rate loan for the remainder of the term.

     (b) Allowance for Loan Losses

     The allowance for loan losses is increased by charges to income and
     decreased by charge-offs (net of recoveries) and is comprised of specific
     allowances for identified problem loans and an unallocated allowance.
     Management's periodic evaluation of the adequacy of the allowance is based
     on such factors as the Bank's and the Company's past loan loss experience,
     known and inherent risks in the 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.

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

     (c) Cash and Cash Equivalents

     For purposes of the statement of cash flows, cash and cash equivalents
     include cash and amounts due from banks, and other short-term investments
     with original maturities of three months or less.

     (d) Foreclosed Real Estate

     Real estate acquired through, or in lieu of, loan foreclosure consists of
     1-4 unit residential real estate and is initially recorded at fair value
     less estimated disposal costs at the time of foreclosure. Subsequent to
     foreclosure, the Company charges current earnings with a provision for
     estimated losses when the carrying value of the collateral property exceeds
     its fair value. Gains or losses on the sale of real estate are recognized
     upon disposition of the property.

     (e) Income Taxes

     The Company has elected to be treated as a Real Estate Investment Trust
     ("REIT") for Federal income tax purposes. Accordingly, in general, the
     Company is not subject to Federal income tax to the extent it distributes
     its income to stockholders and as long as certain asset, income and stock
     ownership tests are met in accordance with the Internal Revenue Code of
     1986 (the "IRC"), as amended. The Company is subject to Federal income tax
     on net gains on the sale of foreclosed real estate.

     Pursuant to IRC Section 857(a), the Company is required to distribute 95%
     of its REIT taxable income for the years ended December 31, 2000 and prior.
     For years ended after December 31, 2000, the Company must distribute 90% of
     its REIT taxable income. Taxable income may vary from book earnings as a
     result of temporary differences. For the years ended December 31, 2000,
     taxable income before dividend distributions was estimated to be $69.6
     million and, for the years ended December 31, 1999 and 1998, taxable income
     before dividend distributions was $65.1 million and $74.2 million,
     respectively. Temporary differences consisted primarily of differences in
     the book basis and tax basis of residential mortgage loans and provisions
     for loan losses in excess of charge-offs.

                                      F-7
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


     (f) Management's Use of Estimates

     The preparation of financial statements in conformity with generally
     accepted accounting principles requires management to make estimates and
     assumptions that affect (i) the reported amounts of assets and liabilities,
     (ii) disclosure of contingent assets and liabilities at the date of the
     financial statements and (iii) the reported amounts of revenues and
     expenses during the reporting period. Actual results could differ from
     those estimates.

     (g) Earnings per Share

     As all the Company's common stock is owned by the Bank, earnings per share
     data is not presented.

     (h) Newly Issued Accounting Pronouncements

     Accounting for Transfers and Servicing of Financial Assets and
     Extinguishments of Liabilities

     On September 29, 2000, the FASB issued Statement of Financial Accounting
     Standards No. 140, Accounting for Transfers and Servicing of Financial
     Assets and Extinguishments of Liabilities ("SFAS No. 140"). SFAS No. 140
     replaces SFAS No. 125, which was issued in June of 1996. It revises the
     standards for accounting for securitizations and other transfers of
     financial assets and collateral and requires certain disclosures, but it
     carries over most of the provisions of SFAS No. 125 without
     reconsideration. In general, SFAS No. 140 is effective for transfers of
     financial assets occurring after March 31, 2001 and for disclosures
     relating to securitization transactions and collateral for fiscal years
     ending after December 15, 2000. The implementation of SFAS No. 140 is not
     expected to materially impact the Company's financial results.

     Recognition of Interest Income and Impairment on Purchased and Returned
     Beneficial Interests in Securitized Financial Assets

     On September 21, 2000, the Emerging Issues Task Force ("EITF") issued EITF
     No. 99-20, Recognition of Interest Income and Impairment on Purchased and
     Retained Beneficial Interests in Securitized Financial Assets ("EITF No.
     99-20"). This document, which is effective in the second quarter of 2001,
     establishes guidance for (1) recognizing interest income (including
     amortization of premiums or discounts) on (a) all credit-sensitive mortgage
     and asset-backed securities and (b) certain prepayment-sensitive securities
     including agency interest-only strips and (2) determining when these
     securities must be written down to fair value because of impairment.
     Existing GAAP did not provide interest recognition and impairment guidance
     for securities on which cash flows change as a result of both prepayments
     and credit losses and, in some cases interest rate adjustments.

     The implementation of EITF No. 99-20 is not expected to materially impact
     the Company's financial results.

                                      F-8
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


(3) Residential Mortgage Loans, Net

At December 31, 2000 and 1999, residential mortgage loans, net consisted of the
following (in thousands):

                                                      At December 31
                                                      --------------
                                                   2000           1999
                                                ---------       ---------
     1-4 unit residential mortgage loans        $ 971,145       $ 968,725
     Purchase discounts and premiums, net           6,894           6,444
     Allowance for loan losses                     (7,641)         (7,883)
                                                ---------       ---------
     Total residential mortgage loans, net      $ 970,398       $ 967,286
                                                =========       =========

At December 31, 2000 and 1999, residential mortgage loans on nonaccrual totalled
$1.6 million and $1.0 million, respectively.

For loans on nonaccrual at December 31, 2000 and 1999, the Company recognized
$59,000 and $27,000 of interest income during the years ended December 31, 2000
and 1999, respectively. The Company would have recognized $120,000 and $81,000
of interest income during the years ended December 31, 2000 and 1999,
respectively, on such loans had the borrowers performed under the contractual
terms of the loans.

At December 31, 2000, the Company's total residential mortgage loan portfolio
includes $816.6 million of loans secured by residential real estate properties
located in California. These loans may be subject to a greater risk of default
than other comparable residential mortgage loans in the event of natural hazards
or other adverse conditions in California that may affect the ability of
residential property owners in California to make payments of principal and
interest on underlying mortgages.

Activity in the allowance for loan losses for the years ended December 31, 2000,
1999 and 1998 is summarized as follows (in thousands):

                                            2000      1999        1998
                                          -------    -------    -------
Balance - beginning of year               $ 7,883    $ 8,413    $ 7,310
Provision for loan losses                    --         --        2,310
Charge-offs                                  (242)      (530)    (1,207)
                                          -------    -------    -------

Balance - end of year                     $ 7,641    $ 7,883    $ 8,413
                                          =======    =======    =======



(4) Preferred Stock

The liquidation value of each Series A Preferred Share is $25 plus any
authorized, declared and unpaid dividends. Except upon the occurrence of certain
events, the Series A Preferred Shares are not redeemable until January 31, 2002,
and are redeemable thereafter at the option of the Company. If, due to the
occurrence of certain events, the Series A Preferred Shares are redeemed prior
to January 31, 2002, the per share redemption price will be $25.00 plus any
authorized, declared and unpaid dividends. If redeemed during the twelve-month
period beginning January 31, 2002, the per share redemption price will be $26.14
plus any authorized, declared and unpaid dividends. This per share redemption
price incrementally declines annually after January 31, 2002 down to $25.00 plus
any authorized declared and unpaid dividends on January 31, 2007. Except under
certain limited circumstances, the holders of the Series A Preferred Shares have
no voting rights. The Series A Preferred Shares are automatically exchangeable
for a new series of preferred stock of the Bank upon the occurrence of certain
limited events.


                                      F-9
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

(5) Dividends

Holders of Series A Preferred Shares are entitled to receive, if, when and as
authorized and declared by the Board of Directors of the Company out of funds
legally available, noncumulative dividends at a rate of 9 1/8% per annum of the
initial liquidation preference ($25.00 per share). Dividends on the Series A
Preferred Shares, if authorized and declared, are payable quarterly in arrears
on the last day of March, June, September and December. Dividends paid during
each of the years ended December 31, 2000, 1999 and 1998 to the holders of the
Series A Preferred Shares totalled $45.6 million, respectively.

Dividends on common stock are paid if, when and as authorized and declared by
the Board of Directors out of funds legally available after all preferred
dividends have been paid. Common stock dividends paid during the years ended
December 31, 2000, 1999 and 1998 totalled $20.5 million, $18.6 million and $30.5
million, respectively.

(6) Related Party Transactions

The Company entered into the Servicing Agreement with FNMC pursuant to which
FNMC performs the actual servicing of the residential mortgage loans held by the
Company in accordance with normal industry practice. The Servicing Agreement can
be terminated without cause with at least 30 days written prior notice to FNMC
and payment to FNMC of a termination fee equal to 2% of the outstanding
principal balances of the loans. The servicing fee ranges from 0.25% to 0.50%
per year of the outstanding principal balances. Servicing fee expense totalled
$3.6 million for the year ended December 31, 2000 and $3.7 million for each of
the years ended December 31, 1999 and 1998, respectively. FNMC is also entitled
to a 1% disposition fee on the aggregate proceeds obtained in the sale of a
foreclosed residential mortgage loan. The Company recorded such disposition fees
totalling $12,000, $24,000 and $27,000 during the years ended December 31, 2000,
1999 and 1998, respectively.

In its capacity as servicer, FNMC holds mortgage loan payments received on
behalf of the Company in a custodial account at the Bank. The balance of this
account totalled approximately $15.1 million and $18.1 million at December 31,
2000 and 1999, respectively, and is included in due from affiliates.
Substantially all of such payments were passed through to the Company in January
2001 and 2000, respectively, as provided in the Servicing Agreement. At December
31, 2000 and 1999, trust funds of approximately $1.4 million and $1.5 million,
respectively, representing escrows received from borrowers, are on deposit in a
trust account at the Bank and are not included in the accompanying financial
statements.

As of December 31, 2000 and 1999 the Company owed the Bank approximately $56,000
and $96,000, respectively, in connection with the settlement of loans purchased
from the Bank, advances related to foreclosed real estate and expenses incurred
by the Company to be reimbursed to the Bank. These amounts were paid to the Bank
during January 2001 and 2000, respectively.

On September 29, 1998, the Company borrowed $11.4 million from the Bank for the
purpose of disbursing a portion of the common stock dividends paid during
September 1998. The note bore interest at 5% per annum, compounded annually. The
outstanding balance of this note was repaid in November 1998. Interest expense
totalling $89,000 was recorded by the Company with respect to this note during
the year ended December 31, 1998.

During the years ended December 31, 2000, 1999 and 1998, the Company purchased
mortgage loans totalling $160.7 million, $311.8 million and $352.1 million,
respectively, all of which were purchased from the Bank.

                                      F-10
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS


(7) Commitments and Contingencies

ARMs whose interest rates adjust monthly based upon the FHLB Eleventh District
Cost of Funds limit payment changes to no more than 7.5% of the payment amount
per year. This may lead to monthly payments which are less than the amount
necessary to amortize the loan to maturity at the interest rate in effect for
any particular month. In the event that the monthly payment is not sufficient to
pay interest accruing on the loan during the month, this deficiency is added to
the loan's principal balance (i.e., negative amortization). The total
outstanding principal balance for a particular loan is generally not allowed to
exceed 125% of the original loan amount as a result of negative amortization. If
the loan reaches its maximum amount, the loan payment is recalculated to the
payment sufficient to repay the unpaid principal balance in full at the maturity
date. At December 31, 2000 and 1999, residential mortgage loans included
approximately $172.2 million and $208.6 million, respectively, of principal
balance that had the potential to negatively amortize. At December 31, 2000 and
1999, approximately $18.9 million and $31.9 million, respectively, of
residential mortgage loans had negatively amortized such that the current
principal balance of the loan exceeds the original principal balance. The
current principal balance exceeded the original principal balance by
approximately $712,000 and $1.0 million, as of December 31, 2000 and 1999,
respectively.

(8) Fair Value of Financial Instruments

The following table represents the carrying amounts and fair values of the
Company's financial instruments at December 31, 2000 and 1999 (in thousands):

                                           2000                     1999
                                     -------------------   -------------------
                                     Carrying     Fair     Carrying      Fair
                                       Value      Value      Value       Value
                                       -----      -----      -----       -----
   Residential mortgage loans, net    $970,398   $968,513   $967,286   $956,369
   Short-term investments                8,526      8,526      5,485      5,485


The carrying amounts in the table are included in the accompanying balance sheet
under the captions residential mortgage loans, net and cash and cash
equivalents, respectively.

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, considerable judgment is required in estimating fair value
for certain items. The subjective factors include, among other things, the
estimated timing and amount of cash flows, risk characteristics, and interest
rates, all of which are subject to change.

Residential mortgage loans, net: For the purpose of estimating fair value,
residential mortgage loans are grouped by financial and risk characteristics
including fixed and variable interest rate terms and by performing and
non-performing categories. For performing residential mortgage loans, fair value
is estimated by forecasting principal and interest payments, both scheduled and
prepayments, and discounting these amounts using factors provided by secondary
market sources. For nonperforming residential mortgage loans, fair value is
estimated by discounting the forecasted cash flows using a rate commensurate
with the risk associated with the estimated cash flows, or underlying collateral
values. Because the Company owns the servicing rights associated with its
portfolio of residential mortgage loans, fair value of residential mortgage
loans has not been reduced by the value of the Servicing Agreement.

Short-term investments: The carrying value of short-term investments reflects
fair value.

                                      F-11
<PAGE>

                CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

(9) Selected Quarterly Financial Data

The following table represents selected quarterly financial data for the years
ended December 31, 2000 and 1999 (in thousands) (unaudited):

<TABLE>
<CAPTION>

                                                              Quarter Ended
                                          --------------------------------------------------------
                                          December 31,   September 30,   June 30,        March 31,
                                             2000           2000           2000            2000        Total 2000
                                           --------       --------       --------        --------       --------
<S>                                        <C>            <C>           <C>              <C>            <C>
      Interest income (1)                  $ 17,975       $ 17,674       $ 17,294        $ 16,913       $ 69,856
      Total noninterest expense (income)         14             33            (26)             40             61
                                           --------       --------       --------        --------       --------
      Net income                           $ 17,961       $ 17,641       $ 17,320        $ 16,873       $ 69,795
                                           ========       ========       ========        ========       ========

<CAPTION>

                                                              Quarter Ended
                                          --------------------------------------------------------
                                          December 31,   September 30,   June 30,        March 31,
                                             1999           1999           1999            1999        Total 1999
                                           --------       --------       --------        --------       --------
<S>                                        <C>             <C>            <C>            <C>            <C>
      Interest income (1)                  $ 16,514        $ 15,937       $ 16,048       $ 16,904       $ 65,403
      Total noninterest expense (income)       (238)              9             65             86            (78)
                                           --------       --------       --------        --------       --------
      Net income                           $ 16,752        $ 15,928       $ 15,983       $ 16,818       $ 65,481
                                           ========        ========       ========       ========       ========

</TABLE>

----------------------------
(1)       Gross interest income less servicing fee expense