<PAGE>


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

                                    ---------
                                    FORM 10-K
                                    ---------
(MARK ONE)

             X Annual Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act Of 1934

                   For the fiscal year ended December 31, 1999

            Transition Report Pursuant to Section 13 or 15(d) of the
                         Securities Exchange Act of 1934

                   For the transition period from ____ to ____
                        Commission file number 333-28037

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

           Delaware                                          95-4642135
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                          Identification No.)

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

        Registrant's telephone number, including area code: 415-904-1100
           Securities registered pursuant to Section 12(b) of the act:
       New York Stock and Pacific Exchanges: Common Stock, Par Value $1.00
           Securities registered pursuant to Section 12(g) of the act:
                        Warrants to Purchase Common Stock
                        Litigation Tracking Warrants(TM)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. X Yes ___ No

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

      The aggregate market value of the voting stock held by  non-affiliates  of
the registrant as of the close of business on February 29, 2000: $762,205,200

     The number of shares outstanding of the registrant's $1.00 par value common
stock, as of the close of business on February 29, 2000:  122,462,916  shares of
common stock.

                      Documents Incorporated by Reference:
              Portions of the Proxy Statement for the May 15, 2000
                     Annual Meeting of Stockholders Part III


                                     Page 1

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                            GOLDEN STATE BANCORP INC.
                         1999 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                 Page
                                                    PART I                                       ----
<S>      <C>                                                                                      <C>
ITEM 1.  Business..............................................................................   3
                 General.......................................................................   3
                 Employees.....................................................................   5
                 Competition...................................................................   5
                 Regulation and Supervision....................................................   5
ITEM 2.  Properties............................................................................   10
ITEM 3.  Legal Proceedings.....................................................................   11
ITEM 4.  Submission of Matters to a Vote of Security Holders...................................   12

                                                   PART II
ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters.................   13
ITEM 6.  Selected Financial Data...............................................................   14
ITEM 7.  Management's Discussion and Analysis
             of Financial Condition and Results of Operations..................................   17
                 Results of Operations.........................................................   17
                 Provision for Federal and State Income Taxes..................................   27
                 Balance Sheet Analysis........................................................   29
                     Investment Activities.....................................................   29
                     Sources of Funds..........................................................   31
                     Mortgage Banking Activities...............................................   35
                     Loan Portfolio............................................................   36
                     Problem and Potential Problem Assets......................................   43
                     Non-performing Assets.....................................................   46
                     Allowance for Loan Losses.................................................   48
                 Risk Management...............................................................   52
                     Asset and Liability Management............................................   52
                     Mortgage Banking Risk Management..........................................   55
                 Liquidity.....................................................................   56
                 Other Activities..............................................................   59
                 Capital Management............................................................   60
                 Impact of Inflation and Changing Prices.......................................   63
                 Year 2000.....................................................................   63
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk............................   64
ITEM 8.  Financial Statements and Supplementary Data...........................................   66
ITEM 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..   66

                                                   PART III
ITEM 10. Directors and Executive Officers of the Registrant....................................   67
ITEM 11. Executive Compensation................................................................   69
ITEM 12. Security Ownership of Certain Beneficial Owners and Management........................   69
ITEM 13. Certain Relationships and Related Transactions........................................   69

                                                   PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................   70

Signatures.....................................................................................   76

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

                                     Page 2

<PAGE>

     Forward-Looking Statements. The statements contained in this Report on Form
10-K that are not purely  historical are  forward-looking  statements within the
meaning of Section  27A of the  Securities  Act of 1933 and  Section  21E of the
Securities Exchange Act of 1934,  including  statements  regarding the Company's
expectations,   intentions,   beliefs  or   strategies   regarding  the  future.
Forward-looking statements include the Company's statements regarding liquidity,
provision for loan losses,  capital resources and anticipated  expense levels in
the MD&A. In addition,  in those and other portions of this document,  the words
"anticipate,"  "believe,"  "estimate,"  "expect,"  "intend,"  and  other similar
expressions,  as they relate to the  Company or the  Company's  management,  are
intended to identify  forward-looking  statements.  Such statements  reflect the
current  views of the Company with  respect to future  events and are subject to
certain risks,  uncertainties and assumptions.  It is important to note that the
Company's actual results could differ  materially from those described herein as
anticipated, believed, estimated or expected. Among the factors that could cause
results  to differ  materially  are the risks  discussed  in the "Risk  Factors"
section included in the Registration Statement on Form S-1 filed by Golden State
Holdings Inc. on September 29, 1998 (File No. 333-64597) and declared  effective
on November  12,  1998.  The Company  assumes no  obligation  to update any such
forward-looking statement.

                                     PART I

ITEM 1.   Business

General

     Golden State Bancorp Inc.  ("Golden  State" or the  "Company") is a holding
company whose only significant asset is its ownership of all of the common stock
of Golden  State  Holdings  Inc.  ("GS  Holdings"),  formerly  First  Nationwide
Holdings Inc. ("FN Holdings"),  which owns all of the common stock of California
Federal Bank, A Federal Savings Bank ("California Federal" or "Bank").

     The Company, which is headquartered in San Francisco,  California, provides
diversified  financial  services to consumers and small businesses in California
and Nevada.  The  Company's  principal  business  consists of  operating  retail
branches that provide deposit  products such as demand,  transaction and savings
accounts, and investment products such as mutual funds, annuities and insurance.
In addition,  it engages in mortgage banking activities,  including  originating
and purchasing 1-4 unit residential  loans for sale to various  investors in the
secondary market or for retention in its own portfolio,  and servicing loans for
itself and others. To a lesser extent,  the Company  originates and/or purchases
commercial  real estate,  commercial  and consumer loans for  investment.  These
operating  activities are financed  principally with customer deposits,  secured
short-term and long-term  borrowings,  including Federal Home Loan Bank ("FHLB")
advances, collections on loans, asset sales and retained earnings. Refer to note
22 of the Company's  Notes to Consolidated  Financial  Statements for additional
information about the Company's business segments.

     The Bank is  chartered  as a  federal  stock  savings  bank  under the Home
Owners'  Loan Act of 1933  ("HOLA").  It is  regulated  by the  Office of Thrift
Supervision  ("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").  The Bank has three principal
subsidiaries:  (a) First Nationwide Mortgage Corporation ("FNMC"),  its mortgage
banking  subsidiary;  (b) Auto One Acceptance  Corporation  ("Auto One"),  which
primarily engages in indirect sub-prime auto financing  activities;  and (c) Cal
Fed Investments ("CFI"),  which offers securities and insurance products to both
existing  and  prospective  customers  of the  Company.  CFI is  subject  to the
guidelines  established  by the OTS for  broker-dealer  subsidiaries  of savings
associations, and is a member of the National Association of Securities Dealers.
In addition,  CFI is  registered  as a  broker-dealer  with the  Securities  and
Exchange   Commission  and  the   Securities   Investor   Protection   Insurance
Corporation.  CFI receives  commission  revenue for acting as a broker-dealer on
behalf of its  customers,  but CFI does not maintain  customer  accounts or take
possession of customer securities.

                                     Page 3

<PAGE>

     The Company's revenues are derived from interest earned on loans,  interest
and dividends received on securities and  mortgage-backed  securities,  gains on
sales of loans and other  investments,  fees  received in  connection  with loan
servicing,   transaction  account  deposits,  securities  brokerage,  and  other
customer  service  transactions.  Expenses  primarily  consist  of  interest  on
customer  deposit  accounts,  interest on short-term  and long-term  borrowings,
compensation, occupancy and other general administrative expenses.

     As of December  31, 1999,  the Company had total  assets of $57.0  billion,
deposits of $23.0 billion and operated 349 retail  branch  offices in California
and Nevada.

     Ownership Structure

     Prior to the Golden State Acquisition (as defined herein), First Nationwide
(Parent) Holdings Inc.  ("Parent  Holdings") owned 80% of the common stock of FN
Holdings and Hunter's Glen/Ford Ltd.  ("Hunter's  Glen"), a limited  partnership
controlled by Gerald J. Ford, Chairman of the Board, Chief Executive Officer and
a Director of the Company, owned 20% of the common stock of FN Holdings.  Parent
Holdings was  indirectly  owned by Mafco  Holdings Inc.  ("Mafco  Holdings"),  a
corporation  controlled  by Ronald  O.  Perelman,  a  Director  of the  Company.
Pursuant to the Golden State Acquisition, Parent Holdings was merged into Golden
State and FN Holdings was merged into GS  Holdings.  In  consideration  thereof,
Golden State issued  41,067,270  shares of common stock to a subsidiary of Mafco
Holdings that directly  owned Parent  Holdings and  15,655,718  shares of common
stock to Hunter's Glen which, in the aggregate,  constituted 47.9% of the common
stock  outstanding,   immediately  after  giving  effect  to  the  Golden  State
Acquisition.  Subsequent to the Golden State Acquisition,  Mafco Holdings caused
the  41,067,270  shares to be  transferred  to another of its  indirectly  owned
subsidiaries, GSB Investments Corp. ("GSB Investments"). In addition, the Golden
State Merger agreement  provided that Mafco Holdings and Hunter's Glen, or their
successors,  were  entitled to receive  additional  shares of common stock under
certain  circumstances,  which could cause the actual  ownership  percentages of
Mafco  Holdings  and  Hunter's  Glen to change.  See "--  Capital  Management  -
Issuable Shares."

     Immediately prior to the consummation of the Golden State Acquisition,  the
charter of the Bank was  amended to  provide  that each share of Bank  Preferred
Stock (as defined  herein) is  entitled to one vote,  and each CALGZ (as defined
herein) and each CALGL (as defined  herein) has 1/5 of one vote with the holders
of the common stock of the Bank,  the Bank Preferred  Stock,  the CALGZs and the
CALGLs voting together as a single class. In addition,  after giving effect to a
stock split of the common stock of the Bank,  GS Holdings'  ownership of 100% of
the common  stock  represents  approximately  90% of the total  voting  power of
voting  securities of the Bank. In addition to its common stock ownership of the
Bank, GS Holdings owns all of the Bank Preferred Stock with a total  liquidation
preference of $473.2 million.

     Business Strategy

     Merger, acquisition, and divestiture activities have played a major role in
the Company's business strategy for the past several years.  (Refer to note 3 of
the  Company's   Notes  to  Consolidated   Financial   Statements  for  specific
information about these mergers,  acquisitions, and divestitures.) The Company's
business strategy has been executed through three types of transactions:

      o  Acquisitions  which complemented the Company's  geographic and business
         line strategies;
      o  Divestitures  of branches  outside  the  Company's  primary  geographic
         region; and
      o  Expansion of the Company's mortgage servicing operations.

     These transactions have expanded and strengthened the Company's presence in
the West  Coast,  providing  additional  economies  of scale  and  diversity  of
operations  within its target markets.  The Company  believes that its strategic
acquisition and divestiture activity has enhanced the value of its franchise and
improved its operating  efficiency  through the  consolidation or elimination of
duplicative back office operations and administrative and management  functions.
Further,  because  the  Company  had  excess  servicing  capacity  and  existing
servicing  expertise,  it was able to accommodate the loan servicing  portfolios
acquired  in these  transactions  without  the need for  significant  additional
investment.

                                     Page 4

<PAGE>

     The Company's  strategic plan for the year 2000 aims at achieving increased
profitability, revenue diversity and growth while preserving credit quality. Key
elements of the business plan include:

o     California Federal intends to maintain its core  competencies,  including:
      firm expense control and operating efficiency,  risk management discipline
      and effective capital management.

o     The Company  expects to continue to build  franchise  value by focusing on
      customer  service  and  cross-selling   opportunities,   enhanced  product
      offerings and improved channel delivery. The Company will seek to maintain
      its mortgage  banking  efficiency while reducing the costs to service each
      account. In addition, the Bank will continue its strong and prudent growth
      of its core  banking  businesses  including  the sale of mutual  funds and
      insurance annuity products,  commercial banking, and auto, home equity and
      commercial retail estate lending.

o     California  Federal  plans to  continue  to  improve  profitability  as it
      continues its  transition  to a more  "bank-like"  institution.  This plan
      contemplates  an increase in demand deposit and transaction  accounts,  as
      well as growth of various retail and commercial products. In addition, the
      Bank  will  focus  on  increasing  its  percentage  of  non-single  family
      residential loans.

Employees

     At  December  31,  1999,  Golden  State  and  its  subsidiaries  had  8,102
employees,  compared  with 8,229  employees at December 31, 1998.  The Company's
employees are not represented by any collective  bargaining group and management
considers its relations  with its employees to be good.  The Company  provides a
comprehensive  employee  benefits program including health and welfare benefits,
long and short-term disability insurance,  and life insurance.  The Company also
offers  employees a defined  contribution  investment  plan which is a qualified
plan under Section 401(a) of the Internal Revenue Code.

Competition

     The Company  experiences  significant  competition  in both  attracting and
retaining  deposits  and in  originating  real estate and  consumer  loans.  The
Company, through the Bank, competes with other savings associations,  commercial
banks,  mortgage banking  companies,  finance  companies,  insurance  companies,
credit unions,  money market mutual funds and brokerage  firms in attracting and
retaining  deposits.  Competition for deposits from large  commercial  banks and
savings  associations  is  particularly  strong.  Many of the  nation's  savings
associations and commercial banks have a significant number of branch offices in
the areas in which the Company operates.

     In addition, there is strong competition in originating and purchasing real
estate and consumer loans, principally from other savings and loan associations,
commercial banks,  mortgage banking  companies,  insurance  companies,  consumer
finance companies,  pension funds and commercial finance companies.  The primary
factors  in  competing  for loans are the  quality  and  extent  of  service  to
borrowers and brokers,  economic  factors such as interest rates,  interest rate
caps, rate adjustment provisions, loan maturities, loan-to-value ("LTV") ratios,
loan fees and the amount of time it takes to process a loan from  receipt of the
loan  application  to date of funding.  The Company's  future  performance  will
depend on its ability to originate a sufficient  volume of mortgage loans in its
local  market  areas and through its  wholesale  network and, if it is unable to
originate a  sufficient  volume of  mortgage  loans,  to  purchase a  sufficient
quantity  of  high-quality  mortgage-backed  securities  or loans with  adequate
yields.  There can be no assurance  that the Company will be able to effect such
actions on satisfactory terms.

Regulation and Supervision

     General

     Golden  State is a savings and loan holding  company  within the meaning of
the  HOLA  and,  as  such,  is  registered  with  the  OTS  and  is  subject  to
comprehensive  OTS  regulation.  The Bank is a federally  chartered  and insured
stock savings bank subject to extensive  regulation and  supervision by the OTS,
as the  primary  federal  regulator  of  savings  associations,  and to a lesser
degree, the FDIC.

                                     Page 5

<PAGE>

     The federal  banking laws contain  numerous  provisions  affecting  various
aspects of the business and operations of savings  associations  and savings and
loan holding  companies.  The primary  purpose of the statutory  and  regulatory
scheme is to protect depositors,  the financial institutions,  and the financial
system as a whole.  The  following  description  is qualified in its entirety by
references to the particular statutory or regulatory provisions or proposals. It
is not  intended  to be a  complete  description  of these  provisions  or their
effects on Golden State or the Bank.

     Regulation of Golden State

     Holding Company Activities

     Golden State is  registered  and  qualified  as a unitary  savings and loan
holding company. As such, it is regularly examined by and files periodic reports
with the OTS.  Generally,  there are few  restrictions  on the  activities  of a
unitary  savings  and  loan  holding  company  and its  non-savings  association
subsidiaries.  If Golden State  ceases to be a unitary  savings and loan holding
company,  by, for example,  acquiring  another savings  association  that is not
merged with the Bank in a non-supervisory  transaction, the activities of Golden
State and its non-savings  association  subsidiaries would thereafter be subject
to substantial restrictions.

     Holding Company Acquisitions

     The HOLA and OTS  regulations  generally  require  that a savings  and loan
holding  company obtain OTS approval before  acquiring,  directly or indirectly,
the  ownership or control of any other savings  association  or savings and loan
holding  company,  or  substantially  all of the  assets  or more than 5% of the
voting shares  thereof.  These  provisions  also require OTS approval before any
director or officer of a savings and loan holding company, or any individual who
owns or controls  more than 25% of the voting  shares of such  holding  company,
acquires control of any savings association not a subsidiary of such savings and
loan holding company.

     Under prior law, any company,  regardless  of the nature of the business in
which it was  engaged,  could  qualify  as a unitary  savings  and loan  holding
company.  Legislation  enacted  in 1999  provides  that any  company  engaged in
activities not permitted for a financial  holding company under the Bank Holding
Company Act may no longer qualify as a unitary savings and loan holding company.
Existing  unitary savings and loan holding  companies  engaged in  non-financial
related  activities  are  "grandfathered"  and may  continue  to  engage in such
activities.  However,  such rights are not transferable to any other company not
otherwise qualified to own or control a savings association.

     Regulation of the Bank

     Regulatory System

     As a federal savings bank,  lending activities and other investments of the
Bank must comply with various statutory and regulatory requirements.  California
Federal  is  regularly  examined  by the  OTS and  must  file  periodic  reports
concerning  its  activities  and  financial  condition.  Although the OTS is the
Bank's primary regulator,  the FDIC has "backup enforcement  authority" over the
Bank as the insurer (through the SAIF) of the Bank's deposit accounts.

     Liquid Assets

     Under OTS regulations,  for each calendar quarter, a savings association is
required to maintain an average daily balance of liquid assets  (including cash,
certain  time  deposits  and savings  accounts,  bankers'  acceptances,  certain
government  obligations and certain other investments) not less than a specified
percentage of the average daily  balance of its net  withdrawable  accounts plus
short-term  borrowings (its liquidity base) during the preceding calendar month.
This liquidity  requirement  was lowered to 4% from 5% on November 24, 1997. The
liquidity requirement may be changed by the OTS to any amount between 4% and 10%
depending  upon  certain  factors.  The Bank has  maintained  liquid  assets  in
compliance with the regulations in effect throughout 1999, 1998 and 1997.

                                     Page 6

<PAGE>

     Regulatory Capital Requirements

     OTS capital  regulations  require  savings  associations to satisfy minimum
capital standards:  an 8% risk-based capital requirement,  a 4% leverage capital
requirement and a 1.5% tangible capital  requirement.  Savings associations must
meet  each of these  standards  in order to be  deemed  in  compliance  with OTS
capital requirements.  In addition, the OTS may require a savings association to
maintain  capital  above the minimum  capital  levels.  A savings  association's
failure to maintain capital at or above the minimum capital  requirements may be
deemed an unsafe and unsound practice and may subject the savings association to
enforcement actions and other proceedings.

     The Bank currently satisfies all applicable regulatory capital requirements
and is not  presently  subject  to any  enforcement  action or other  regulatory
proceeding with respect to its compliance with regulatory capital  requirements.
For further information,  see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Management."

     Prompt Corrective Action

     The prompt corrective  action regulation of the OTS,  promulgated under the
Federal Deposit Insurance Corporation Improvement Act ("FDICIA"),  requires that
the OTS take certain actions and authorizes other discretionary  actions against
a  savings  association  that  falls  within  certain  undercapitalized  capital
categories specified in the regulation.

     The regulation establishes five categories of capital classification: "well
capitalized,"  "adequately  capitalized,"   "undercapitalized,"   "significantly
undercapitalized," and "critically  undercapitalized." Under the regulation, the
ratio of total capital to  risk-weighted  assets,  core capital to risk-weighted
assets and the leverage  capital  ratio are used to  determine an  association's
capital classification.  A "well capitalized"  institution must maintain a ratio
of total  capital  to  risk-based  assets  of 10%,  a ratio of core  capital  to
risk-weighted  assets of 6%, a  leverage  capital  ratio of 5%,  and must not be
subject to an OTS order or directive to meet a specific higher capital level.

     In general,  the prompt corrective  action regulation  prohibits an insured
depository  institution  from declaring any dividends,  making any other capital
distribution,  or paying a management fee to a controlling  person if, following
the  distribution or payment,  the institution  would be within any of the three
undercapitalized  categories.  In addition,  adequately capitalized institutions
must  obtain an FDIC  waiver  before  accepting  Brokered  Deposits  (as defined
herein) and are subject to  restrictions  on the interest rates that may be paid
on such deposits. Institutions that are considered "undercapitalized," "severely
undercapitalized,"   or   "critically   undercapitalized"   become   subject  to
increasingly   serious  supervisory  actions  (as  capital  levels  deteriorate)
including increased monitoring, mandatory capital restoration plans, limitations
on  business  activities,   and  ultimately,  the  placement  of  a  "critically
undercapitalized" association into conservatorship or receivership.

     The Bank met the capital  requirements of a "well capitalized"  institution
under the FDICIA prompt corrective action regulation as of December 31, 1999 and
is not subject to any  enforcement  action or other  regulatory  proceeding with
respect to the prompt corrective action regulation. See "Management's Discussion
and  Analysis  of  Financial   Condition  and  Results  of   Operations--Capital
Management."

     Enforcement Powers

     The OTS and,  under  certain  circumstances,  the  FDIC,  have  substantial
enforcement authority with respect to savings associations,  including authority
to bring various  enforcement  actions against a savings  association and any of
its  institution-affiliated  parties. The Bank is not subject to any OTS or FDIC
enforcement proceedings.

     Capital Distribution Regulation

     In addition to the prompt corrective action  restrictions,  OTS regulations
limit "capital  distributions" by savings  associations.  Capital  distributions
include dividends and payments for stock repurchases and cash-out mergers.

                                     Page 7

<PAGE>

     Under  OTS  regulations  in  effect  prior  to  April  1,  1999,  a  Tier 1
association  that was a  subsidiary  of a savings and loan  holding  company was
permitted to make a capital distribution with 30 days prior notice to the OTS in
an  amount  not  exceeding  (a) the sum of the  association's  current  year net
earnings plus the amount that would reduce by one-half its surplus capital ratio
at the beginning of the calendar year or (b) 75% of its net income over the most
recent four quarter period. A capital  distribution in a greater amount required
an application to and prior OTS approval. Under this regulation,  an association
qualified as a Tier 1 association if it met its capital requirements both before
and after a proposed  distribution  and had not been notified by the OTS that it
was in need of more than  normal  supervision.  The Bank  qualified  as a Tier 1
institution during the quarter ended March 31, 1999. The OTS could also prohibit
a  proposed  capital  distribution  that  would  otherwise  be  permitted  if it
determined that the distribution would constitute an unsafe or unsound practice.

     Effective on April 1, 1999, the OTS revised its capital distribution rules.
Under the revised rules, a savings institution that is a subsidiary of a savings
and loan holding company must notify the OTS of a capital  distribution at least
30 days prior to the declaration of a capital  distribution,  provided the total
of all capital  distributions  made during that  calendar  year  (including  the
proposed distribution) does not exceed the sum of the institution's year-to-date
net  income  and its  retained  income for the  preceding  two years.  A capital
distribution  in a greater  amount  requires an  application  to the OTS and OTS
approval  prior to distribution.  The OTS may disapprove a capital  distribution
notice  or  application  if  the  institution  is  undercapitalized  or  if  the
distribution would raise other safety and soundness concerns. The Bank's capital
distributions have complied with the capital distribution rule.

     Dividend Policy

     The  dividend  policy  of the  Bank  complies  with  applicable  legal  and
regulatory  restrictions.  Before  declaring any dividend,  the directors of the
Bank consider the following factors:

     (a)  the quality and stability of the Bank's net income,

     (b)  the availability of liquid assets to make dividend payments,

     (c)  the level of earnings retention as it impacts the Bank's capital needs
          and projected  growth and funding levels,  both internal and external,
          and

     (d)  the adequacy of capital after the payment of a dividend.

     Under the Bank's dividend  policy,  a dividend will not be declared or paid
which would:

     (a)  cause the capital  level of the Bank to be reduced  below  "adequately
          capitalized" levels, or

     (b)  together with any other  dividends  declared  during the same calendar
          year,  exceed  100% of the net income to date for that  calendar  year
          plus retained net income for the preceding two years, except as may be
          permitted by regulation in extraordinary circumstances.

     For further  information  regarding dividend payments,  refer to note 25 of
the Notes to Consolidated Financial Statements.

     Tax Effects of Dividend Payments by the Bank

     Dividend distributions made to GS Holdings, as the sole owner of the Bank's
common and preferred  stock, in each case in excess of the greater of the Bank's
current or accumulated  earnings and profits,  as well as any  distributions  in
dissolution or in redemption or liquidation of stock,  excluding preferred stock
meeting certain conditions, may cause the Bank to recognize a portion of its tax
bad debt  reserves  as income.  Accordingly,  this could  cause the Bank to make
payments to GS Holdings under the Tax Sharing Agreement (as defined herein).  As
a result,  GS Holdings may be required to make  payments to the Company and, for
tax  periods  prior to the  September  11, 1998  deconsolidation  from the Mafco
Holdings  group,  the  Company  may be  required  to make tax  payments to Mafco
Holdings, under the Tax Sharing Agreement.

                                     Page 8

<PAGE>

     Qualified Thrift Lender Test

     In general,  savings  associations are required to maintain at least 65% of
their portfolio assets in certain qualified thrift investments,  primarily loans
and other  investments  related to  residential  real estate and  certain  other
assets  (the "QTL  test").  A  savings  association  that  fails the QTL test is
subject to  substantial  restrictions  on  activities  and to other  significant
penalties.

     Legislation  enacted  in 1996  expanded  the QTL  test to  provide  savings
associations with greater  authority to lend and diversify their portfolios.  In
particular,  credit  card  and  educational  loans  may now be  made by  savings
associations  without regard to any  percentage-of-assets  limit, and commercial
loans may now be made in an amount up to 10  percent  of total  assets,  plus an
additional 10 percent for small business loans. Loans for personal,  family, and
household  purposes  (other than credit card,  small  business,  and educational
loans) are now included  without limit with other assets that, in the aggregate,
may account for up to 20% of total assets.  At December 31, 1999,  approximately
93.29%  of the  Bank's  portfolio  assets  were  qualified  thrift  investments,
satisfying the QTL test.

     Applicable law also permits a savings association to qualify as a qualified
thrift lender by meeting the asset  composition  test under the Internal Revenue
Code for a "domestic  building and loan  association."  The Bank  currently is a
domestic  building and loan  association as defined in the Internal Revenue Code
and, accordingly, also qualifies under this alternative test.

     FDIC Assessments

     The  deposits  of the  Bank are  insured  by the  SAIF of the  FDIC,  up to
applicable limits,  and are subject to deposit premium  assessments by the SAIF.
Under  the  FDIC's  risk-based  insurance  system,  SAIF-assessed  deposits  are
currently  subject  to  insurance  premiums  of  between 0 and 27 basis  points,
depending upon the institution's capital position and other supervisory factors.
The rate applicable to the Bank at December 31, 1999 was 0 basis points.

     Since January 1997,  institutions with Bank Insurance Fund ("BIF") deposits
have been required to share the cost of funding debt  obligations  issued by the
Financing  Corporation  ("FICO"),  a  corporation  established  by  the  federal
government in 1987 to finance the  recapitalization  of the Federal  Savings and
Loan  Insurance  Corporation  ("FSLIC").  Until  December  31,  1999,  the  FICO
assessment  rate for BIF deposits was only  one-fifth of the rate  applicable to
SAIF  deposits.  Consequently,  the  annual  FICO  assessments  added to deposit
insurance  premiums were 5.0 basis points for SAIF deposits  during 1999.  Since
January  1,  1997,  FICO  payments  have  been  paid  directly  by SAIF  and BIF
institutions in addition to deposit insurance assessments.  Effective January 1,
2000, the FICO  assessment  rate is equal for SAIF and BIF deposits.  The Bank's
SAIF plus FICO  assessment for the first quarter of 2000 was  approximately  2.1
basis points (annualized).

     Affiliate Restrictions

     Transactions between a savings association and its "affiliates" are subject
to quantitative and qualitative  restrictions  under Sections 23A and 23B of the
Federal  Reserve Act.  Affiliates of a savings  association  include the savings
association's  holding  companies  and companies  under common  control with the
savings association, but generally exclude the association's subsidiaries.

     Sections  23A and 23B require  generally  that all  transactions  between a
savings  association  and its  affiliates be on terms and  conditions  and under
circumstances that are at least as favorable to the savings association as those
prevailing  at  the  time  for  comparable   transactions  with   non-affiliated
companies.  Section 23A also limits the extent to which a savings association or
its  subsidiaries  may  engage  in  certain  "covered   transactions"  with  its
affiliates. A "covered transaction" is defined to include a loan or extension of
credit  to an  affiliate;  a  purchase  of  investment  securities  issued by an
affiliate;  with certain exceptions, a purchase of assets from an affiliate; the
acceptance  of  securities  issued by an affiliate as  collateral  for a loan or
extension of credit to any party; or the issuance of a guarantee,  acceptance or
letter of credit on behalf of an affiliate.  During 1999,  1998,  and 1997,  the
Bank had no covered transactions.

                                     Page 9

<PAGE>

     Non-Investment Grade Debt Securities

     Savings  associations and their  subsidiaries are prohibited from investing
in any corporate debt security that, at the time of acquisition, is not rated in
one of the four highest rating categories by at least one nationally  recognized
statistical rating organization.  The Bank does not own any non-investment grade
corporate debt securities.

     Community Reinvestment Act and the Fair Lending Laws

     Savings associations have a responsibility under the Community Reinvestment
Act ("CRA") and related OTS  regulations  to help meet the credit needs of their
communities,  including low- and moderate-income neighborhoods. In addition, the
Equal  Credit  Opportunity  Act and the Fair  Housing Act  (together,  the "Fair
Lending Laws") prohibit lenders from  discriminating  in their lending practices
on the basis of  characteristics  specified in those statutes.  An association's
failure to comply with the Fair Lending Laws could result in enforcement actions
by the OTS, as well as other federal  regulatory  agencies and the Department of
Justice.  The  Bank  received  an  "Outstanding"  rating  in its  most  recently
completed July 1998 CRA examination.

     Proposed Regulatory Legislation

     From time to time, Congress has considered proposed  legislation that could
substantially alter the regulation of the Bank and the Company.  These proposals
have  included  the  merger of the BIF and SAIF,  the merger of the OTS with the
Office  of the  Comptroller  of the  Currency,  and the  conversion  of  savings
associations to national bank charters. The Company cannot determine whether, or
in what form,  such  legislation  may  eventually be enacted and there can be no
assurance  that  any  legislation   that  is  enacted  would  contain   adequate
grandfather rights for the Bank and its parent holding companies.

ITEM 2.  PROPERTIES

     The  executive  offices of the Bank and of the  Company  are located at 135
Main Street, San Francisco, California, 94105, and its telephone number is (415)
904-1100.  The Bank leases  approximately  97,000 square feet in the building in
which its  executive  offices are located,  under a ten-year  lease  expiring in
2001. In addition,  the Bank leases two facilities near  Sacramento,  California
including   approximately   216,000   square   feet   in   a   multiple-building
administrative   facility   under  a  ten-year   lease   expiring  in  2001  and
approximately  46,000  square feet in another  administrative  facility  under a
lease  expiring  in 2004.  The  Company and its  subsidiaries  lease  additional
executive and administrative office space in Dallas which includes approximately
128,000 square feet of space under leases expiring in 2000, 2002, 2005 and 2007.

     As part of its 1997 acquisition of the former California Federal Bank ("Cal
Fed Acquisition"), the Bank assumed the lease on executive offices and an office
building in Los Angeles of  approximately  513,000 square feet. The Bank vacated
all but 44,000 square feet of this facility  during the first half of 1997.  The
office lease was to expire in 2007,  however,  the Bank terminated its remaining
liability on all space other than approximately 44,000 square feet by payment of
approximately  $28  million.  The  lease on the  remaining  44,000  square  feet
terminates in 2003. In addition, Cal Fed Bancorp Inc., prior to the consummation
of the Cal Fed Acquisition ("Old California Federal"), had certain operating and
administrative departments in a leased facility containing approximately 225,000
square feet located in Rosemead,  California. The Bank vacated and subleased the
Rosemead  facility  during the first half of 1997. The Rosemead lease expires in
2008.

     As part of the  merger  with  Golden  State  Bancorp  Inc.  ("Golden  State
Acquisition"),  the Company acquired ten office buildings in southern California
containing approximately 310,000 square feet of space. As of December, 1999, the
Company plans to utilize  159,000  square feet of this space for its call center
and loan servicing operations, and to sell the remaining 151,000 square feet. In
addition,  the Company assumed the leases on executive offices and branch office
buildings throughout California totalling  approximately 330,000 square feet. As
of December 31, 1999, leases totalling  172,000 square feet had expired.  Of the
remaining 158,000 square feet, the Company vacated all but approximately  43,000
square feet. It is the Company's intent to sublease all office space with leases
not expiring within the next year.

                                    Page 10

<PAGE>

     At December 31, 1999, the Bank operated a total of 349 retail  branches and
maintained 54 vacant branch  facilities  which were  consolidated as a result of
certain branch purchases, the 1996 Acquisitions (as defined herein), the Cal Fed
Acquisition,  the merger with  Glendale  Federal Bank ("Glen Fed  Merger"),  and
various  consolidations  of  operations  to West  Sacramento.  Of the 349  total
operating  retail  branches,  127 were owned and 222 were leased.  Some of these
retail  branches  are  multi-purpose  facilities,  housing loan  production  and
administrative  facilities  in  addition  to  retail  space.  Of the  54  vacant
facilities (2 owned and 52 leased,  all in  California),  16 locations have been
subleased.

     At December 31, 1999, there were 13 loan production  offices,  of which two
were  owned  and 11 were  leased,  and  which  included  three  offices  housing
operations  acquired in the 1995 and 1996 purchase of servicing  portfolios from
Lomas  Mortgage  USA,  Inc.  (the  "1995  LMUSA  Purchase"  and the "1996  LMUSA
Purchase," respectively,  and collectively,  the "LMUSA Purchases"). All offices
currently house wholesale lending operations.

     In addition,  the Bank  operated 22 separate  administrative  facilities (6
owned and 16 leased) and  maintained 13 vacant  administrative  facilities  (all
leased).  Of the 13 vacant  administrative  facilities,  5 were  subleased.  The
administrative  facilities  include a 230,000  square foot owned building and an
approximately 34,000 square foot leased building in Frederick,  Maryland,  which
house FNMC's operations,  and two buildings in Dallas with approximately  73,000
square feet of leased space, one of which houses Auto One.

     A  state-by-state   breakdown  of  all  retail   branches,   administrative
facilities and loan production offices operated by the Bank at December 31, 1999
is shown in the following table:

<TABLE>
<CAPTION>
                            Branches             Administrative Facilities    Loan Production Facilities
                     -----------------------    --------------------------    --------------------------
                     Owned   Leased   Vacant     Owned   Leased   Vacant       Owned   Leased   Vacant
                     -----   ------   ------     -----   ------   ------       -----   ------   ------
<S>                    <C>      <C>     <C>       <C>      <C>      <C>         <C>       <C>     <C>
Arizona                --       --      --        --       --       --          --        1       --
California            120      213      53         6       12       12           1        6       --
Florida                --       --      --        --       --        1          --       --       --
Maryland               --       --      --        --       --       --           1        1       --
Montana                --       --      --        --       --       --          --        1       --
Nevada                  7        9       1        --       --       --          --        1       --
Pennsylvania           --       --      --        --       --       --          --        1       --
Texas                  --       --      --        --        4       --          --       --       --
                      ---      ---      --        --       --       --          --       --       --
      Total           127      222      54         6       16       13           2       11       --
                      ===      ===      ==        ==       ==       ==          ==       ==       ==
</TABLE>

ITEM 3. Legal Proceedings

California Federal Goodwill Litigation

     The Bank is the plaintiff in a lawsuit against the United States Government
(the  "Government"),  California  Federal  Bank v. United  States,  Civil Action
92-138 (the "California Federal Goodwill Litigation"). In the California Federal
Goodwill Litigation,  the Bank alleged,  among other things, that the Government
breached  certain  contractual  commitments  regarding  the  computation  of its
regulatory capital for which the Bank sought damages and restitution. The Bank's
claims  arose from  changes,  mandated  by the  Financial  Institutions  Reform,
Recovery and Enforcement Act of 1989  ("FIRREA"),  with respect to the rules for
computing Old California Federal's regulatory capital.

     In late 1997, a United States Court of Federal Claims (the "Claims  Court")
Judge ruled in favor of the Bank's motion for partial summary judgment as to the
Government's liability to the Bank for breach of contract, and a formal order in
that regard was subsequently  issued.  In late 1998, a second Claims Court Judge
ruled that California Federal could not meet its burden for proving lost profits
damages  and  ordered  that the case  proceed  to trial on the  damage  issue of
restitution and reliance. The trial began in January 1999 and concluded in March
1999.

                                    Page 11

<PAGE>

     On April 16,  1999,  this second  Claims Court Judge issued his decision on
the damages claim  against the  Government in the  California  Federal  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$23.0 million. The summary judgment liability decision by the first Claims Court
Judge has been  appealed by the  Government  and the damage  award by the second
Claims Court Judge has been appealed by the Bank. All appellate briefs have been
filed and it is anticipated  that oral argument in the Federal  Circuit Court of
Appeals  will take  place in  conjunction  with the  appellate  argument  in the
Glendale Goodwill Litigation (as defined herein) in mid 2000.

Glendale Goodwill Litigation

     By virtue of the Glen Fed Merger,  the Bank is also a plaintiff  in a claim
against the United States in a second lawsuit,  Glendale  Federal Bank v. United
States,  No.90-772C  (the  "Glendale  Goodwill  Litigation").  In  the  Glendale
Goodwill  Litigation,  Glendale  Federal  sued the  Government  contending  that
FIRREA's  treatment  of  supervisory   goodwill  constituted  a  breach  by  the
Government of its 1981  contract with the Bank,  under which the Bank had merged
with a Florida  thrift and was permitted to include the goodwill  resulting from
the merger in its regulatory  capital.  In 1992, the Claims Court found in favor
of Glendale Federal's position,  ruling that the Government breached its express
contractual  commitment  to  permit  Glendale  Federal  to  include  supervisory
goodwill in its  regulatory  capital and that  Glendale  Federal was entitled to
seek financial compensation.

     The trial began in February 1997 and concluded in September  1998. On April
9,  1999,  the  Claims  Court  issued  its  decision  in the  Glendale  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$908.9 million.  This decision has been appealed by the Government and the Bank.
All  appellate  briefs have been filed by both the  Government  and the Bank and
oral argument on the appeal will be scheduled in  conjunction  with the argument
in the California Federal Goodwill Litigation in mid 2000.

Other Litigation

     In addition to the California Federal Goodwill  Litigation and the Glendale
Goodwill  Litigation,  Golden State and its  subsidiaries  are involved in other
legal  proceedings on claims incidental to the normal conduct of its businesses.
Although  it is  impossible  to predict  the  outcome of any  outstanding  legal
proceedings,  management  believes  that  such  legal  proceedings  and  claims,
individually,  or in the  aggregate,  will not have a material  effect on Golden
State, GS Holdings or the Bank.

ITEM 4. Submission of Matters to a Vote of Security Holders

     None.

                                    Page 12

<PAGE>

                                     PART II

ITEM 5.  Market  for the  Registrant's  Common  Equity and  Related  Stockholder
         Matters

     The common  stock of Golden  State  trades on the New York  Stock  Exchange
("NYSE")  under the  symbol  "GSB" and is also  listed on the  Pacific  Exchange
("PE"). The following table sets forth, for the periods indicated,  the range of
high and low sales prices of the  Company's  common stock and for the LTWTMs (as
defined herein):

                                   Common Stock           LTW(TM)s
                                ----------------      ---------------
                                 High      Low         High     Low
                                 ----      ---         ----     ---
Year Ended December 31, 1999
       First Quarter            $24.50    $16.50      $5.56    $4.06
       Second Quarter            26.56     21.63       5.34     1.14
       Third Quarter             23.56     17.38       1.75     1.13
       Fourth Quarter            22.25     16.25       1.25      .69

Year Ended December 31, 1998
       First Quarter             39.38     29.88         --       --
       Second Quarter (a)        35.63     29.75       7.13     4.63
       Third Quarter             32.63     15.56       5.63     3.88
       Fourth Quarter            20.88     10.00       5.22     3.50

---------------
(a)  Golden State  distributed  its LTW(TM)s to stockholders on the basis of one
     LTW(TM) for each  outstanding  share,  on May 29, 1998.  See note 26 of the
     Company's Notes to Consolidated  Financial Statements.  High and low prices
     of the  Company's  common stock do not include the  separate  values of the
     LTW(TM)s  subsequent  to the first  quarter of 1998.  The  LTW(TM)s are not
     common equity securities and have been included for informational  purposes
     only.

     At the close of business on February 29, 2000,  the Company's  common stock
and LTW(TM) prices were $12.75 and $1.06 per share, respectively.

Number of Holders of Common Stock

     At February  29,  2000,  122,462,916  shares of Company  common  stock were
outstanding  and held by 5,994  holders of record.  Also at February  29,  2000,
72,584,382 LTW(TM)s were outstanding and held by 5,559 holders of record.

Dividends

     No dividends were paid in 1999 and 1998.  During 1997,  dividends on Golden
State's  common  stock  totalled  $22.7  million.  See  discussion  of  dividend
restrictions  in  note  25 of the  Company's  Notes  to  Consolidated  Financial
Statements.

                                    Page 13

<PAGE>

ITEM 6. Selected Financial Data

     The data presented below represents selected financial data relative to the
Company for each of the years in the five-year period ended December 31, 1999.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                        ----------------------------------------------------------
                                                        1999 (1)     1998 (2)     1997 (3)    1996 (4)      1995
                                                        ----         ----         ----        ----          ----
                                                               (dollars in millions, except per share data)
<S>                                                     <C>          <C>          <C>          <C>          <C>
Selected Operating Data
Interest income                                         $3,652       $2,585       $2,128       $1,246       $1,083
Interest expense                                         2,466        1,820        1,499          848          735
Net interest income                                      1,186          765          629          398          348
Provision for loan losses                                   10           40           80           40           37
Noninterest income                                         419          441          340          642          144
Noninterest expense                                        926          764          651          492          333
Income before income taxes, minority interest
    and extraordinary items                                669          402          238          508          122
Income tax expense (benefit) (5)                           186         (107)          41          (76)         (58)
Minority interest: provision in lieu of
    income tax expense                                     123           --           --           --           --
Minority interest: other (6)                                39          111          102           48           35
Income before extraordinary items                          321          398           95          536          145
Extraordinary items - gain (loss) on early
    extinguishment of debt, net                              2         (150)          --           (2)           2
Net income available to common stockholders                323          248           95          534          147

Earnings per common share:
   Basic:
        Income before extraordinary items                $2.45        $5.00        $1.67        $9.44        $2.56
        Net income                                        2.47         3.11         1.67         9.41         2.59
   Diluted:
        Income before extraordinary items                 2.29         4.88         1.67         9.44         2.56
        Net income                                        2.31         3.04         1.67         9.41         2.59



Selected Performance Ratios
Return on average assets (7)                              0.58%        0.63%        0.31%        3.12%        1.00%
Return on average common equity (8)                      20.96        27.38        27.42       127.68        39.31
Average equity to average assets                          2.75         2.30         1.13         2.44         2.54
Yield on interest-earning assets (9)                      6.97         7.21         7.51         7.74         7.69
Cost of interest-bearing liabilities (10)                 4.69         5.05         5.28         5.29         5.35
Net interest margin (11)                                  2.27         2.13         2.21         2.47         2.47
Efficiency ratio of the Bank (12)                        48.25        50.32        51.16        54.88        63.47

Ratio of Earnings to Combined Fixed
    Charges and Minority Interest (13)
Excluding interest on deposits                            1.29x        1.25x        1.16x        1.95x        1.27x
Including interest on deposits                            1.19         1.15         1.08         1.51         1.11
</TABLE>

                                    Page 14

<PAGE>

<TABLE>
<CAPTION>
                                                                              December 31,
                                                   -------------------------------------------------------------------
                                                     1999 (1)     1998 (2)       1997 (3)       1996 (4)        1995
                                                     ----         ----           ----           ----            ----
                                                                  (dollars in millions, except per share data)
<S>                                                    <C>             <C>           <C>            <C>           <C>
Selected Financial Data
Securities available for sale                          $1,076          $771          $813           $542          $349
Securities held to maturity                               185           251            58              4             1
Mortgage-backed securities available for sale          13,765        12,948         5,077          1,599         1,478
Mortgage-backed securities held
    to maturity                                         2,150         2,771         1,338          1,622         1,524
Loans receivable, net                                  33,953        30,281        19,424         10,213         8,830
Total assets                                           57,019        54,869        31,362         16,635        14,667

Deposits                                               23,036        24,620        16,203          8,502        10,242
Securities sold under agreements
    to repurchase                                       5,482         4,238         1,842          1,583           970
Borrowings                                             25,669        22,376        11,233          5,365         2,393
Total liabilities                                      54,957        52,694        29,981         15,850        13,904
Minority interest                                         500           593         1,012            460           301
Stockholders' equity                                    1,562         1,582           369            325           424

Common shares outstanding                         122,242,588   128,597,769    56,722,988     56,722,988    56,722,988
Diluted shares outstanding                        138,692,802   139,427,759    56,722,988     56,722,988    56,722,988

Book value per diluted share                           $11.26        $11.34         $6.51          $5.74         $8.14
Tangible book value per diluted share                    5.35          4.72         (5.40)          3.26          7.82

Regulatory Capital Ratios of the Bank
Tangible capital                                         5.81%         5.29%         5.65%          7.17%         5.84%
Core capital                                             5.81          5.29          5.65           7.17          5.84
Risk-based capital:
      Core capital                                      11.36         10.27         10.14          11.50          9.14
      Total capital                                     12.89         11.69         11.93          13.62         11.34

Selected Other Data
Number of full service customer facilities                349           358           225            116           160
Loans serviced for others (14)                        $75,782       $68,803       $47,933        $44,034       $27,901
Full-time equivalent staff (FTE)                        7,578         8,003         4,983          3,415         3,378
Non-performing assets as a
       % of the Bank's total assets                      0.35%         0.57%         0.87%          1.36%         1.50%
</TABLE>

----------------
(1)  On April 16,  1999,  the  Company  acquired  twelve  retail  branches  with
     deposits of $543 million from Norwest Bank, Nevada, a subsidiary of Norwest
     Corporation  and Wells Fargo Bank,  N.A.  (the "Nevada  Purchase").  During
     April 1999, FNMC sold servicing rights on  approximately  49,000 loans with
     an unpaid principal balance of $2.0 billion (the "1999 Servicing Sale"). In
     August 1999, the Company sold deposits  totalling $70.1 million to Humboldt
     Bank.  Noninterest  income for the year ended  December  31, 1999  includes
     pre-tax gains of $16.3 million from the sale of mortgage  servicing  rights
     ("MSRs") and $2.3 million on the sale of deposits.  Noninterest expense for
     the year ended  December  31, 1999  includes a $5.1  million  reduction  in
     benefit expense based on receipt of the actuary's  valuation of the pension
     asset.  During 1999, the Company  redeemed the remaining  925,640 shares of
     the Bank  Preferred  Stock for a total  redemption  price of $97.6 million,
     resulting  in $5.1 million of expenses  and tender  premiums,  reflected as
     minority interest on the Company's 1999 consolidated statement of income.

(2)  On  September  11,  1998,  the  Company  consummated  the Glen Fed  Merger,
     acquiring assets with fair values totalling approximately $18.8 billion and
     liabilities  (including  deposit  liabilities)  with fair values  totalling
     approximately  $17.7  billion.  In  addition,  on September  11, 1998,  the
     Company  consummated  the sale of its Florida  deposit  franchise  to Union
     Planters Bank (the "Florida Branch Sale"), with associated deposit accounts
     totalling $1.4 billion, which resulted in a pre-tax gain of $108.9 million.
     Noninterest  expense for the year ended  December 31, 1998  includes  $59.2
     million in merger and  integration  costs.  During  1998,  GS Escrow  Corp.
     issued $2 billion in debt securities to fund, in part, the



                                              (Footnotes continued on next page)

                                    Page 15
<PAGE>

     Refinancing   Transactions  (as  defined  herein).  The  Company  purchased
     3,806,660  shares of the two outstanding  series of Bank Preferred Stock in
     the Bank  Preferred  Stock  Tender  Offers (as defined  herein) for a total
     redemption price of $423.0 million,  resulting in $36.9 million of expenses
     and  tender  premiums,  reflected  as  minority  interest  expense  on  the
     Company's 1998 consolidated statement of income. In addition,  during 1998,
     the Company purchased the FN Holdings Notes (as defined herein) in the Debt
     Tender Offers (as defined  herein) for an aggregate  purchase price of $1.1
     billion.  Further,  the Company  defeased the 12 1/2% Parent Holdings Notes
     (as defined herein) in the Parent  Holdings  Defeasance (as defined herein)
     for an aggregate  purchase price,  including accrued interest  payable,  of
     $553.7 million. The after-tax premiums and expenses paid in connection with
     such  purchases  (which,  together  with the Bank  Preferred  Stock  Tender
     Offers, are referred to as the "Refinancing  Transactions") totalled $150.3
     million and are reflected as an  extraordinary  loss on the Company's  1998
     consolidated statement of income.

(3)  On January 3, 1997, the Company  acquired assets with fair values totalling
     approximately $14.2 billion and liabilities (including deposit liabilities)
     with fair  values  totalling  approximately  $12.9  billion  in the Cal Fed
     Acquisition.  In  addition,  on May 31, 1997,  the Company  acquired a $3.2
     billion loan servicing portfolio (the "Weyerhaeuser Purchase"). Noninterest
     income for the year ended December 31, 1997 includes pre-tax gains of $14.0
     million on the sale of MSRs (the "1997 Servicing Sale"), $25 million on the
     sale of Affiliated Computer Services ("ACS") stock, and $3.6 million on the
     sale of deposits.  Noninterest expense for the year ended December 31, 1997
     includes a $29.0 million provision for professional fees and unreimbursable
     costs related to the foreclosure of 1-4 unit residential loans serviced for
     others.

(4)  On January 31, 1996, FNMC consummated the 1996 LMUSA Purchase,  acquiring a
     $14.1 billion loan  servicing  portfolio.  On February 1, 1996, the Company
     acquired San Francisco Federal ("SFFed  Acquisition"),  with assets at fair
     values  totalling  approximately  $4  billion  and  liabilities  (including
     deposit liabilities) with fair values totalling approximately $3.8 billion.
     During the year ended  December  31, 1996,  the Company  closed the sale of
     several of its branches,  with associated  deposit accounts  totalling $4.6
     billion ("Branch  Sales").  Noninterest  income for the year ended December
     31, 1996  includes  pre-tax gains of $363.3  million  related to the Branch
     Sales.  Noninterest expense for the year ended December 31, 1996 includes a
     pre-tax charge of $60.1 million related to a special SAIF assessment.

(5)  Income tax benefit for 1996 and 1995 includes the recognition of a deferred
     tax  benefit  of $125  million  and $69  million,  respectively,  offset by
     federal  AMT tax  reduced,  to the  extent of 90%,  by net  operating  loss
     carryovers  and state tax  generally at an assumed  rate of 8%.  Income tax
     expense for 1997 and the first half of 1998 represents federal AMT reduced,
     to the extent of 90%, by net operating loss carryovers, and state tax at an
     assumed  rate of 11%. On June 30,  1998,  the Bank  recorded a $250 million
     reduction  of the  valuation  allowance  related to its deferred tax asset.
     Income tax expense for the second half of 1998 and for 1999  represents  an
     effective  tax rate of 42%.  1999  income  tax  expense  includes  a $122.7
     million  tax  benefit  based on the  actual  filing of the Mafco  Group (as
     defined  herein)  and Golden  State 1998  consolidated  federal  income tax
     returns.  The tax  benefit  is fully  offset  by an  increase  in  minority
     interest expense.

(6)  Represents  dividends on the REIT Preferred Stock (as defined herein),  net
     of related tax benefit,  the  preferred  stock of FN Holdings ("FN Holdings
     Preferred  Stock") and the Bank Preferred  Stock.  The REIT Preferred Stock
     was issued on January  31,  1997.  Minority  interest  for the years  ended
     December 31, 1998 and 1999 also includes early  redemption  premiums on the
     Bank Preferred Stock and a 20% minority interest in Auto One.

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

(8)  Return on average  common equity  represents  net income as a percentage of
     average common equity for the periods presented.

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

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

(11) Net  interest  margin  represents  net interest  income as a percentage  of
     average interest-earning assets.

(12) Efficiency  ratio  represents   noninterest  expense  reduced  by  goodwill
     amortization as a percentage of net interest income plus noninterest income
     (each component adjusted for non-recurring items).

(13) Earnings used in computing the ratio of earnings to combined  fixed charges
     and minority  interest  consist of income  before  income  taxes,  minority
     interest and extraordinary items. Fixed charges consist of interest expense
     on  borrowings,   the  interest  component  of  lease  expense  and,  where
     indicated, interest expense on deposits.

(14) Includes loans serviced by the Bank and its  subsidiaries,  excluding loans
     serviced for the Bank by FNMC.

                                    Page 16

<PAGE>

ITEM 7. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

     The  Management's  Discussion  and  Analysis  ("MD&A")  should  be  read in
conjunction with the Consolidated  Financial  Statements of Golden State and the
notes thereto  included  elsewhere in this Form 10-K.  The following  discussion
includes historical  information relating to Golden State, including the effects
of the  Golden  State  Acquisition  and  the  Cal  Fed  Acquisition  which  were
consummated  on  September  11,  1998 and  January  3, 1997,  respectively.  For
specific information  regarding these acquisitions,  see note 3 of the Company's
Notes to Consolidated Financial Statements.

     For a discussion of the impact to the Company of recent accounting changes,
refer to note 2 of the Company's Notes to Consolidated Financial Statements.

Results of Operations

     Based in San  Francisco,  Golden  State is the  indirect,  publicly  traded
parent of California  Federal,  a  full-service,  community  oriented bank, that
serves consumers and small businesses in California and Nevada.  At December 31,
1999, it was the second  largest thrift in the U.S. with $57.0 billion in assets
and 349 branches.

     In  connection  with the Golden State  Acquisition,  management  pledged to
reduce,  by December 31,  1999,  operating  expenses of the  combined  entity by
$160.2  million,  representing  a 44% reduction  from  historical  levels of the
acquired entities' noninterest expense. This goal, which the Company exceeded by
$1.8  million,  was achieved  six months  ahead of  schedule,  by the end of the
second quarter of 1999.

     Golden State reported net income for 1999 of $323.2  million,  or $2.31 per
diluted share,  compared with net income of $247.8 million in 1998, or $3.04 per
diluted share. Net income for 1999 included the following  non-recurring  items,
net of tax: a $9.4  million  gain from the 1999  Servicing  Sale, a $2.9 million
reduction in benefit expense based on receipt of the actuary's  valuation of the
pension  asset,  $3.2  million  in  minority  interest  expense  related  to the
redemption  of the  Bank  Preferred  Stock  and a $2.5  million  gain  on  early
extinguishment of debt.

     Net  income  for 1998  included  the  following  items,  net of tax: a $250
million reduction of the valuation  allowance related to the Company's  deferred
tax asset,  gains of $63.0  million on the sale of branches,  $150.3  million in
extraordinary  loss related to expenses and tender  premiums  paid in connection
with the Debt Tender Offers and the Parent Holdings Defeasance, $34.2 million in
merger and integration  costs related to the Golden State  Acquisition and $36.9
million in minority  interest related to net premiums and expenses in connection
with the Bank Preferred Stock Tender Offers.

     Excluding  these  non-recurring  items,  operating  net income for 1999 was
$311.6 million,  or $2.22 per diluted share,  compared with operating net income
for 1998 of $156.2 million, or $1.92 per diluted share.

                                    Page 17

<PAGE>

     The following table shows Golden State's consolidated average balance sheet
for the past three years,  with the related interest income,  interest  expense,
and the average interest rates for the periods  presented.  Average balances are
calculated  on a daily  basis.  The  year-to-year  comparisons  set forth  below
include the effect of the Company's  acquisitions  and  dispositions  during the
periods involved.

<TABLE>
<CAPTION>

                                                                    Year Ended December 31,
                                        -------------------------------------------------------------------------------------
                                                  1999                        1998                           1997
                                        --------------------------  ---------------------------   ---------------------------
                                        Average            Average  Average             Average   Average             Average
                                        Balance  Interest   Rate    Balance  Interest    Rate     Balance   Interest   Rate
                                        -------  --------   ----    -------  --------    ----     -------   --------   ----
                                                                    (dollars in millions)
<S>                                     <C>       <C>        <C>     <C>       <C>       <C>       <C>        <C>        <C>
ASSETS
  Interest-earning assets (1):
    Securities and interest-bearing
      deposits  in  banks (2)           $ 1,554   $  100     6.45%   $ 1,121   $   77    6.84%     $ 1,015    $   62     6.11%
  Mortgage-backed securities
    available for sale                   13,706      873     6.37      7,952      483    6.07        4,485       298     6.64
  Mortgage-backed securities
    held to maturity                      2,392      178     7.43      1,753      134    7.67        1,482       113     7.65
  Loans held for sale                     1,659      110     6.60      1,652      116    7.01        1,068        77     7.15
  Loans receivable, net                  31,948    2,332     7.30     22,772    1,739    7.64       19,859     1,553     7.82
  FHLB stock                              1,113       60     5.36        623       36    5.78          403        25     6.16
                                        -------   ------             -------   ------              -------    ------
  Total interest-earning assets          52,372    3,653     6.97%    35,873    2,585    7.21%      28,312     2,128     7.52%
                                                  ------                       ------                         ------
Noninterest-earning assets                3,735                        3,424                         2,462
                                        -------                      -------                       -------
          Total assets                  $56,107                      $39,297                       $30,774
                                        =======                      =======                       =======
Liabilities, Minority Interest
  and Stockholders' Equity
  Interest-bearing liabilities:
    Deposits                            $23,902   $  888     3.72%   $18,856   $  791    4.20%     $16,728    $  747     4.47%
    Securities sold under agreements
      to repurchase                       5,057      266     5.18      2,805      154    5.40        2,512       141     5.52
    Borrowings (3)                       23,613    1,313     5.56     14,390      875    6.08        9,153       611     6.67
                                        -------   ------             -------   ------              -------
    Total interest-bearing liabilities   52,572    2,467     4.69%    36,051    1,820    5.05%      28,393     1,499     5.28%
    Noninterest-bearing liabilities       1,453   ------                       ------                         ------
    Minority interest                       540                        1,463                         1,030
    Stockholders' equity                  1,542                          878                         1,004
                                        -------                          905                           347
        Total liabilities, minority interest                         -------                       -------
          and stockholders' equity      $56,107                      $39,297                       $30,774
                                        =======                      =======                       =======
     Net interest income                          $1,186                       $  765                         $  629
                                                  ======                       ======                         ======

     Interest rate spread                                    2.28%                       2.16%                           2.24%
                                                             ====                        ====                            ====
     Net interest margin                                     2.27%                       2.13%                           2.22%
                                                             ====                        ====                            ====
     Average equity to average assets                        2.75%                       2.30%                           1.13%
                                                             ====                        ====                            ====
</TABLE>

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

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

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

                                    Page 18

<PAGE>

     The  following  table shows what portion of the changes in interest  income
and interest  expense were due to changes in rate and volume.  For each category
of  interest-earning  assets and  interest-bearing  liabilities,  information is
provided  on changes  attributable  to volume  (change  in  average  outstanding
balance  multiplied  by the prior  year's  rate)  and rate  (change  in  average
interest rate  multiplied by the prior year's volume).  Changes  attributable to
both volume and rate have been allocated proportionately.

<TABLE>
<CAPTION>
                                                                           Year Ended December 31,
                                                          -----------------------------------------------------------
                                                                 1999 vs. 1998                    1998 vs. 1997
                                                          --------------------------       --------------------------
                                                          Increase (Decrease) Due to       Increase (Decrease) Due to
                                                          --------------------------       --------------------------
                                                          Volume      Rate       Net       Volume     Rate       Net
                                                          ------      ----       ---       ------     ----       ---
                                                                             (in millions)
<S>                                                       <C>       <C>        <C>          <C>      <C>        <C>
INTEREST INCOME:
Securities and interest-bearing deposits in banks         $   27    $   (4)    $   23       $  7     $  8       $ 15
Mortgage-backed securities available for sale                365        25        390        209      (24)       185
Mortgage-backed securities held to maturity                   48        (4)        44         21       --         21
Loans held for sale                                           --        (6)        (6)        40       (1)        39
Loans receivable, net                                        666       (73)       593        221      (35)       186
FHLB stock                                                    27        (3)        24         13       (2)        11
                                                          ------     -----     ------       ----     ----       ----
       Total                                               1,133       (65)     1,068        511      (54)       457
                                                          ------     -----     ------       ----     ----       ----

INTEREST EXPENSE:
Deposits                                                     169      (72)         97         85      (41)        44
Securities sold under agreements to repurchase               118       (6)        112         16       (3)        13
Borrowings                                                   506      (68)        438        312      (48)       264
                                                          ------    -----      ------       ----     ----       ----
       Total                                                 793     (146)        647        413      (92)       321
                                                          ------    -----      ------       ----     ----       ----

Change in net interest income                             $  340    $  81      $  421       $ 98     $ 38       $136
                                                          ======    =====      ======       ====     ====       ====
</TABLE>

     Year Ended December 31, 1999 Versus Year Ended December 31, 1998

     Interest  Income.  Total  interest  income was $3.7  billion  for 1999,  an
increase  of $1.1  billion  from 1998.  Total  interest-earning  assets for 1999
averaged $52.4 billion,  compared to $35.9 billion for the corresponding  period
in 1998,  primarily  as a result of the Golden State  Acquisition.  The yield on
total  interest-earning  assets  during 1999  decreased  to 6.97% from 7.21% for
1998, primarily due to prepayments of higher rate loans which were replaced with
lower  yielding  originations,  primarily  during  1998,  and the  repricing  of
variable-rate loans, partially offset by purchases of mortgage-backed securities
and additions from the Golden State  Acquisition of  mortgage-backed  securities
with higher market yields.

     Golden State earned $2.3 billion of interest income on loans receivable for
1999,  an increase of $593.2  million  from 1998.  The average  balance of loans
receivable  was $31.9 billion for 1999,  compared to $22.8 billion for 1998. The
weighted average rate on loans receivable decreased to 7.30% for 1999 from 7.64%
for  1998,  primarily  due to  comparatively  lower  market  rates in 1999.  The
increase in the average volume is primarily due to the addition of $14.6 billion
in loans acquired in the Golden State Acquisition.

     Golden State  earned  $109.5  million of interest  income on loans held for
sale for 1999,  a decrease of $6.2  million  from 1998.  The average  balance of
loans held for sale was $1.7  billion for 1999,  an increase of $7 million  from
1998,  primarily due to increased  originations  and longer holding  periods for
jumbo loans during the first half of 1999.  The  weighted  average rate on loans
held for sale decreased to 6.60% for 1999 from 7.01% for 1998,  primarily due to
declining market interest rates.

     Interest income on mortgage-backed securities available for sale was $872.8
million in 1999, an increase of $390.3 million from 1998. The average  portfolio
balances  increased $5.8 billion,  to $13.7 billion,  for 1999 compared to 1998.
The  weighted  average  yield on these assets  increased  from 6.07% for 1998 to
6.37% for 1999.  The  increase in the volume and the weighted  average  yield is
primarily  due  to  premium   amortization   associated   with   prepayments  of
variable-rate  securities in 1998,  purchases of mortgage-backed  securities and
additions of $2.4 billion from the Golden State  Acquisition  with higher market
yields.

                                    Page 19

<PAGE>

     Interest income on  mortgage-backed  securities held to maturity was $177.6
million for 1999, an increase of $43.1 million from 1998. The average  portfolio
balance  increased  $639 million,  to $2.4  billion,  for 1999 compared to 1998,
primarily  attributed to the addition of $1.9 billion of the Bank's multi-family
loans  securitized  with  FNMA  with a  weighted  average  rate of 7.39%  during
September of 1998.  The weighted  average rates for 1999 and 1998 were 7.43% and
7.67%, respectively.

     Interest income on securities and interest-bearing  deposits in other banks
was $100.2 million for 1999, an increase of $23.5 million from 1998. The average
portfolio balance increased from $1.1 billion for 1998 to $1.6 billion for 1999.
The decrease in the weighted  average rate from 6.84% for 1998 to 6.45% for 1999
is  primarily  due to a decline in market  interest  rates.  In  addition,  1999
reflects $7.7 million in interest  income related to a $50.8 million federal tax
refund, while 1998 reflects $17.5 million in interest income received on a $65.0
million federal income tax refund.  These refunds were related to Old California
Federal and San Francisco Federal, and neither had a corresponding asset.

     Dividends on FHLB stock were $59.6  million for 1999,  an increase of $23.6
million  from 1998,  due to an increase in the amount of such stock owned by the
Company as a result of an increase in borrowings  under FHLB advances as well as
the Golden  State  Acquisition.  The average  balance of FHLB stock owned during
1999 and 1998 was $1.1  billion and $0.6  billion,  respectively.  The  weighted
average dividend on FHLB stock decreased to 5.36% for 1999 from 5.78% for 1998.

     Interest  Expense.  Total  interest  expense was $2.5 billion for 1999,  an
increase of $646.8  million from 1998.  The increase is primarily  the result of
additional   borrowings  under  FHLB  advances,   the  additional  deposits  and
borrowings  assumed in the Golden  State  Acquisition,  deposits  assumed in the
Nevada  Purchase and the net impact of the Refinancing  Transactions,  including
the assumption of the GS Holdings Notes (as defined herein).

     Interest  expense on customer  deposits,  including  Brokered  Deposits (as
defined herein),  was $888.3 million for 1999, an increase of $97.2 million from
1998. The average balance of customer deposits outstanding  increased from $18.9
billion for 1998 to $23.9 billion for 1999. The increase in the average  balance
is primarily a result of $11.3  billion in deposits  assumed in the Golden State
Acquisition,  partially  offset by $1.4 billion in deposits  sold in the Florida
Branch Sale,  both of which  occurred in the third quarter of 1998. In addition,
$543  million in deposits at an average cost of 3.71% were assumed in the Nevada
Purchase, which was consummated in April 1999. The overall weighted average cost
of  deposits  declined to 3.72% for 1999 from 4.20% for 1998,  primarily  due to
lower market  interest  rates and a change in the Bank's  certificate of deposit
pricing  strategy,  as  well  as the  higher  average  balances  of  lower  rate
transaction  accounts  in 1999  compared  to 1998 and the lower cost of funds on
deposits assumed in the Golden State Acquisition and the Nevada Purchase.

     Interest expense on securities sold under agreements to repurchase totalled
$265.5  million for 1999, an increase of $111.8  million from 1998.  The average
balance of such  borrowings for 1999 and 1998 was $5.1 billion and $2.8 billion,
respectively;  such  increase  is  primarily  attributed  to  the  Golden  State
Acquisition.  The weighted average interest rate on these instruments  decreased
to 5.18% for 1999 from 5.40% for the year ended December 31, 1998, primarily due
to a decrease in market  interest  rates on new  borrowings  in 1999 compared to
1998.

     Interest expense on borrowings  totalled $1.3 billion for 1999, an increase
of $437.9 million from 1998. The average  balance  outstanding for 1999 and 1998
was $23.6 billion and $14.4 billion, respectively. The weighted average interest
rate on these  instruments  decreased  to 5.56%  for 1999  from  6.08% for 1998,
primarily due to lower prevailing market rates in 1999 and the net impact of the
Refinancing  Transactions.  The  higher  volume  includes  the net impact of the
Refinancing  Transactions  and the  addition  of $5.4  billion in FHLB  advances
assumed  in the  Golden  State  Acquisition,  as  well as the  increase  in FHLB
advances used to fund the purchases of  mortgage-backed  securities  and to fund
the sale of deposits in the Florida Branch Sale.

     Net  Interest  Income.  Net interest  income was $1.2 billion for 1999,  an
increase  of $420.6  million  from 1998,  primarily  due to an  increase  in net
interest-earning  assets  resulting  from the Golden  State  Acquisition  and an
increase in the net interest margin. The interest rate spread increased to 2.28%
for 1999 from 2.16% for 1998, primarily as a result of maturities and repayments
of higher rate interest-bearing liabilities being replaced with interest-bearing
liabilities  having  comparatively  lower  rates.  The effect of lower  rates on
liabilities  was partially  offset by lower yielding assets  replenishing  asset
run-off in a declining rate environment.

                                    Page 20

<PAGE>

     Noninterest Income. Total noninterest income,  consisting primarily of loan
servicing  fees,  customer  banking  fees and  gains on sale and  settlement  of
assets,  was $418.8  million in 1999,  a decrease  of $22.1  million  from 1998.
Noninterest income included a $16.3 million pre-tax gain from the 1999 Servicing
Sale and a gain on sale of branches of $108.8 million in 1998  (primarily due to
the Florida  Branch Sale).  Excluding  these  non-recurring  items,  noninterest
income  was  $402.5  million  in 1999  compared  with  $332.1  million  in 1998.
Noninterest income includes the following  components in each of the years ended
December 31, 1999, 1998 and 1997:

                                                   Year Ended December 31,
                                             --------------------------------
                                                1999       1998        1997
                                              -------    --------    --------
                                                     (in thousands)
Noninterest income:
  Loan servicing fees, net                   $146,682    $132,543    $143,704
  Customer banking fees and service charges   187,022     121,283     100,263
  Gains on sale of branches, net                2,343     108,825       3,569
  Gains on sale and settlemnet of loans, net   32,885      54,217      24,721
  Gains on sale of assets, net                 21,699         193      38,230
  Other income                                 28,211      23,896      29,207
                                             --------    --------    --------
    Total noninterest income                 $418,842    $440,957    $339,694
                                             ========    ========    ========

     Loan servicing  fees, net of  amortization  of MSR, were $146.7 million for
1999, compared with $132.5 million for 1998. The single-family  residential loan
servicing portfolio, excluding loans serviced for the Bank, increased from $65.4
billion at December 31, 1998 to $72.9 billion at December 31, 1999.  Incremental
loan  servicing  fees were partially  offset by  amortization  related to higher
average MSR basis in 1999.  Loan  servicing  fees benefited from the slowdown in
mortgage loan  prepayments  in 1999,  with an average  prepayment  rate on loans
serviced of 17% in 1999 versus 23% in 1998.

     Customer  banking fees were $187.0  million for 1999  compared  with $121.3
million for 1998. The increase is primarily attributed to the impact of revenues
from the retail banking operations  acquired in the Golden State Acquisition and
deposits assumed in the Nevada  Purchase,  partially offset by the impact of the
Florida  Branch  Sale.   Commission  revenues  from  mutual  fund,  annuity  and
investment sales through CFI included in fees and service charges totalled $53.9
million for 1999, an increase of $20.6 million from 1998,  primarily a result of
an increase in the sales volume of such instruments.  In addition,  management's
increased  emphasis  on  transaction  account  growth  since  the  Golden  State
Acquisition has generated additional fee income.

     Net gain on sale of branches was $2.3 million for 1999 compared with $108.8
million  in 1998.  The gain in 1999  relates to the sale of the Eureka and Ukiah
branches. The gain in 1998 is primarily attributed to the Florida Branch Sale.

     Gain on sale and  settlement  of loans  totalled  $32.9 million for 1999, a
decrease of $21.3  million from 1998.  The decrease is primarily  attributed  to
lower gains on residential  loans held for sale during 1999. In addition,  gains
attributed to early payoffs and settlement of commercial  loans with unamortized
discounts  were $3.9 million  higher in 1998  compared  with 1999.  During 1999,
California Federal sold $9.7 billion in single-family  mortgage loans originated
for sale with servicing  rights retained as part of its ongoing mortgage banking
operations compared with $7.9 billion of such sales in 1998.

     Net gain on sale of assets  totalled  $21.7 million in 1999, an increase of
$21.5 million from 1998, primarily due to the 1999 Servicing Sale.

     Other  noninterest  income was $28.2  million in 1999  compared  with $23.9
million in 1998. The increase in 1999 is primarily  attributed to the receipt of
a sales and use tax refund and an increase in disbursement float income.

                                    Page 21

<PAGE>

     Noninterest Expense.  Total noninterest expense was $925.5 million in 1999,
an increase of $161.5  million from 1998.  Noninterest  expense in 1999 included
higher compensation,  occupancy and equipment,  goodwill  amortization and other
noninterest  expense,  attributed to the Golden State Acquisition and the Nevada
Purchase.  These increases were partially  offset by a $51.4 million decrease in
merger and  integration  costs  incurred  in  connection  with the Golden  State
Acquisition,  as the majority of these costs were incurred in 1998.  Noninterest
expense  includes the following  components in each of the years ended  December
31, 1999, 1998 and 1997:

                                                Year Ended December 31,
                                          -----------------------------------
                                            1999          1998         1997
                                          --------     ---------     --------
                                                     (in thousands)
Noninterest expense:
  Compensation and employee benefits      $391,597      $293,982     $256,448
  Occupancy and equipment                  148,411        99,746       81,914
  Professional fees                         52,667        56,360       48,771
  Loan expense                              36,048        48,183       60,437
  Foreclosed real estate operations, net    (6,411)       (6,152)      (3,304)
  Amortization of intangible assets         69,724        53,415       49,153
  Merger and integration costs               7,747        59,162           --
  Other expense                            225,674       159,307      157,150
                                          --------      --------     --------
    Total noninterest expense             $925,457      $764,003     $650,569
                                          ========      ========     ========

     Compensation  and employee  benefits expense was $391.6 million in 1999, an
increase of $97.6 million from 1998. The increase is primarily attributed to the
Golden State Acquisition.

     Occupancy  and  equipment  expense was $148.4  million and $99.7 million in
1999 and 1998,  respectively.  This increase  reflects the effects of the Golden
State  Acquisition  as well as $9.0 million of adjustments in 1999 to previously
established accruals for vacant facilities.

     Professional  fees, which are primarily legal,  audit, and consulting fees,
totalled  $52.7  million and $56.4 million in 1999 and 1998,  respectively.  The
decrease  was  primarily  due to a  reduction  in  expenses  related to goodwill
litigation.

     Loan expense was $36.0  million in 1999,  a decrease of $12.1  million from
1998.  The  decrease is primarily  attributed  to an increase in FAS 91 deferred
origination  costs due to higher loan  production  activity during 1999 compared
with 1998.  Also,  1998 included  higher  pass-through  interest  expense due to
higher prepayments in that period.

     Amortization of intangible assets was $69.7 million in 1999, an increase of
$16.3 million from 1998,  primarily  due to the goodwill  recorded in connection
with the Golden State Acquisition and the Nevada Purchase.

     Merger and  integration  costs were $7.7 million and $59.2  million in 1999
and  1998,   respectively,   representing  transition  expenses,  which  include
severance,  conversion and  consolidation  costs incurred in connection with the
Golden State  Acquisition.  The majority of such costs were incurred in 1998 and
management  does not  expect  to incur any  significant  additional  merger  and
integration costs from this transaction.

     Other  noninterest  expense was $225.7 million in 1999 compared with $159.3
million in 1998, primarily attributed to increased operations as a result of the
Golden State Acquisition.  In addition, results for 1999 include $6.2 million in
operating expenses related to back office support. Such charges are not expected
to be recurring.

     Provision for Loan Losses. The provision for loan losses was $10 million in
1999, down from $40 million in 1998. The decrease in 1999 reflects  management's
evaluation of the adequacy of the allowance  based on, among other things,  past
loan loss experience and known and inherent risks in the portfolio, evidenced in
part by the continued decline in the Bank's level of non-performing  assets. For
further  information,  refer to "- Balance  Sheet  Analysis - Allowance for Loan
Losses."

                                    Page 22

<PAGE>

     Provision for Income Tax. In 1999,  Golden State  recorded gross income tax
expense of $309.2 million,  less a benefit of $122.7  million,  for a net income
tax expense of $186.5 million. The tax benefit of $122.7 million was offset by a
provision in lieu of taxes. In 1998, Golden State recorded an income tax benefit
of $106.4 million.  Golden State's  effective federal tax rate was 38% and (36)%
during 1999 and 1998, respectively, while its statutory federal tax rate was 35%
during both periods. In 1999, the difference between the effective and statutory
rates was primarily the result of non-deductible  goodwill amortization.  During
1999,  a tax  benefit of $122.7  million  was  recognized,  and a  corresponding
increase  to  minority  interest:  provision  in lieu of income tax  expense was
recorded,  since the  adjustment  relates to pre-merger  tax benefits  which are
retained by the previous owners of FN Holdings.  These adjustments resulted from
1998 tax filings in the third quarter of 1999.  For the year ended  December 31,
1998, the difference between the effective and statutory rates was primarily the
result  of a  $250  million  reduction  in  the  deferred  tax  asset  valuation
allowance,  partially offset by  non-deductible  goodwill  amortization.  Golden
State's  effective  state  tax  rate  was  8%  and  9%  during  1999  and  1998,
respectively.

     Minority  Interest.  Minority  interest for 1999 includes a $122.7  million
provision in lieu of income taxes, representing pre-merger tax benefits retained
by the previous  owners of FN Holdings  (see note 24 of the  Company's  Notes to
Consolidated  Financial  Statements),  and $5.0 million in net premiums  paid in
connection  with the  redemption of the Bank Preferred  Stock.  Dividends on the
Bank  Preferred  Stock that had not been  acquired by GS  Holdings  and the REIT
Preferred  Stock  totalling $1.8 million and $26.4 million,  respectively,  were
also recorded  during 1999.  Minority  interest  relative to the REIT  Preferred
Stock is reflected  net of related  income tax benefit of $19.2  million,  which
will inure to the Company as a result of the deductibility of such dividends for
income tax  purposes.  The reduction in minority  interest  relative to the Bank
Preferred  Stock  reflects  the impact of the $380.7  million in Bank  Preferred
Stock purchased by GS Holdings in connection  with the Refinancing  Transactions
in the third and fourth quarters of 1998, as well as the $60.7 million  redeemed
on April 1, 1999 and the $31.8 million  redeemed on September 1, 1999.  Minority
interest for 1999 also  includes a $1.7 million  benefit  reversal  representing
that portion of Auto One's loss  attributable  to the 20% interest in the common
stock of Auto One that was issued as part of the GSAC Acquisition.

     Extraordinary Items. During the fourth quarter of 1999, the FHLB called and
the Bank prepaid $500 million in FHLB  advances,  resulting in an  extraordinary
gain of $2.7 million,  net of income taxes, on the early  extinguishment of such
borrowings.  In addition,  on December 20, 1999, the Bank repurchased all of the
remaining $6.0 million  outstanding  principal amount of the 11.20% senior notes
due  September  1,  2004  (the  "11.20%  Senior  Notes")  assumed  in the  SFFed
Acquisition,  resulting in an extraordinary loss of $0.2 million,  net of income
taxes, on the early  extinguishment  of debt.  During 1998, the Company defeased
the 12 1/2% Parent Holdings  Notes for an aggregate  purchase  price,  including
accrued  interest  payable,  of $553.7  million.  During 1998,  the Company also
purchased  $914.5 million  aggregate  principal  amount of the FN Holdings Notes
(the "Debt Tender Offers") for an aggregate  purchase price,  including  accrued
interest  payable,  of $1.1 billion.  The amount of expenses and tender premiums
paid in connection with such purchase  totalled  $150.3  million,  net of income
taxes, and is reflected as an extraordinary loss on early extinguishment of debt
on Golden State's consolidated statement of income for 1998.

     Year Ended December 31, 1998 Versus Year Ended December 31, 1997

     Interest Income.  Total interest income was $2.6 billion for the year ended
December 31, 1998,  an increase of $457.4  million from the year ended  December
31, 1997.  Total  interest-earning  assets for the year ended  December 31, 1998
averaged $35.9 billion,  compared to $28.3 billion for the corresponding  period
in 1997.  The  yield on total  interest-earning  assets  during  the year  ended
December 31, 1998  decreased to 7.21% from 7.52% for the year ended December 31,
1997,  primarily  due to the lower  market rates on  mortgage-backed  securities
purchased  in 1998 and 1997 and  prepayments  of  higher  rate  interest-earning
assets.

     Golden State earned $1.7 billion of interest income on loans receivable for
the year ended  December 31, 1998,  an increase of $186.1  million from the year
ended  December  31, 1997.  The average  balance of loans  receivable  was $22.8
billion for the year ended December 31, 1998,  compared to $19.9 billion for the
same period in 1997. The weighted average rate on loans receivable  decreased to
7.64% for the year  ended  December  31,  1998,  from  7.82% for the year  ended
December 31, 1997,  primarily due to declining market rates. The increase in the
average  volume is  primarily  due to the  addition  of $14.6  billion  in loans
acquired in the Golden State Acquisition.

                                    Page 23

<PAGE>

     Golden State  earned  $115.7  million of interest  income on loans held for
sale for the year ended December 31, 1998, an increase of $39.4 million from the
year ended  December  31, 1997.  The average  balance of loans held for sale was
$1.7 billion for the year ended  December 31, 1998,  an increase of $584 million
from 1997,  primarily due to increased  originations  and longer holding periods
for jumbo loans during the year ended  December 31, 1998.  The weighted  average
yield on loans held for sale  decreased to 7.01% for the year ended December 31,
1998,  from  7.15%  for the year  ended  December  31,  1997,  primarily  due to
declining market rates.

     Interest income on mortgage-backed securities available for sale was $482.6
million for the year ended December 31, 1998, an increase of $184.8 million from
the year ended December 31, 1997. The average portfolio  balances increased $3.5
billion, to $8.0 billion,  during the year ended December 31, 1998. The weighted
average yield on these assets  decreased  from 6.64% for the year ended December
31, 1997 to 6.07% for the year ended  December  31,  1998.  The  increase in the
volume and decrease in the weighted  average  yield is primarily due to the 1998
purchases of $9.0 billion of  mortgage-backed  securities  and additions of $2.4
billion from the Golden State Acquisition,  offset by prepayments of higher rate
mortgage-backed securities since December 31, 1997. Additionally, the decline in
yield was affected by a $19.8 million writedown recorded in 1998 to the carrying
value of  mortgage-backed  securities  available for sale  determined to have an
other-than-temporary impairment.

     Interest income on  mortgage-backed  securities held to maturity was $134.5
million for the year ended  December 31, 1998, an increase of $21.2 million from
the year ended December 31, 1997. The average  portfolio  balance increased $271
million to $1.8  billion  during the year ended  December  31,  1998,  primarily
attributed to the addition of $1.9 billion of the Company's  multi-family  loans
securitized with FNMA during  September 1998,  having a weighted average rate of
7.39%.  The  weighted  average  rates for the years ended  December 31, 1998 and
1997, were 7.67% and 7.65%, respectively.

     Interest income on securities and interest-bearing  deposits in other banks
was $76.7  million for the year ended  December 31,  1998,  an increase of $14.7
million from the year ended  December 31, 1997.  The average  portfolio  balance
increased from $1.0 billion for the year ended December 31, 1997 to $1.1 billion
for the year ended  December 31, 1998,  primarily  due to the proceeds  received
from the GS Holdings Notes, used to fund the Refinancing Transactions during the
third and fourth  quarters of 1998.  The increase in the  weighted  average rate
from  6.11% for the year  ended  December  31,  1997 to 6.84% for the year ended
December 31, 1998 is primarily due to $17.5 million in interest  income received
on a $65 million federal income tax refund related to Old California Federal and
San Francisco Federal.

     Dividends on FHLB stock were $36.0  million for 1998,  an increase of $11.3
million  from 1997,  due to the amount of such stock  owned by the  Company as a
result of an increase in  borrowings  under FHLB  advances as well as the Golden
State Acquisition.  The average balance of FHLB stock owned during 1998 and 1997
was $623 million and $403 million,  respectively.  The weighted average dividend
on FHLB stock decreased to 5.78% for 1998 from 6.16% for 1997.

     Interest  Expense.  Total  interest  expense was $1.8  billion for the year
ended  December  31,  1998,  an increase of $321.1  million  from the year ended
December 31, 1997. The increase is primarily the result of increased  borrowings
under FHLB  advances,  the  additional  deposits and  borrowings  assumed in the
Golden State Acquisition, and the issuance of the GS Holdings Notes.

     Interest expense on customer deposits,  including  Brokered  Deposits,  was
$791.1  million  for the year ended  December  31,  1998,  an  increase of $44.1
million from the year ended December 31, 1997.  The average  balance of customer
deposits  outstanding  increased  from $16.7  billion  in 1997 to $18.9  billion
during  1998.  The  increase in the average  balance is  primarily  due to $11.3
billion in deposits assumed in the Golden State Acquisition, partially offset by
$1.4 billion in deposits sold in the Florida Branch Sale, both of which occurred
late in the third quarter of 1998. The overall weighted average cost of deposits
decreased to 4.20% for the year ended  December 31, 1998 from 4.47% for the year
ended December 31, 1997,  primarily due to the higher  average  balance of lower
rate  custodial  transaction  accounts  in 1998 and the  lower  cost of funds on
deposits assumed in the Golden State Acquisition.

                                    Page 24

<PAGE>

     Interest expense on securities sold under agreements to repurchase totalled
$153.7  million  for the year ended  December  31,  1998,  an  increase of $13.2
million  from the year ended  December  31,  1997.  The average  balance of such
borrowings  for the years ended  December 31, 1998 and 1997 was $2.8 billion and
$2.5  billion,  respectively.  The  weighted  average  interest  rate  on  these
instruments  decreased  to 5.40% during the year ended  December 31, 1998,  from
5.52% for the year ended December 31, 1997, primarily due to a decrease in rates
on new borrowings compared to such borrowings during 1997.

     Interest  expense on borrowings  totalled $874.7 million for the year ended
December 31, 1998,  an increase of $263.9  million from the year ended  December
31, 1997. The average balance  outstanding for the years ended December 31, 1998
and 1997 was $14.4 billion and $9.2 billion,  respectively. The weighted average
interest  rate on these  instruments  decreased  to 6.08% in 1998 from  6.67% in
1997,  primarily due to declining market rates in 1998 and the net impact of the
Refinancing  Transactions.  The change in the volume  includes the net impact of
the Refinancing  Transactions  and the addition of $5.4 billion in FHLB advances
assumed in the Golden State Acquisition as well as the increase in FHLB advances
used to fund the purchase of mortgage-backed  securities and to fund the sale of
deposits in the Florida Branch Sale.

     Net Interest  Income.  Net interest  income was $765.3 million for the year
ended  December  31,  1998,  an increase of $136.2  million  from the year ended
December 31,  1997.  The  interest  rate spread  decreased to 2.16% for the year
ended  December  31,  1998 from  2.24% for the year  ended  December  31,  1997,
primarily as a result of prepayments of higher rate interest-earning assets that
were replaced with  interest-earning  assets having  comparatively lower yields.
The effect of lower  yielding  assets  was  partially  offset by lower  rates on
interest-bearing liabilities in a declining rate environment.

     Noninterest Income. Noninterest income consists primarily of loan servicing
fees,  customer banking fees and gains on sale and settlement of loans and other
assets. In 1998,  noninterest  income was $441.0 million,  an increase of $101.3
million from 1997. Noninterest income for 1998 included a $108.8 million gain on
sale of branches, primarily the Florida Branch Sale. Noninterest income for 1997
included  gains of $14.0 million from the 1997  Servicing Sale and $25.0 million
from the sale of the Company's remaining ACS stock. Excluding these nonrecurring
items,  noninterest  income was $332.1  million in 1998,  up $31.4  million from
1997.  Increases  in  customer  banking  fees and  gains  on sale of loans  were
partially offset by lower loan servicing fees.

     Loan servicing fees, net of amortization of mortgage servicing rights, were
$132.5  million for 1998,  compared to $143.7  million  for 1997.  Although  the
single-family residential loan servicing portfolio, excluding loans serviced for
the Bank,  increased from $44.9 billion at December 31, 1997 to $65.4 billion at
December 31, 1998,  loan  servicing  fees included a $16.7  million  increase in
amortization  of  residential  servicing  rights,  primarily  due  to  increased
prepayments.  During 1998, California Federal sold $7.9 billion in single-family
mortgage  loans  originated  for sale as part of its  ongoing  mortgage  banking
operations compared to $5.5 billion of such sales for 1997.

     Customer  banking  fees were $121.3  million  for 1998,  compared to $100.3
million  for  1997.  The  increase  is  primarily  attributed  to the  impact of
increased  revenues from the retail  banking  operations  acquired in the Golden
State Acquisition, partially offset by the impact of the Florida Branch Sale.

     Gain on sale and  settlement of loans was $54.2 million for 1998,  compared
to $24.7 million for 1997. The increase in 1998 is primarily attributed to $19.2
million in additional  gains from residential loan sales in 1998 and the effects
of early payoffs and settlement of commercial loans with  unamortized  discounts
of $10.3 million.

     Noninterest Expense. Total noninterest expense was $764.0 million for 1998,
an increase of $113.4 million from 1997, primarily due to merger and integration
costs as well as higher levels of operating expenses reflecting the Golden State
Acquisition.

                                    Page 25

<PAGE>

     During 1998, the Company  incurred $59.2 million in merger and  integration
costs,  primarily  severance,  conversion and consolidation costs, in connection
with the Golden State  Acquisition.  Compensation and employee  benefits expense
was $294.0  million for 1998,  an increase of $37.5  million from 1997,  and was
primarily attributed to the Golden State Acquisition as well as the Auto One and
GSAC Acquisitions. Occupancy and equipment expense was $99.7 million in 1998, up
$17.8 million from 1998, reflecting the effects of the Golden State Acquisition,
partially offset by the Florida Branch Sale.

     Loan expense was $48.2  million for 1998, a decrease of $12.3  million from
1997.  The decrease was primarily  attributed  to a $25.0 million  provision for
unreimbursable  costs related to the foreclosure of single-family loans serviced
for others recorded during 1997,  partially offset by additional  expenses (such
as outside  appraisal fees,  inspection fees and pass-through  interest expense)
associated  with higher volume of loans serviced and higher  prepayments  during
1998.

     Provision for Loan Losses.  The provision for loan losses decreased in 1998
reflecting  management's  evaluation of the adequacy of the allowance  based on,
among other things,  past loan loss  experience  and known and inherent risks in
the portfolio, evidenced in part by the continued decline in the Bank's level of
non-performing  assets. For further  information,  refer to the "- Balance Sheet
Analysis - Allowance for Loan Losses."

     Provision  for Income  Tax.  During the years 1998 and 1997,  Golden  State
recorded an income tax benefit of $106.4 million and income tax expense of $41.3
million,  respectively.  Based on  resolutions  of federal income tax audits and
favorable future earnings  expectations,  management  changed its judgment about
the  realizability of the Company's  deferred tax asset. The Company reduced its
valuation allowance by $250 million in the second quarter of 1998 in addition to
the amount used to offset income  during the period.  Golden  State's  effective
federal  tax rate was (36)% and 2% for the  years  1998 and 1997,  respectively,
while its statutory federal tax rate was 35% during both periods. The difference
between  the  effective  and  statutory  rates was  primarily  the result of the
reductions in the deferred tax asset valuation  allowance,  partially  offset by
non-deductible  goodwill  amortization.  Golden State's effective state tax rate
was 9% and 15% during 1998 and 1997,  respectively.  Effective July 1, 1998, the
Company's  marginal  tax rate for future  periods  increased to 42%. For further
information,  see  note 29 of the  Company's  Notes  to  Consolidated  Financial
Statements.

     Minority Interest. Minority interest for 1998 includes $36.9 million in net
premiums  and  expenses  related  to the Bank  Preferred  Stock  Tender  Offers.
Dividends on the Bank Preferred Stock (net of amounts paid to GS Holdings),  the
FN  Holdings  Preferred  Stock  and the REIT  Preferred  Stock  totalling  $42.1
million, $.6 million and $33.1 million, respectively,  were also recorded during
1998. Minority interest relative to the REIT Preferred Stock is reflected on the
consolidated statements of income net of the income tax benefit of $12.5 million
for 1998,  which will inure to the Company as a result of the  deductibility  of
such dividends for income tax purposes. Minority interest for 1998 also includes
$2.2 million  representing  that portion of Auto One's loss  attributable to the
20% interest in the common stock of Auto One that was issued as part of the GSAC
Acquisition.

     Dividends on the Bank Preferred Stock, the FN Holdings  Preferred Stock and
the REIT  Preferred  Stock  totalling  $52.7  million,  $12.8  million and $36.6
million, respectively,  were recorded during 1997. Minority interest relative to
the REIT Preferred Stock is reflected on the  consolidated  statements of income
net of the income tax benefit of $5.3 million for 1997,  which will inure to the
Company  as a result of the  deductibility  of such  dividends  for  income  tax
purposes.

     Extraordinary  Items.  During 1998,  the Company defeased the 121/2% Parent
Holdings  Notes in the Parent  Holdings  Defeasance  for an  aggregate  purchase
price,  including accrued interest payable, of $553.7 million.  During 1998, the
Company also  purchased  $914.5  million  aggregate  principal  amount of the FN
Holdings  Notes in the Debt  Tender  Offers  for an  aggregate  purchase  price,
including accrued interest payable, of $1.1 billion.  The amount of expenses and
tender premiums paid in connection  with such purchase  totalled $150.3 million,
net of  income  taxes,  and is  reflected  as an  extraordinary  loss  on  early
extinguishment  of debt on Golden State's  consolidated  statement of income for
1998.

                                    Page 26

<PAGE>

Provision for Federal and State Income Taxes

     During the years 1999,  1998 and 1997,  Golden  State  recorded  income tax
expense (benefit), excluding the tax effects associated with extraordinary items
and  minority  interest  in 1999,  1998 and 1997,  of $309.2  million,  $(106.4)
million, and $41.3 million, respectively. Included in 1999 income tax expense is
a $122.7 million  provision in lieu of taxes resulting from adjustments  related
to pre-merger  tax benefits,  in the form of net operating  loss  carryovers and
other items,  which are retained by the previous  owners of FN Holdings.  To the
extent  these tax benefits  are  recognized,  there is a reduction in income tax
expense, which is offset by an increase in minority interest:  provision in lieu
of income tax expense.  These adjustments  resulted from 1998 tax filings in the
third quarter of 1999.  The Company's  effective  federal  income tax rates were
38%, (36)% and 2% in 1999, 1998 and 1997,  respectively.  The Company's  federal
statutory  income tax rate was 35% in each of the years 1999, 1998 and 1997. For
the year ended  December 31, 1999,  the  difference  between the  effective  and
statutory   rates  was   primarily   the  result  of   non-deductible   goodwill
amortization.  For the years ended  December 31, 1998 and 1997,  the  difference
between  the  effective  and  statutory  rates  was  primarily  the  result of a
reduction in the deferred tax asset  valuation  allowance,  partially  offset by
non-deductible  goodwill  amortization.  During the years  1999,  1998 and 1997,
Golden State's effective state tax rate was 8%, 9% and 15%, respectively.

     Prior to the Golden State Acquisition, for federal income tax purposes, the
Bank,  FN Holdings and Mafco  Holdings  were parties to a tax sharing  agreement
effective  as of  January 1, 1994 (the "Tax  Sharing  Agreement"),  pursuant  to
which:

     (a)  the Bank paid to FN Holdings  amounts  equal to the income  taxes that
          the  Bank  would  be  required  to pay if it  were  to  file a  return
          separately  from the  affiliated  group of which Mafco Holdings is the
          common parent (the "Mafco Group") and

     (b)  FN Holdings paid to Mafco  Holdings  amounts equal to the income taxes
          that  FN  Holdings  would  be  required  to pay if it  were  to file a
          consolidated  return on behalf of itself and the Bank  separately from
          the Mafco Group.

     The Tax  Sharing  Agreement  allowed  the  Bank to take  into  account,  in
determining its liability to FN Holdings, any net operating loss carryovers that
it would have been entitled to utilize if it had filed a consolidated  return on
behalf of itself for each year  since the  formation  of the Bank.  Accordingly,
pursuant to the Tax Sharing Agreement,  the benefits of any net operating losses
generated  by the Bank  since  its  formation  are  retained  by the Bank and FN
Holdings.

     In connection  with the Golden State  Acquisition,  for any taxable  period
ending after September 11, 1998,

     (a)  the Company  replaced Mafco Holdings and assumed all of the rights and
          obligations  of Mafco  Holdings  under the Tax Sharing  Agreement with
          respect to such taxable periods;

     (b)  GS Holdings replaced FN Holdings under the Tax Sharing Agreement and
         assumed all of the rights and  obligations of FN Holdings under the Tax
         Sharing Agreement with respect to such taxable periods; and

     (c)  California Federal continued to be bound by the Tax Sharing Agreement.
          Mafco Holdings continued to be bound for all obligations  accruing for
          taxable periods on or prior to September 11, 1998.

     The Bank had generated  significant federal income tax net operating losses
since it was organized in December 1988. This is due, in part, to the fact that,
under applicable federal income tax law, certain financial  assistance  received
by the Bank pursuant to an assistance  agreement  among the FSLIC,  the Bank and
certain  affiliates  of the Bank,  was excluded  from the taxable  income of the
Bank.  In  addition to such  tax-free  financial  assistance,  the Bank had been
entitled to its normal  operating  deductions,  including  interest  expense and
certain losses relating to its loan portfolio.  As a result,  the Bank generated
significant net operating losses for federal income tax purposes even though its
operations were profitable.  Furthermore, under the reorganization provisions of
the Code, the Bank  succeeded to certain net operating  loss  carryovers of five
insolvent  Texas  savings and loan  associations  acquired in an  FSLIC-assisted
transaction in 1988.

                                    Page 27

<PAGE>

     Under  federal  tax law,  Parent  Holdings,  FN  Holdings  and the Bank are
subject to several liability with respect to the consolidated federal income tax
liabilities  of the Mafco  Group for any  taxable  period  during  which  Parent
Holdings,  FN  Holdings  or the  Bank is,  as the case may be, a member  of such
group.  Therefore,  Parent Holdings,  FN Holdings or the Bank may be required to
pay the Mafco Holdings consolidated federal tax liability  notwithstanding prior
payments  made under the Tax  Sharing  Agreement  by FN  Holdings or the Bank to
Mafco  Holdings.  Mafco  Holdings  has  agreed,  however,  under the Tax Sharing
Agreement, to indemnify FN Holdings and the Bank for any such federal income tax
liability (and certain state and local tax liabilities) of Mafco Holdings or any
of its  subsidiaries  (other than FN Holdings  and the Bank) that FN Holdings or
the Bank is actually required to pay.

     In connection with the Golden State Acquisition, the Company deconsolidated
from the Mafco Group. As a result,  only the amount of the net operating  losses
("NOLs") of the Company  not  utilized by the Mafco Group on or before  December
31, 1998 are available to offset  taxable income of the Company  thereafter.  At
September 11, 1998,  had the Company  filed a  consolidated  federal  income tax
return on behalf of itself and its  subsidiaries for each of the years since the
formation  of the  Company,  it would have had  regular NOL  carryforwards,  for
federal   income   tax   purposes,   of   approximately   $1.8   billion.   Upon
deconsolidation, the NOLs available to offset taxable income of the Company were
initially  estimated to be reduced by $900 million.  This  reduction of NOLs and
other tax attributes  (the  "Deconsolidation  Adjustment")  resulted in a $230.2
million  reduction  in  retained  earnings  during  1998.  The   Deconsolidation
Adjustment  was revised  during  1999 based upon the actual  filing of the Mafco
Group 1998  consolidated  federal  income tax return  (including  the  Company's
operations through September 11, 1998) and may continue to change based upon the
results of Internal  Revenue  Service ("IRS") audits for all open years of Mafco
and the Company.  Any change to the Deconsolidation  Adjustment will be recorded
as an adjustment to the amounts due or distributions made to the previous owners
of FN Holdings. In addition, adjustments related to the valuation allowance as a
result of the  Deconsolidation  Adjustment  will be recorded as an adjustment to
federal income tax expense.  Such adjustment will be offset by minority interest
since under the merger  agreement  with Golden State the tax  benefits  from any
NOLs and other tax attributes of Parent Holdings and  subsidiaries  are retained
by  the  previous  owners  of  FN  Holdings.  Accordingly,  any  change  to  the
Deconsolidation Adjustment should have no impact on Golden State's effective tax
rate. Changes are recorded in the period during which such change is determined.
During 1999, a tax benefit of $122.7 million was recognized, and a corresponding
increase to minority  interest was recorded in accordance  with the Golden State
Merger  agreement.  In addition,  the Company  recorded an  adjustment  of $15.5
million  (which  increased  retained  earnings)  to reduce  the  Deconsolidation
Adjustment to $214.7 million.  These adjustments  resulted from 1998 tax filings
in the third quarter of 1999.

     At December 31, 1999, the Company had regular NOL carryforwards for federal
income tax purposes of approximately $801 million, which are available to offset
future federal taxable income,  if any,  through 2009. In addition,  the Company
had alternative  minimum tax credit  carryforwards of approximately  $68 million
which are available to offset future federal  regular income taxes, if any, over
an indefinite  period. The IRS is examining the 1991 through 1995 federal income
tax returns of the Company and any NOL  carryforwards  are subject to review and
disallowance, in whole or in part, by the IRS.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109,  Accounting  for  Income  Taxes,  a  deferred  tax  liability  has not been
recognized  for the base year  reserves of the Bank.  The base year reserves are
generally  the  balance of the tax bad debt  reserve  as of  December  31,  1987
reduced  proportionately  for reductions in the Bank's loan portfolio since that
date. At December 31, 1999, the amount of those  reserves was $305 million.  The
amount of the unrecognized  deferred tax liability at December 31, 1999 was $107
million.  Circumstances  that may  require  an accrual  of this  unrecorded  tax
liability are a failure to meet the  definition  of a "bank" for federal  income
tax purposes, dividend payments in excess of tax earnings and profits, and other
distributions,  dissolution,  liquidation  or  redemption  of  stock,  excluding
preferred stock meeting certain conditions.

     The Company is subject to taxation in certain  states in which it operates,
including   California.   For   California   franchise  tax  purposes,   savings
institutions are taxed as "financial  corporations."  Financial corporations are
taxed at the general  corporate  franchise tax rate plus an "in lieu" rate based
on their statutory exemption from local business and personal property taxes.

                                    Page 28

<PAGE>

Balance Sheet Analysis

     At December 31, 1999, Golden State's assets totalled $57.0 billion, up from
$54.9 billion at December 31, 1998.  The increase was primarily due to growth in
loans  receivable  and  the  investment  portfolio,   primarily  mortgage-backed
securities available for sale, partially offset by a reduction in loans held for
sale and mortgage-backed  securities held to maturity.  (For a discussion of the
loan portfolio,  see --"Loan Portfolio.") The growth in interest-earning  assets
was  largely  funded  by  increased   borrowings  from  the  FHLB.  For  further
information on the Company's  management of assets and  liabilities,  as well as
information  on the  Company's  liquidity and capital,  see -"Risk  Management,"
--"Liquidity" and --"Capital Management."

     Investment Activities

     The Bank is required  by OTS  regulations  to maintain a specified  minimum
amount of liquid assets which may be invested in specified securities.  The Bank
is also  permitted to invest in certain  other types of  securities.  Securities
balances  (including  cash  equivalent  securities)  exceeding  minimum  federal
requirements are subject to change over time based on the Bank's asset/liability
funding needs and interest rate risk management objectives. The Bank's liquidity
levels take into  consideration  anticipated future cash flows and all available
sources of credit.  Liquidity is  maintained at levels  management  believes are
appropriate to assure future flexibility in meeting  anticipated  funding needs,
including  deposit  withdrawal  requests,  loan funding  commitments,  and other
investment or  restructuring  requirements.  For further  information  regarding
liquidity, refer to --"Liquidity."

     Cash Equivalents

     Cash equivalents totalled $593.0 million and $968.0 million at December 31,
1999  and  1998,  respectively.  The  Company  sells  federal  funds,  purchases
securities under agreements to resell, and invests in interest-bearing  deposits
in other banks to help meet the Bank's regulatory liquidity  requirements and as
temporary holdings until the funds can be otherwise deployed or invested.

     Securities Available for Sale

     Securities  available for sale totalled $1.1 billion and $770.7  million at
December  31,  1999 and  1998,  respectively.  They  consist  primarily  of U.S.
government  and agency  obligations.  At December 31, 1999 and 1998,  marketable
equity  securities   include  Golden  State's  investment  in  Precept  Business
Services,  Inc.  of $0.7  million  and $2.1  million,  respectively,  which  was
acquired by the Bank in a distribution  from ACS and  distributed by the Bank to
GS Holdings as a dividend in kind during the second quarter of 1998. For further
information,  refer to note 8 of the Company's Notes to  Consolidated  Financial
Statements.

     Securities Held to Maturity

     Securities  held to maturity  totalled $185.4 million and $251.0 million at
December 31, 1999 and 1998,  respectively.  They consist of commercial paper and
municipal securities. For further information,  refer to note 9 of the Company's
Notes to Consolidated Financial Statements.

     Mortgage-backed Securities Available for Sale

     Mortgage-backed  securities  available for sale totalled  $13.8 billion and
$12.9 billion at December 31, 1999 and 1998, respectively. At December 31, 1999,
and 1998,  mortgage-backed  securities  available for sale  included  securities
totalling $928.7 million and $1.1 billion, respectively, which resulted from the
securitization of certain  qualifying  mortgage loans from the Bank's portfolio.
Mortgage-backed  securities  available for sale included $4.3 billion,  and $5.6
billion  of  variable-rate  securities  as  of  December  31,  1999,  and  1998,
respectively.

                                    Page 29

<PAGE>

     Golden  State   maintains  a  significant   portfolio  of   mortgage-backed
securities  as a means of  investing  in  housing-related  mortgage  instruments
without the costs  associated  with  originating  mortgage  loans for  portfolio
retention  and the credit risk of default which arises in holding a portfolio of
loans to maturity. By investing in mortgage-backed securities,  management seeks
to  achieve a positive  spread  over the cost of funds  used to  purchase  these
securities.  Mortgage-backed  securities  available for sale are carried at fair
value, with unrealized gains and losses excluded from earnings and reported in a
separate  component  of  stockholders'  equity.  Premiums  and  discounts on the
purchase of  mortgage-backed  securities  are  amortized  or accreted as a yield
adjustment over the life of the securities using the interest  method,  with the
amortization or accretion effect of prepayments  being adjusted based on revised
estimates of future repayments.

     Mortgage-backed  securities  generally  yield  less  than the  loans  which
underlie  such  securities   because  of  their  payment  guarantees  or  credit
enhancements which reduce credit risk. In addition,  mortgage-backed  securities
are more liquid than individual  mortgage loans and may be used to collateralize
borrowings.  Mortgage-backed  securities  issued or guaranteed by the Government
National  Mortgage  Association  ("GNMA")  are  generally  weighted  at  0%  for
risk-based capital purposes.  Mortgage-backed securities issued or guaranteed by
the Federal  National  Mortgage  Association  ("FNMA") or the Federal  Home Loan
Mortgage Corporation ("FHLMC") (except interest-only  securities or the residual
interests  in  collateralized   mortgage  obligations  ("CMOs"))  are  generally
weighted at 20% for risk-based capital purposes,  compared to a weight of 50% to
100% for residential loans.

     The Company held privately issued CMOs with an aggregate  carrying value of
$9.2 billion at December 31, 1999. The following represents all such investments
with a carrying value in excess of 10% of stockholders' equity (in millions):

                                               Aggregate         Aggregate Fair
Issuer                                      Amortized Cost        Market Value
------                                      --------------       --------------
ABN AMRO Mortgage Corp.                          $233                 $229
BA Mortgage Securities, Inc.                      535                  518
Cendant Mortgage Corporation                      385                  374
Chase Mortgage Finance Corporation                485                  469
Citicorp Mortgage Securities, Inc.                222                  214
Countrywide Home Loans                            593                  571
First Nationwide Trust                            334                  315
GE Capital Mortgage Services, Inc.                742                  718
Nationsbanc Montgomery Funding Corp.              188                  180
Norwest Asset Securities Corp.                    779                  748
PNC Mortgage Securities Corp.                     302                  292
Residential Funding Mortgage Securities         1,191                1,155

     At December 31, 1999,  all of the  mortgage-backed  securities  held by the
Company  had one of the  two  highest  credit  ratings  from  one or more of the
national rating  agencies except for $271.4 million,  of which $76.7 million are
non-rated CMO residual class securities  formed by Old California  Federal's and
Glendale  Federal's  originations  of  residential  mortgages.  Credit  ratings,
however,  may be subject to  revision  or  withdrawal  at anytime by such rating
agencies.  The  mortgage-backed  securities  which  Golden State  purchases  and
maintains  in its  portfolio  include  certain  CMOs. A CMO is a special type of
pay-through  debt  obligation  in which the  stream of  principal  and  interest
payments on the underlying  mortgages or  mortgage-backed  securities is used to
create  classes  with  different  maturities  and, in some  cases,  amortization
schedules,  and a residual class of the CMO security being sold,  with each such
class  possessing  different risk  characteristics.  The residual  interest sold
represents  any residual  cash flows which result from the excess of the monthly
receipts generated by principal and interest payments on the underlying mortgage
collateral and any reinvestment  earnings thereon, less the cash payments to the
CMO holders and any administrative  expenses.  As a matter of policy, due to the
risk  associated  with  residual  interests,  the Company does not invest in the
residual interests of CMOs.

                                    Page 30

<PAGE>

     For further information on mortgage-backed  securities  available for sale,
refer to note 10 of the Company's Notes to Consolidated Financial Statements.

     Mortgage-backed Securities Held to Maturity

     At December 31, 1999 and 1998,  mortgage-backed securities held to maturity
totalled $2.1 billion and $2.8 billion, respectively. Mortgage-backed securities
held to maturity  are carried at  amortized  cost unless  there is evidence of a
decline in value that is other than temporary.  Other than temporary declines in
value are charged to income in the periods in which the declines are determined.
Premiums  and  discounts  on the  purchase  of  mortgage-backed  securities  are
amortized  or accreted  as a yield  adjustment  over the life of the  securities
using  the  interest  method,  with the  amortization  or  accretion  effect  of
prepayments being adjusted based on revised estimates of future repayments.

     For further  information on  mortgage-backed  securities  held to maturity,
refer to note 11 of the Company's Notes to Consolidated Financial Statements.

     Sources of Funds

     Deposits, sales of securities under agreements to repurchase, advances from
the FHLB of San Francisco,  sales,  maturities and principal repayments on loans
and  mortgage-backed  securities and issuances of debentures and preferred stock
have  been the  major  sources  of funds for use in the  Company's  lending  and
investment  activities and other general business  purposes.  Management closely
monitors  rates and terms of  competing  sources  of funds on a daily  basis and
utilizes the source which is most cost-effective. The availability of funds from
sales of loans and  securities is  influenced by the levels of general  interest
rates and other market  conditions.  For  additional  information  regarding the
Company's  sources of funds, see  --"Liquidity"  and the Company's  Consolidated
Statements of Cash Flows in the Consolidated Financial Statements.

     Loan  principal  and interest  payments are a relatively  stable  source of
funds,  while customer  deposit  inflows and outflows,  and loan  repayments and
prepayments are influenced significantly by the levels of general interest rates
and money market conditions, and may fluctuate widely. Borrowings may be used to
compensate for reductions in normal sources of funds such as customer deposits.

     Deposits

     The Company offers a variety of deposit  accounts  designed to attract both
short-term and long-term deposits.  There are no rate limitations on any type of
deposit account presently offered by the Company. At December 31, 1999, deposits
totalled $23.0 billion, compared with $24.6 billion at December 31, 1998.

<TABLE>
<CAPTION>
                                                                     December 31,
                                        ---------------------------------------------------------------------
                                                1999                     1998                     1997
                                        ---------------------    --------------------    --------------------
                                                    Percent                 Percent                 Percent
                                         Amount   of Deposits    Amount   of Deposits    Amount   of Deposits
                                         ------   -----------    ------   -----------    ------   -----------
                                                                  (dollars in millions)
<S>                                     <C>          <C>         <C>         <C>         <C>          <C>
Transaction accounts:
   Passbook accounts                    $ 3,666      16.0%       $ 3,372     13.7%       $ 2,162      13.4%
   Demand deposits:
      Interest-bearing                    1,974       8.6          1,865      7.6          1,149       7.1
      Noninterest bearing                 2,198       9.6          3,002     12.2          1,179       7.3
   Money market deposit accounts          3,144      13.6          3,255     13.3          1,270       7.9
                                        -------     -----        -------    -----        -------      ----
      Total transaction accounts         10,982      47.8         11,494     46.8          5,760      35.7
Term accounts                            11,990      52.2         13,080     53.2         10,390      64.3
                                        -------     -----        -------    -----        -------      ----
                                         22,972     100.0%        24,574    100.0%        16,150      100.0%
                                                    =====                   =====                     =====
Accrued interest payable                     61                       39                      52
Purchase accounting adjustments               3                        7                       1
                                        -------                  -------                 -------
      Total                             $23,036                  $24,620                 $16,203
                                        =======                  =======                 =======
</TABLE>

                                    Page 31

<PAGE>

     Total deposits at December 31, 1999 and 1998 included  escrow  balances for
loans  serviced  for others  (custodial  accounts) of $813.7  million,  and $1.5
billion, respectively. Deposit balances averaged $23.9 billion and $18.8 billion
during 1999 and 1998,  respectively,  with average  interest  rates of 3.74% and
4.17%,  respectively.  The weighted average stated interest rates on deposits at
December 31, 1999 and 1998 were 3.72% and 4.22%, respectively.

     The following table presents the average balance and weighted  average rate
paid on each deposit type of the Bank for the periods  indicated,  excluding the
impact of purchase accounting adjustments:

<TABLE>
<CAPTION>
                                                                   December 31,
                                        -----------------------------------------------------------------
                                            1999                      1998                   1997
                                        -------------------    -------------------    -------------------
                                        Average    Average     Average    Average     Average    Average
                                        Balance   Rate Paid    Balance   Rate Paid    Balance   Rate Paid
                                        -------   ---------    -------   ---------    -------   ---------
                                                              (dollars in millions)
<S>                                     <C>         <C>        <C>         <C>        <C>         <C>
Transaction accounts:
   Passbook accounts                    $ 3,652     3.41%      $ 2,685     3.68%      $ 1,874     3.65%
   Demand deposits:
      Interest-bearing                    1,908     0.93         1,352     1.00         1,150     1.07
      Noninterest bearing                 2,665       --         1,899       --         1,280       --
Money market deposit accounts             3,196     3.89         1,680     3.61         1,408     3.56
Term accounts                            12,476     5.02        11,151     5.46        11,008     5.73
                                        -------                -------                -------
      Total                             $23,897     3.74%      $18,767     4.17%      $16,720     4.55%
                                        =======                =======                =======
</TABLE>

     The following  table sets forth the  scheduled  maturities of the Company's
term accounts by stated interest rate at December 31, 1999 (in millions):

<TABLE>
<CAPTION>
                           2000     2001     2002    2003   2004  Thereafter    Total
                          ------   ------    ----    ----   ----  ----------   -------
<S>                       <C>      <C>       <C>     <C>    <C>      <C>       <C>
3.00% or less             $   --   $   --    $ --    $--    $--      $--       $    --
3.01 - 4.00%                 601       60      31     --     --       --           692
4.01 - 5.00%               3,570      196       3     10     19       --         3,798
5.01 - 6.00%               4,273    2,500      94     64     25        1         6,957
6.01 - 7.00%                 161       65     132      4     15        2           379
7.01 - 8.00%                  75       42       3     --      6        2           128
8.01 - 9.00%                  35       --      --     --     --       --            35
Over 10%                       1       --      --     --     --       --            --
                          ------   ------    ----    ---    ---      ---       -------
    Total term accounts   $8,716   $2,863    $263    $78    $65      $ 5       $11,990
                          ======   ======    ====    ===    ===      ===       =======
</TABLE>

     The following table sets forth remaining  maturities for the Company's term
deposits in amounts of $100,000 or more at December 31, 1999 (in millions):

          3 months or less                               $   768
          Over 3 months but within 6 months                  595
          Over 6 months but within 12 months                 627
          Over 12 months                                     748
                                                        --------
                                                          $2,738
                                                        ========

     At December 31, 1999, the aggregate  amount  outstanding of certificates of
deposit of $100,000 or larger at the Company  was $2.7  billion,  compared  with
$2.9  billion at December 31, 1998.  Deposits  held by foreign  investors at the
Bank totalled  $92.3  million and $101.0  million at December 31, 1999 and 1998,
respectively.

     The Bank's deposit  accounts are held primarily by individuals  residing in
the vicinity of its retail branch offices located in California and Nevada.  The
Bank has emphasized, and will continue to emphasize, a retail branch network for
attracting deposits. Key market areas,  particularly the West Coast region, will
continue to be targeted for expansion of retail  deposits and the  cross-selling
of additional consumer products.

                                    Page 32

<PAGE>

     The Bank issues  certificates of deposit through direct placement  programs
and national investment banking firms ("Brokered Deposits").  These deposits are
usually in amounts less than $100,000 and are obtained  from a diverse  customer
base. These funds are generally more costly than traditional  passbook and money
market  deposits  and are more  volatile  as a source of funds  because of their
sensitivity to the rates offered.  However,  they are used to supplement  retail
customer  deposits in raising funds for financing  and  liquidity  purposes.  At
December 31,  1999,  California  Federal had $390  million of Brokered  Deposits
outstanding,  representing  1.70% of total  deposits.  For more  information  on
deposits,  refer to note 18 of the  Company's  Notes to  Consolidated  Financial
Statements.

     Borrowings

     The Company and the Bank utilize various borrowings as alternative  sources
of funds for their business needs.  These sources have included  securities sold
under  agreements  to  repurchase,   FHLB  advances,   senior  and  subordinated
debentures and the purchase of federal funds.

     Short-term  Borrowings.  Short-term  borrowings  consist of securities sold
under  agreements to repurchase,  federal funds  purchased,  and short-term FHLB
advances. These instruments are discussed more fully in the subsequent sections.

     The following  table sets forth for the Company each category of borrowings
due within one year,  including the average amount  outstanding  and the maximum
amount outstanding at the end of the period.  Amounts and rates reflected in the
table exclude accrued interest payable and purchase accounting adjustments.

<TABLE>
<CAPTION>
                                                  At or for the year ended December 31,
                                                  -------------------------------------
                                                        1999       1998      1997
                                                        ----       ----      ----
                                                          (dollars in millions)
<S>                                                   <C>        <C>        <C>
Securities sold under agreements to repurchase:
   Average balance outstanding                        $4,959     $2,766     $2,275
   Maximum amount outstanding at any
      month end during the period                      5,996      4,264      2,870
   Balance outstanding at end of period                5,207      4,222      1,829
   Average interest rate during the period              5.24%      5.56%      5.68%
   Average interest rate at end of period               5.48       5.05       5.78

Federal funds purchased:
   Average balance outstanding                        $   54     $   76     $   95
   Maximum amount outstanding at any
      month end during the period                        160        220        153
   Balance outstanding at end of period                   55        138        130
   Average interest rate during the period              5.12%      5.26%      5.59%
   Average interest rate at end of period               5.50       5.00       6.50

Short-term FHLB advances:
   Average balance outstanding                        $8,107     $5,577     $5,561
   Maximum amount outstanding at any
      month end during the period                     11,270      7,880      6,606
   Balance outstanding at end of period               11,270      7,880      5,263
   Average interest rate during the period              5.40%      5.68%      5.76%
   Average interest rate at end of period               5.84       5.34       5.88
</TABLE>

                                    Page 33

<PAGE>

     At December  31,  1999,  the Company had an  estimated  additional  secured
borrowing capacity of $3.8 billion with the FHLB and other sources.

     Securities  Sold Under  Agreements to  Repurchase.  The Company enters into
reverse repurchase  agreements  whereby it sells marketable U.S.  government and
mortgage-backed  securities  and  CMOs  with  a  commitment  to  repurchase  the
securities at a specified  price and on a specified date.  These  agreements are
recorded  as  financings,  and  the  obligation  to  repurchase  assets  sold is
reflected as a liability on the  consolidated  balance sheet. The carrying value
of assets  underlying  the  agreements  is included in the asset  accounts.  The
securities  underlying  the agreements are delivered to the dealers who arranged
the transactions.  The counterparty to the repurchase  agreement may have loaned
the  securities  to other  parties  in the  normal  course of their  operations;
however,  all agreements require that the identical  securities be resold to the
Company at the maturity of the  agreements.  In order to reduce  possible  risks
associated with these borrowing transactions,  the reverse repurchase agreements
are  generally  entered into with  national  investment  banking firms and major
commercial banks which are primary dealers in these securities.

     Federal  Funds  Purchased.  California  Federal  must  meet  legal  reserve
requirements  on a daily  basis by  maintaining  a  specified  total  amount  of
deposits at the Federal Reserve Bank and vault cash. Occasionally,  the Bank may
borrow funds from another bank with excess reserves to meet its requirements for
the day.  These  borrowings  are repaid with  interest at maturity  based on the
federal funds rate.

     FHLB  Advances.  The  FHLB  functions  in a  credit  capacity  for  savings
institutions and certain other home financing  institutions.  California Federal
is a member of the FHLB System.  Among other benefits,  FHLB membership provides
the Bank with a central  credit  facility  from  which it may  generally  borrow
through  advances  secured by its home  mortgages and other assets  (principally
securities  which are  obligations  of, or guaranteed by, the U.S.  government).
Such advances may be made  pursuant to several  different  credit  programs made
available  from  time to time by the FHLB to meet  seasonal  activity  and other
withdrawals of deposit accounts and to expand lending, each of which has its own
interest rate and range of maturities.  The FHLB prescribes the acceptable uses,
as well as limitations  on the size of such advances.  Depending on the program,
such limitations are based either on a fixed percentage of the institution's net
worth or on the FHLB's assessment of the institution's creditworthiness.

     The following  table presents the carrying value and weighted  average rate
paid on FHLB  advances for the periods  indicated,  excluding  accrued  interest
payable and the impact of purchase accounting adjustments (dollars in millions):

<TABLE>
<CAPTION>
                                             1999                   1998                 1997
                                      ------------------     ------------------   ------------------
                                      Carrying   Average     Carrying   Average   Carrying   Average
                                       Value      Rate        Value       Rate     Value       Rate
                                      --------   -------     --------   -------   --------   -------
    <S>                                <C>         <C>        <C>         <C>      <C>        <C>
    Fixed-rate borrowings              $19,971     5.61%      $15,427     5.38%    $5,447     5.88%
    Variable-rate borrowings             3,365     6.04         4,571     5.53      4,074     5.95
                                       -------                -------              ------
             Total FHLB advances       $23,336     5.67%      $19,998     5.41%    $9,521     5.91%
                                       =======                =======              ======
</TABLE>

     The Bank is required to own capital stock in the FHLB in an amount equal to
the greater of:

     (a)  1% of the aggregate  outstanding  principal  amount of its residential
          mortgage loans, home purchase contracts and similar obligations at the
          beginning of each calendar year,

     (b)  0.3% of total assets, or

     (c)  5% of its FHLB advances.

     The Bank currently complies with FHLB stock ownership requirements.

     For  further  information,  refer  to note  20 of the  Company's  Notes  to
Consolidated Financial Statements.

                                    Page 34

<PAGE>

     Interest  Rate Swap  Agreements.  The Company has used  interest  rate swap
agreements to adjust its interest rate risk  exposure on  variable-rate  reverse
repurchase  agreements  and FHLB  advances.  The Company had interest  rate swap
agreements  with a notional  principal  amount of $2.6  billion  outstanding  at
December 31, 1999.  There were no interest rate swap  agreements  outstanding at
December 31, 1998. The notional amount does not represent  amounts  exchanged by
the parties and thus, is not a measure of the  Company's  exposure at that time.
The Company receives a variable rate based on the London Interbank  Offered Rate
("LIBOR")  and pays a fixed  rate  under  these  agreements.  In order to reduce
possible counterparty nonperformance risk, the Company has entered into interest
rate swap agreements only with primary dealers in U.S. government securities and
the FHLB of San Francisco.

     GS Holdings Notes. On August 6, 1998, GS Escrow,  which subsequently merged
into GS Holdings,  issued $2 billion principal amount of fixed and floating rate
notes  (the "GS  Holdings  Notes").  The GS  Holdings  Notes are  unsecured  and
unsubordinated  obligations of GS Holdings and rank in right of payment with all
other  unsubordinated and unsecured  indebtedness of GS Holdings.  The terms and
conditions of the respective note indentures  impose  restrictions  that affect,
among other things,  the ability of GS Holdings to incur debt,  pay dividends or
make distributions,  engage in a business other than holding the common stock of
the Bank and similar banking institutions, make acquisitions, create liens, sell
assets  and make  certain  investments.  For  additional  information  on the GS
Holdings Notes and other borrowings,  refer to note 20 of the Company's Notes to
Consolidated Financial Statements.

     Mortgage Banking Activities

     Mortgage banking  activities allow the generation of fee income without the
associated  capital  retention  requirements  attributable  to traditional  real
estate lending activities. Generally, the Company originates fixed-rate 1-4 unit
residential loans for sale in the secondary mortgage market. The Company employs
forward sale hedging  techniques to minimize the interest rate and pricing risks
associated  with the  origination  and sale of such loans.  The Company has also
entered into  one-year  flow  agreements  with third party  lenders  whereby the
Company has  committed to purchase  newly  originated  mortgage  loan  servicing
rights for monthly or quarterly  deliveries up to an agreed upon total principal
amount.

     At the time of  origination,  management  identifies  1-4 unit  residential
loans that are expected to be sold in the  foreseeable  future.  At December 31,
1999,  management had identified $729.1 million of 1-4 unit residential loans as
held for sale.  These loans have been  classified as loans held for sale, net in
the  consolidated  balance  sheet at December  31, 1999 and are  recorded at the
lower of aggregate  amortized  cost or market value.  At December 31, 1999,  the
Company  had  forward and whole loan sale  commitments  to sell loans  totalling
$903.5 million. In addition,  FNMC had entered into commitments to originate and
purchase  fixed-  and  variable-rate  loans  (mortgage  loan  pipeline)  of $2.4
billion.

     At December  31, 1999,  the Company had $1.3 billion in mortgage  servicing
rights,  an increase of $328.8  million from  December  31,  1998.  The 1-4 unit
residential loans serviced for others  (including loans  sub-serviced for others
and excluding  loans  serviced for the Bank)  totalled $72.9 billion in December
31, 1999, an increase of $7.5 billion from December 31, 1998. While the serviced
for others  portfolio has grown 13% in unpaid  principal  balance  ("UPB") since
December 31, 1998, the loan count has actually  declined by 11,000 loans between
the two years,  as the average loan balance  serviced has increased from $82,000
in 1998 to $94,000 at the end of 1999. This is due in part to the 1999 Servicing
Sale of low UPB  servicing  (49,000  loans  with  $2.0  billion  UPB)  that FNMC
effected during the year.

     The servicing  portfolio of FNMC,  including  loans  serviced for the Bank,
approximated   $96.5  billion  and  944,927  loans  as  of  December  31,  1999.
Substantially  all of FNMC loans are serviced in a 230,000  square foot facility
in Frederick,  Maryland. Mortgage loan sales, primarily fixed-rate loans sold to
FNMA, FHLMC, GNMA and private investors,  totalled $9.7 billion and $7.9 billion
in 1999 and 1998, respectively.

     First  Nationwide  Bank, A Federal Savings Bank ("Old FNB"), Old California
Federal and Glendale Federal  occasionally sold 1-4 unit residential loans under
recourse  provisions;  such  liabilities were assumed by the Company in its 1994
acquisition  of  the  assets  and  certain  liabilities  of  Old  FNB  (the  "FN
Acquisition"),  in the Cal Fed  Acquisition,  and in the Glen Fed Merger.  As of
December 31, 1999, the balance of 1-4 unit  residential  loans sold with certain
recourse provisions totalled $896.8 million.

                                    Page 35

<PAGE>

     During  1999 and  1998,  FNMC  acquired  mortgage-servicing  rights on loan
portfolios of $14.5 billion and $31.2  billion,  respectively.  The Company sold
servicing rights on portfolios of approximately $2.1 billion and 50,700 loans in
1999,  $144.2 million and 3,527 loans in 1998, and $2.3 billion and 52,000 loans
in 1997. Gains of $16.3 million,  $0.3 million and $14.0 million were recognized
on these sales in 1999, 1998 and 1997, respectively.

     During 1999, the Company,  through FNMC,  originated  $8.4 billion and sold
$9.7 billion of 1-4 unit  residential  loans held for sale.  Gross revenues from
mortgage loan servicing activities for 1999 totalled $281.8 million, an increase
of $61.2  million from 1998.  Gross loan  servicing  fees for 1999 and 1998 were
reduced by $208.2 million and $156.2 million,  respectively,  of amortization of
servicing rights to arrive at net loan servicing fees of $73.6 million and $64.5
million, respectively, for FNMC.

     The Company,  through FNMC, has generally retained the right to service the
loans it has sold.  FNMC  collects  payments of principal  and interest from the
borrower  and,  after  retaining  a  servicing  fee,  remits the  balance to the
investors.  When a loan is sold and MSRs are retained,  a portion of the cost of
originating the mortgage loan is allocated to the MSR based on its relative fair
market value.  The servicing  asset is amortized in proportion  to, and over the
period of,  estimated net servicing  income.  The net gains on sales of 1-4 unit
residential  loans during 1999,  1998 and 1997  totalled  $14.9  million,  $32.3
million and $13.1 million,  respectively,  and included  amounts  related to the
capitalization  of originated and excess MSRs of $193.9 million,  $170.0 million
and $120.5 million,  respectively.  The Company  monitors the prepayments on the
loans  serviced for investors and reduces the balance of the asset if the actual
prepayments are in excess of the estimated  prepayment trends used to record the
original  asset.  The Company's  assumptions  relative to the prepayment  speed,
discount and servicing fee rates are reviewed  periodically  to reflect  current
market  conditions  and  regulatory  requirements.   The  Company  measures  the
impairment of MSRs based on the  difference  between the carrying  amount of the
MSRs and their  current fair value.  At December 31, 1999 and 1998,  the Company
believes that no allowance for impairment of the MSRs was necessary.

     At December 31, 1999,  the Company,  through FNMC,  owned rights to service
approximately  $72.9  billion  of  whole  loans,   participation  interests  and
mortgage-backed  securities for others.  These loans have an average  balance of
$94,165, a weighted average coupon rate of 7.46%, a weighted average maturity of
284  months  and a  service  fee  spread  of  0.40%.  The  greater  than  30 day
delinquency rate on these loans (including delinquent  bankruptcies,  foreclosed
loans and loans in foreclosure) at December 31, 1999 was 1.30%.

     For  information  regarding the effect of interest rate changes or mortgage
banking activities, see --"Risk Management--Mortgage Banking Risk Management."

     Loan Portfolio

     The Company's  principal  lending activity is the origination of adjustable
and fixed-rate  mortgage loans secured by residential  real estate.  The Company
also originates  certain commercial real estate loans as well as consumer loans,
which  principally  consist of  adjustable-rate  home equity lines of credit. In
connection  with the Glen Fed  Merger,  the  Company  acquired  a  portfolio  of
business banking loans,  which primarily have adjustable  rates.  Prior to 1997,
the commercial  real estate lending  activity of the Company had been limited to
restructuring and refinancing  existing  portfolio loans, and multi-family loans
originated  under its  affordable  housing  program.  The Company  commenced the
origination of multi-family  (5+ units) and commercial  loans on a limited basis
during  1997.  The Company  also  participates  in a number of other  affordable
housing  programs and  initiatives.  During 1999,  increased focus was placed on
expanding the percentage of non-residential  loans in the total portfolio.  As a
result,  originations  for 5+  residential  and  commercial  real  estate  loans
increased  from $313 million in 1998 to $733 million in 1999.  In addition,  the
commercial  banking group was expanded to heighten  focus on small  business and
middle market lending.

                                    Page 36

<PAGE>

     The  following  table  reflects   activity  related  to  loans  receivable,
excluding loans held for sale:

                                        Year Ended December 31,
                                        -----------------------
                                           1999       1998
                                          -------    -------
                                           (in millions)

Balance at beginning of period            $30,784    $19,921
Originations:
    1-4 unit residential                    7,344      3,457
    5+ unit residential                       568        181
    Commercial real estate                    165        132
    Equity line                               363        210
    Other consumer                             61         42
    Business banking                          610         81
Purchases:
    Glen Fed Merger                            --     14,562
    Auto One                                  486        317
    GSAC Acquisition                           --        112
    Other                                   1,712        409
Sales                                         (19)       (11)
Foreclosures                                 (102)      (119)
Payments, payoffs and other                (7,645)    (8,510)
                                          -------    -------
Balance at end of period                  $34,327    $30,784
                                          =======    =======

     The composition of the Company's loan  portfolio,  excluding loans held for
sale, is as follows:

<TABLE>
<CAPTION>
                                                                                At December 31,
                                                             --------------------------------------------------
                                                              1999       1998       1997       1996       1995
                                                             -------    -------    -------    -------    ------
                                                                                (in millions)
<S>                                                          <C>        <C>        <C>        <C>        <C>
Real estate loans:
   1-4 unit residential                                      $26,966    $23,493    $14,071    $ 6,118    $5,423
   5+ unit residential                                         2,881      2,641      3,035      2,164     1,854
   Commercial real estate                                      2,565      2,940      2,146      1,978     1,716
   Land                                                           32         33          5         11         9
   Construction                                                    8         22          1          6        --
                                                             -------    -------    -------    -------    ------
      Total real estate loans                                 32,452     29,129     19,258     10,277     9,002
                                                             -------    -------    -------    -------    ------
Equity-line loans                                                433        385        355        243       111
Other consumer loans                                             237        242        107         55        59
Purchased auto loans                                             698        487        171         --        --
Business banking loans                                           498        529         22         --        --
Commercial loans                                                   9         12          8         30         2
                                                             -------    -------    -------    -------    ------
      Total loans receivable                                  34,327     30,784     19,921     10,605     9,174
                                                             -------    -------    -------    -------    ------
Less:
   Deferred loan fees, costs, discounts and premiums, net       (174)       (82)       (47)        (5)      (19)
   Allowance for loan losses                                     555        589        419        247       210
   Purchase accounting adjustments, net                           (7)        (4)       125        150       153
                                                             -------    -------    -------    -------    ------
Loans receivable, net                                        $33,953    $30,281    $19,424    $10,213    $8,830
                                                             =======    =======    =======    =======    ======
</TABLE>

     In addition to the interest  earned on its loans,  the Company charges fees
for loan originations,  prepayments,  modifications,  late payments,  changes of
property  ownership  and other similar  services.  The amount of this fee income
varies with the volume of loan originations,  prepayments,  the general economic
conditions  affecting the portfolio and other competitive  factors affecting the
mortgage market.

     Generally, late charges are assessed when payments are delinquent. On loans
secured by real estate,  these charges are generally  limited to 4% to 6% of the
overdue  payment of  principal  and  interest  and  cannot be imposed  until the
payment is more than 15 days late, in accordance with the  contractual  terms of
the loans and regulatory requirements in effect when the loans were made.

                                    Page 37

<PAGE>

     The  following  table  presents the  Company's  real estate loan  portfolio
(excluding  loans held for sale),  by  collateral  type,  interest rate type and
state concentration at December 31, 1999:

<TABLE>
<CAPTION>
                       1-4 unit                 5+ unit              Commercial
                      Residential             Residential            and  Other        Total Real
                   -----------------       -----------------      ----------------       Estate     % of
   State           Variable    Fixed       Variable    Fixed      Variable   Fixed       Loans     Total
   -----           --------    -----       --------    -----      --------   -----       -----     -----
                                                    (dollars in millions)
<S>                 <C>       <C>           <C>         <C>         <C>       <C>       <C>         <C>
California          $16,601   $4,689        $2,253      $354        $1,873    $434      $26,204     80.74%
New York                291      175            18         6            18      18          526      1.62
Florida                 611      281            55         7            50      15        1,019      3.14
Nevada                  199       76            10        16             6       3          310      0.96
Illinois                215       98             9         5            16      23          366      1.13
Texas                   241      153             8        32             9      10          453      1.40
Other states (1)      2,111    1,225            51        57            86      44        3,574     11.01
                    -------  -------        ------      ----        ------    ----      -------    ------
     Total          $20,269   $6,697        $2,404      $477        $2,058    $547      $32,452    100.00%
                    =======   ======        ======      ====        ======    ====      =======    ======
</TABLE>

--------
(1)  Real estate loans involving property located in 44 states,  Puerto Rico and
     the  District  of  Columbia;  not more than 1% of the total  amount of such
     loans are located in any one state.

     The following  table  summarizes  the Company's loan  portfolio,  excluding
loans held for sale, at December 31, 1999,  based upon  contractually  scheduled
principal payments allocated to the indicated  maturity  categories.  This table
does not reflect expected prepayments.

                                                 Due
                                     Due       Over One      Due
                                    Within    But Within     Over
                                   One Year   Five Years  Five Years    Total
                                   --------   ----------  ----------    -----
                                                  (in millions)
Real estate loans:
  1-4 unit residential
      Fixed-rate                     $ 43       $   59      $ 6,595    $ 6,697
      Variable-rate                     6           32       20,231     20,269
  5+ unit residential
      Fixed-rate                       11           56          410        477
      Variable-rate                   104          490        1,810      2,404
  Commercial real estate and other
      Fixed-rate                       38          127          382        547
      Variable-rate                   212        1,148          698      2,058
                                     ----       ------      -------    -------
          Total                       414        1,912       30,126     32,452
                                     ----       ------      -------    -------
Commercial and consumer loans:
      Fixed-rate                      115          761          133      1,009
      Variable-rate                   294          108          464        866
                                     ----       ------      -------    -------
          Total                       409          869          597      1,875
                                     ----       ------      -------    -------
          Total loans receivable     $823       $2,781      $30,723    $34,327
                                     ====       ======      =======    =======


     1-4 Unit Residential Lending

     The  Company  currently  offers  three  primary  1-4 unit  residential  ARM
programs,  and a variety of 1-4 unit fixed-rate programs with maturities ranging
from 15 to 30 years. The Company's 1-4 unit residential  loans are originated by
FNMC through three channels:  retail, wholesale and correspondent.  The Company,
through its  acquisitions,  has a  significant  retail  origination  presence in
California.  Wholesale  originations  (where loans are acquired from independent
loan brokers) are conducted through regional  wholesale  offices  throughout the
United  States.   The  Company  also  purchases  newly   originated  loans  from
correspondents  throughout the United States and through contracts to administer
various housing bond and other private  mortgage lending  programs.  The Company
originates  adjustable-rate  mortgage ("ARM") loans on 1-4 unit residential real
estate, which have generally been held for

                                    Page 38

<PAGE>

investment,  and fixed-rate 1-4 unit residential loans, which are generally held
for sale to the secondary mortgage market.

     Adjustable-rate programs include loans which:

     (a)  provide for monthly  interest rate  adjustments  after the third month
          based upon the twelve month  average of the monthly one year  Treasury
          Bill index,

     (b)  provide  for annual  rate  adjustments  based upon the weekly  average
          yield on U.S. Treasury  securities  adjusted to a constant maturity of
          one year,

     (c)  provide  for annual  rate  adjustments  based upon the weekly  average
          yield on U.S. Treasury  securities  adjusted to a constant maturity of
          one year after an initial  fixed-rate  period of three,  five or seven
          years.

     None of the ARM products  currently  offered is  convertible.  A variety of
features are  incorporated  into ARM loans to protect  borrowers  from unlimited
adjustments  in interest  rates and payments.  All ARMs have lifetime caps which
limit the amount of rate increases  over the life of the loan.  ARMs whose rates
adjust  annually  have rate caps which limit the amount that rates can change to
two percentage points per year. Loans which adjust monthly based upon the twelve
month average of the monthly one year Treasury Bill index 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 under this program is not allowed to exceed 110% of the original
loan amount as a result of negative amortization.

     The Company's  portfolio of 1-4 unit  residential  mortgage  loans contains
other loan products  which may negatively  amortize,  generally to not more than
125% of the  original  loan  amount.  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.
As of December 31, 1999, the Company's capitalized interest relative to such 1-4
unit residential loans was approximately  $16.5 million.  This amount represents
approximately  0.41% of the  approximately  $4.0 billion of 1-4 unit residential
ARMs that have the potential to experience  negative  amortization.  The Company
also originates 15- and 30-year fully amortizing 1-4 unit fixed-rate residential
loans  under a variety  of  fixed-rate  programs,  primarily  for  resale in the
secondary  mortgage  market.  When 1-4 unit  residential  loans are  sold,  FNMC
normally  retains the servicing of the loan.  On all ARM  products,  the Company
offers a three-year  prepayment  penalty  pricing  option,  wherein the borrower
receives  favorable  pricing in exchange  for agreeing to pay a fee in the event
that the borrower prepays more than 20% of the original principal balance in any
rolling  twelve-month period during the first three years after the inception of
the loan. On all fixed-rate  products except for 15-year  conforming  loans, the
Company offers a similar  prepayment  penalty pricing option that applies during
the first five years after  inception of the loan. The penalty does not apply if
the prepayment  occurs in connection with the sale of the property  securing the
loan. FNMC originated $9.1 billion of loans with prepayment  penalty options for
the Company  during 1999.  See  "--Mortgage  Banking  Activities"  for a further
discussion of these activities.

     The following table summarizes 1-4 unit  residential loan  originations for
the years ended December 31, 1999 and 1998 (in millions):

<TABLE>
<CAPTION>

                                                    1999                                    1998
                                         ---------------------------------    -------------------------------
    Production Channel                     ARM         Fixed       Total         ARM       Fixed      Total
    ------------------                     ---         -----       -----         ---       -----      -----
    <S>                                  <C>         <C>         <C>          <C>        <C>        <C>
    Retail and portfolio retention       $  692.1    $1,432.2    $ 2,124.3    $  315.1   $1,434.5   $ 1,749.6
    Wholesale                             4,368.4     2,866.8      7,235.2     2,325.5    4,166.3     6,491.8
    Correspondent lending                 1,899.2     2,478.3      4,377.5       680.7    1,776.3     2,457.0
    Other                                     1.6     1,976.4      1,978.0         0.2    1,727.8     1,728.0
                                         --------    --------    ---------    --------   --------   ---------
                                         $6,961.3    $8,753.7    $15,715.0    $3,321.5   $9,104.9   $12,426.4
                                         ========    ========    =========    ========   ========   =========
</TABLE>

                                    Page 39

<PAGE>

     The Company  attempts to mitigate the credit risks associated with mortgage
lending  activities by the use of carefully  developed  underwriting  standards.
Substantially  all 1-4 unit  residential  loans  originated are  underwritten to
conform with standards adopted by FNMA,  FHLMC,  GNMA, or other secondary market
investors.  Accordingly, the Company's underwriting standards include LTV ratios
and maximum loan amounts for both fixed-rate  loans and ARMs that closely mirror
secondary market requirements.

     Loans Held for Sale

     Activity  related to loans held for sale for the years ended  December  31,
1999 and 1998 is summarized as follows:

                                                1999          1998
                                                ----          ----
                                                     (in millions)

       Balance at beginning of period           $2,367       $1,483
       Purchases and originations                8,755        9,136
       Sales                                    (9,703)      (7,892)
       Payments, payoffs and other                (690)        (360)
                                                ------       ------
       Balance at end of period                 $  729       $2,367
                                                ======       ======

     Loans held for sale are carried at the lower of aggregate amortized cost or
market value; substantially all are 1-4 family fixed rate residential loans.

     Multi-family, Commercial and Other Real Estate Lending

     While the Company has historically originated multi-family, commercial, and
other real estate  loans as part of  affordable  housing  programs,  it began to
originate  other  commercial real estate loans during 1997 and 1998 on a limited
basis.  These efforts were enhanced during 1999, in line with the Company's goal
to increase its overall  portfolio  percentage  of  non-residential  loans.  The
Company's  loan  portfolio now includes  loans that are secured by  multi-family
residential, commercial, industrial, office and retail real estate properties.

     The Company's  variable-rate  multi-family and commercial real estate loans
have a  maximum  amortized  loan  term of 30 years  with  loans  having  balloon
payments  due in one to 15  years.  ARMs  primarily  adjust  with the FHLB  11th
District Cost of Funds or the six-month  Treasury Bill indices with a monthly or
semi-annual  rate  adjustment.   The  terms  and  characteristics  of  the  ARMs
originated  for  multi-family  and commercial  real estate lending  purposes are
similar to those for  residential  lending.  As such, many of the same risks and
protections related to residential borrowers are present in the multi-family and
commercial  real  estate  portfolios,   including  the  potential  for  negative
amortization.  Negative amortization for multi-family and commercial real estate
loans is allowed to increase the  outstanding  principal  balance to 110% of the
original loan amount. If the loan reaches 110% of the original loan amount,  all
future interest rate increases will increase the monthly payment to amortize the
loan over the remaining  life of the loan.  At December 31, 1999,  the Company's
capitalized  interest  relative to such loans was  approximately  $0.4  million,
which  represents  approximately  0.01% of the $2.9 billion of multi-family  and
commercial  real estate  loans that have the  potential to  experience  negative
amortization.

     At December 31, 1999 and 1998, the  multi-family and commercial real estate
loan portfolio totalled $5.4 billion and $5.6 billion, respectively. The Company
originates  multi-family and commercial real estate loans through its Commercial
Real Estate Group which has loan production and asset management offices located
in San Francisco,  Los Angeles,  Dallas and Phoenix.  New loan  originations are
produced  through  several  sources,  including  direct  borrower  solicitation,
mortgage  brokerage  referrals,  real  estate  sales agent  referrals,  and loan
purchases from other investors or originators.

     Loans are originated or purchased which meet stated underwriting guidelines
and pricing  guidelines  established by the Commercial Real Estate  Subcommittee
and approved by the Credit Policy Committee of the Bank. Generally  multi-family
secured loans have LTV ratios of 75% or below and debt coverage  ratios ("DCRs")
of 1.20 or above.  Loans secured by  commercial  properties  (shopping  centers,
office buildings, warehouses, etc.) generally have LTVs of 70% or below and DCRs
of 1.25 and above.

                                    Page 40

<PAGE>

     The  following  table  summarizes  origination  activity for  multi-family,
commercial and other real estate loans for the years ended December 31, 1999 and
1998 (in millions):

                                         1999         1998
                                         ----         ----

        5+ unit residential              $568         $181
        Commercial real estate            165          132
                                         ----         ----
                                         $733         $313
                                         ====         ====

     A portion of the Company's MSRs, which are rights to service mortgages held
by others,  were acquired  from Old FNB, Old  California  Federal,  and Glendale
Federal which had sold  multi-family and commercial real estate loans subject to
certain  recourse  provisions.  These recourse  liabilities  were assumed by the
Company in the FN Acquisition,  the Cal Fed Acquisition and the Glen Fed Merger.
At December 31, 1999, the principal balance of loans sold with recourse totalled
$2.1 billion.

     Consumer Lending

     The Company's consumer loan originations are primarily concentrated in home
equity lending. The portfolio is geographically  dispersed across California and
Nevada and correlates closely to retail deposit branch distribution. At December
31, 1999, the home equity portfolio  totalled $433 million or 64.6% of the total
consumer loan  portfolio of $670 million.  At December 31, 1998, the home equity
portfolio totalled $385 million or 61.4% of the total consumer loan portfolio of
$627 million.

     The following table summarizes  consumer loan origination  activity for the
years ended December 31, 1999 and 1998 (in millions):

                                1999           1998
                                ----           ----

        Equity line             $363           $210
        Other consumer            61             42
                                ----           ----
                                $424           $252
                                ====           ====

     The Company  offers a prime-based  interest rate home equity line of credit
on owner-occupied  residential and nonowner-occupied  properties. In determining
the  amount of credit  to be  extended,  all  loans  secured  by the  collateral
properties are aggregated and compared to the appraised value of the properties.
The Company's  policy is to extend credit up to a maximum  combined LTV ratio of
100%.

     Other consumer loan products  include:  fixed-rate home equity  installment
loans, second trust deed residential loans,  credit and  retail/consumer  loans,
mobile home loans, and unsecured lines of credit. The Company generates consumer
loan  applications at its retail  branches.  In addition,  the Company  conducts
direct-mail  solicitations,  principally of its existing customers,  for secured
loans.  All consumer loan  processing,  servicing and collection  operations are
located in Sacramento, California.

     Sub-prime Auto Lending

     The Company commenced  purchases of sub-prime auto loans in connection with
the Auto One  Acquisition.  Auto One has been  involved  in the  sub-prime  auto
lending business for over ten years, and has an established  servicing  platform
for such loans. At December 31, 1999 and 1998, the Company's sub-prime purchased
auto loan portfolio totalled $698 million and $487 million,  respectively.  Such
loans were purchased in bulk from a third party or from  independent  automobile
dealers after the  acquisition  of Auto One.  These  purchased  loans have fixed
interest rates,  with terms to maturity based upon the mileage on the collateral
vehicle,  up to a maximum of 60 months.  Approximately 78% of Auto One's current
purchases are collateralized with vehicles two years old or newer.  Underwriting
on loans  purchased from dealers is performed by Auto One personnel prior to the
purchase.

                                    Page 41

<PAGE>

     Please refer to note 2 of the  Company's  Notes to  Consolidated  Financial
Statements for a complete  discussion of the accounting for purchased  sub-prime
auto loans.

     Activity related to purchased  sub-prime loans for the years ended December
31, 1999 and 1998 is summarized as follows (in millions):

<TABLE>
<CAPTION>
                                                                                         Allocated
                                       Contractual    Nonaccretable                      Allowance        Purchased
                                         Payments      Contractual      Accretable        for Loan        Sub-Prime
                                        Receivable      Cash Flows         Yield           Losses        Loans, net
                                        ----------      ----------         -----           ------        ----------
<S>                                      <C>              <C>             <C>               <C>            <C>
Balance, December 31, 1997               $  253           $ (47)          $ (35)            $--            $171

Purchases and acquisitions                  712            (136)            (99)             (5)            472
Repossessions & charge-offs                 (63)             43              --              --             (20)
Payments, payoffs & accretion              (206)             17              48              --            (141)
Provision for loan losses                    --              --              --              (3)             (3)
Reclassifications                            --               2              (2)             --              --
                                         ------           -----           -----             ---            ----
Balance, December 31, 1998                  696            (121)            (88)             (8)            479

Purchases and acquisitions                  750            (164)           (115)             --             471
Repossessions & charge-offs                 (84)             60              (1)              1             (24)
Payments, payoffs & accretion              (337)             29              80              --            (228)
Provision for loan losses                    --              --              --              (3)             (3)
Allocation from allowance
     for loan losses                         --              (7)             --               7              --
                                         ------           -----           -----             ---            ----
Balance, December 31, 1999               $1,025           $(203)          $(124)            $(3)           $695
                                         ======           =====           =====             ===            ====
</TABLE>

     Business Banking

     The  Company's  business  banking  program has four  components:  community
banking,  commercial  markets banking,  agribusiness  lending and Small Business
Administration ("SBA") lending. The Company's community business banking product
line includes  business  checking and savings  products of various  types,  cash
management products and services, account analysis, payroll services, electronic
banking  services,  and merchant  draft  services.  Community  business  banking
focuses  primarily  on  businesses  with  annual  sales of less than $10 million
located in the markets served by the Company's retail banking  offices.  To meet
the credit needs of these business customers,  the Company offers a wide variety
of  secured  and  unsecured  prime-based  lines of credit  and term  loans  with
maturities up to ten years. The maximum credit  commitment  offered by community
business banking is $1 million.  At December 31, 1999, total funded and unfunded
credit  commitments  under the community  business  banking group  totalled $298
million, compared to $267 million at December 31, 1998.

     The Company, through its commercial markets group,  accommodates businesses
with annual sales of up to $150  million,  but focuses  primarily on  businesses
with annual sales  between $10 million and $75 million.  The Company  offers its
commercial   markets  group  customers   products  including  business  checking
accounts, various cash management services,  revolving lines of credit, accounts
receivable  and  inventory  financing,  and term loans.  Specific loan terms are
determined  based upon the  financial  strength of the  borrower,  the amount of
credit granted,  and the type and quality of collateral  available.  At December
31, 1999, funded and unfunded credit  commitments  under the commercial  markets
group totalled $220 million, compared to $131 million at December 31, 1998.

     The Company's agribusiness lending program serves the Central Valley region
of California  and  specializes  in  production  loans for crops such as cotton,
grapes,    nuts,   stone   fruit   and   dairy    operations,    together   with
agricultural-related businesses, such as processors and packers. At December 31,
1999,  funded and unfunded credit  commitments  under the  agribusiness  lending
program totalled $215 million, compared to $230 million at December 31, 1998.

                                    Page 42

<PAGE>

     The SBA is a federal  government  agency created to assist small businesses
by providing guarantees of loans made to eligible small businesses.  Through its
SBA  lending  program,  the  Company  focuses  on the  long-term  needs of small
businesses  and  provides  long-term,   variable  and  fixed-rate  financing  to
expanding  businesses.  The Company has been granted statewide  preferred lender
status by the SBA. This designation allows the Company to approve SBA guaranteed
loan  applications  without prior review from the SBA, thereby  accelerating the
decision-making process for small business loan applications. Preferred lenders,
the highest lender status awarded by the SBA, enjoy priority funding and service
from the SBA.  Loans  approved  through the  preferred  lender  program  carry a
maximum SBA guarantee of 75%. At December 31, 1999,  funded and unfunded  credit
commitments  under the SBA lending  program  totalled $152 million,  compared to
$185 million at December 31, 1998.  Additionally,  the SBA  servicing  portfolio
totalled  $130  million  and  $173  million  at  December  31,  1999  and  1998,
respectively.

     At December  31, 1999,  deposit  relationships  under the various  business
banking product lines totalled $1.1 billion. The Company's business banking loan
products primarily have adjustable  interest rates that are indexed to the Prime
Rate.

     Problem and Potential Problem Assets

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

     Savings  associations  are  required to classify  their assets on a regular
basis,  establish prudent  allowances for loan losses and make quarterly reports
of troubled  asset  classifications  to the OTS.  Assets must be  classified  as
"pass,"  "special  mention,"  "substandard,"  "doubtful"  or "loss." An asset is
generally designated as "special mention" if potential weaknesses are identified
that,  if left  uncorrected,  would  result in  deterioration  of the  repayment
prospects for the asset. An asset, or a portion thereof, is generally classified
as "substandard" if it possesses a well-defined  weakness which could jeopardize
the timely  liquidation  of the asset or  realization  of the  collateral at the
asset's book value. Thus, these assets are characterized by the possibility that
the association will sustain some loss if the deficiencies are not corrected. An
asset, or portion thereof, is classified as "doubtful" if identified  weaknesses
make  collectibility or liquidation in full highly  questionable and improbable.
An asset,  or a portion  thereof,  that is  considered  to be  uncollectible  is
classified  "loss." It should be noted that the Company does not maintain assets
in a loss  classification  category;  rather, the carrying value of all troubled
assets is reduced  by any amount  considered  to be  uncollectible.  The OTS has
authority  to  approve,  disapprove  or modify any asset  classification  or any
amount  established  as an allowance  pursuant to such  classification.  Savings
associations must maintain  adequate general valuation  allowances in accordance
with generally accepted accounting principles and federal regulations for assets
classified as  "substandard"  or  "doubtful"  and either  immediately  write off
assets classified as "loss" or establish specific valuation  allowances equal to
the amounts classified as "loss."

     The Company has a comprehensive  process for classifying  assets, and asset
reviews  are  performed  on a  periodic  basis.  Such  reviews  are  prioritized
according to an asset's risk characteristics, such as loan size, collateral type
and/or location,  and potential loan performance problems.  The objective of the
review  process is to identify  significant  trends and  determine the levels of
loss  exposure to the Company  that would  require  adjustments  to specific and
general valuation allowances. If the quality of the Company's loans deteriorates
or if the allowance for loan losses is  inadequate  to absorb actual  losses,  a
material  adverse  effect on the Company's  results of operations  and financial
condition would be likely to result.

     The Company considers a loan impaired when, based upon current  information
and events,  it is "probable"  that it will be unable to collect all amounts due
(i.e.  both principal and interest)  according to the  contractual  terms of the
loan agreement.  Any insignificant delay or insignificant shortfall in amount of
payments  will  not  cause  a loan to be  considered  impaired.  In  determining
impairment,   the  Company  considers  large   non-homogeneous  loans  including
nonaccrual  loans,  troubled  debt  restructurings,  and  performing  loans that
exhibit, among other characteristics,  high LTV ratios, low debt-coverage ratios
or other  indications  that the borrowers are  experiencing  increased levels of

                                    Page 43

<PAGE>

financial difficulty.  Loans collectively reviewed for impairment by the Company
include all  single-family  loans,  business  banking  loans under  $100,000 and
performing  multi-family  and  commercial  real  estate  loans  under  $500,000,
excluding loans that have entered the workout process.

     The  measurement of impairment may be based on (a) the present value of the
expected  future  cash  flows of the  impaired  loan  discounted  at the  loan's
original  effective  interest  rate;  (b) the  observable  market  price  of the
impaired loan; or (c) the fair value of the collateral of a collateral-dependent
loan. The Company bases the measurement of  collateral-dependent  impaired loans
on the fair value of the loan's collateral,  less disposal costs. The amount, if
any, by which the  recorded  investment  of the loan  exceeds the measure of the
impaired  loan's value is recognized by recording a valuation  allowance.  Large
groups of smaller  balance  homogeneous  loans are  collectively  evaluated  for
impairment.

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

     At December 31, 1999 and 1998,  loans that were  considered  to be impaired
totalled  $123.6  million  and $135.2  million,  respectively,  (of which  $18.9
million and $32.5 million, respectively, were on nonaccrual status). The average
recorded  investment in impaired  loans during the years ended December 31, 1999
and 1998, was approximately $139.3 million and $137.1 million, respectively. For
the years  ended  December  31,  1999,  1998 and 1997,  the  Company  recognized
interest income on those impaired loans of $9.5 million,  $9.0 million and $10.5
million,  respectively,  which  included  $2.7  million,  $1.2  million and $0.6
million, respectively, of interest income recognized using the cash basis method
of income recognition.

     The following table presents the Company's non-performing loans, foreclosed
real estate,  repossessed  assets,  troubled debt restructurings  ("TDRs"),  and
impaired  loans as of the dates  indicated.  These  categories  are not mutually
exclusive; certain loans are included in more than one classification. Purchased
sub-prime auto loans are reflected as non-performing,  impaired, or restructured
using each individual loan's contractual unpaid principal balance.

<TABLE>
<CAPTION>
                                             December 31, 1999                              December 31, 1998
                                  -----------------------------------------     -----------------------------------------
                                  Non-performing   Impaired    Restructured     Non-performing   Impaired    Restructured
                                  --------------   --------    ------------     --------------   --------    ------------
                                                                      (in millions)
<S>                                    <C>          <C>            <C>              <C>            <C>           <C>
Real Estate:
   1-4 unit residential                $126         $ --           $ 2              $190           $ --          $ 3
   5+ unit residential                    6           34             5                16             55            9
   Commercial and other                   8           67            18                10             78           19
   Land                                  --            2            --                --              1           --
   Construction                          --           --            --                 1              1           --
                                       ----         ----           ---              ----           ----          ---
      Total real estate                 140          103            25               217            135           31
Non-real estate                          11           21            --                 9             --           --
                                       ----         ----           ---              ----           ----          ---
      Total loans                       151(a)      $124(b)        $25               226(a)        $135(b)       $31
                                                    ====           ===                             ====          ===
Foreclosed real estate, net              45                                           80
Repossessed assets                        4                                            4
                                       ----                                         ----
        Total non-performing assets    $200                                         $310
                                       ====                                         ====
</TABLE>

-------------
(a)  Includes loans securitized with recourse on  non-performing  status of $2.0
     million and $6.0 million at December 31, 1999 and 1998, respectively.

(b)  Includes $18.9 million and $32.5 million of non-performing  loans and $13.7
     million  and  $16.4   million  of  loans   classified   as  troubled   debt
     restructurings at December 31, 1999 and 1998, respectively.

                                    Page 44

<PAGE>

     Impaired Loans

     The following table indicates  outstanding  balances of impaired loans, net
of purchase accounting  adjustments,  by collateral type, interest rate type and
state concentration as of December 31, 1999:



                           5+ unit         Commercial
                         Residential        and Other        Total
                       ---------------   ----------------   Impaired    % of
    State              Variable  Fixed   Variable   Fixed    Loans      Total
    -----              --------  -----   --------   -----   --------    -----
                                       (dollars in millions)

California               $30      $ 2       $60      $ 9       $101     81.45%
New York                  --       --         3       --          3      2.42
Illinois                  --       --         6       --          6      4.84
Hawaii                    --       --         4       --          4      3.23
Florida                   --       --         8       --          8      6.45
Other states (1)           2       --        --       --          2      1.61
                         ---      ---       ---      ---       ----    ------
     Total               $32      $ 2       $81      $ 9       $124    100.00%
                         ===      ===       ===      ===       ====    ======

--------------
(1)  Represents 4 states,  none of which had  impaired  loans in excess of 1% of
     the total.

     Troubled Debt Restructured Loans

     The following table indicates loans  classified by the Company as TDRs, net
of purchase accounting adjustments at the dates indicated:

                                             At December 31,
                                    --------------------------------
                                    1999   1998   1997   1996   1995
                                    ----   ----   ----   ----   ----
                                             (in millions)

Real Estate:
   1-4 unit residential              $ 2    $ 3    $ 2    $ 3   $  8
   5+ unit residential                 5      9      7     55    147
   Commercial and other               18     19     24     29     79
                                     ---    ---    ---    ---   ----
      Total restructured loans       $25    $31    $33    $87   $234
                                     ===    ===    ===    ===   ====


     The following table  indicates  outstanding  balances of TDR loans,  net of
purchase  accounting  adjustments,  by collateral  type,  interest rate type and
state concentration as of December 31, 1999:

<TABLE>
<CAPTION>
                   1-4 unit              5+ unit            Commercial
                  Residential          Residential           and Other      Total
                ----------------    ----------------    ----------------     TDR    % of
   State        Variable   Fixed    Variable   Fixed    Variable   Fixed    Loans   Total
   -----        --------   -----    --------   -----    --------   -----    -----   -----
                                       (dollars in millions)
<S>               <C>       <C>       <C>       <C>        <C>      <C>      <C>     <C>
California        $1        $1        $2        $1         $6       $--      $11     44.10%
New York          --        --         1         1         --        12       14     55.90
                  --        --        --        --         --       ---      ---    ------
   Total          $1        $1        $3        $2         $6       $12      $25    100.00%
                  ==        ==        ==        ==         ==       ===      ===    ======
</TABLE>

     Interest  income  of $2.4  million,  $3.0  million  and  $3.5  million  was
recognized on restructured  loans during the years ended December 31, 1999, 1998
and 1997,  respectively.  Had the  loans  performed  in  accordance  with  their
original  terms,  $2.4  million,  $3.0 million and $3.6 million  would have been
recognized during December 31, 1999, 1998 and 1997, respectively.  There were no
non-real estate restructured loans in any of the past five years.

                                    Page 45

<PAGE>

     Non-performing Assets

     Loan Portfolio Risk Elements

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

     In general, loans are placed on nonaccrual status after being contractually
delinquent  for more than 90 days.  When a loan is placed on nonaccrual  status,
all  interest  previously  accrued but not  received is reversed and the loan is
considered  non-performing.  The Company may modify or  restructure  a loan as a
result of a borrower's  inability to service the  obligation  under the original
terms of the loan agreement.

     The following table indicates the Company's loans which have been placed on
nonaccrual  status,  as well as the carrying value of foreclosed real estate and
repossessed assets, at the dates indicated:

<TABLE>
<CAPTION>
                                                                 December 31,
                                               -------------------------------------------------
                                                1999      1998       1997        1996       1995
                                                ----      ----       ----        ----       ----
                                                             (dollars in millions)
<S>                                             <C>       <C>         <C>        <C>        <C>
Non-performing loans:
    Real Estate:
        1-4 unit residential                    $126      $190        $165       $146       $136
        5+ unit residential                        6        16          12         13         23
        Commercial and other                       8        10           6          9          9
        Land                                      --        --          --         --         --
        Construction                              --         1           2          1         --
                                                ----      ----        ----       ----       ----
            Total real estate                    140       217         185        169        168
    Equity-line and consumer                      11         9           7          3          3
                                                ----      ----        ----       ----       ----
            Total non-performing loans           151       226         192        172        171
Foreclosed real estate, net                       45        80          77         52         49
Repossessed assets                                 4         4           3         --         --
                                                ----      ----        ----       ----       ----
            Total non-performing assets         $200      $310 (a)    $272 (b)   $224 (c)   $220
                                                ====      ====        ====       ====       ====
Non-performing loans as a percentage
    of loans receivable                         0.44%     0.75%       0.99%      1.69%      1.94%
                                                ====      ====        ====       ====       ====
Non-performing assets as a percentage
    of the Bank's total assets                  0.35%     0.57%       0.87%      1.36%      1.50%
                                                ====      ====        ====       ====       ====
</TABLE>

-------------
(a)  Includes $111.7 million of assets acquired in the Glen Fed Merger.

(b)  Includes $70.2 million of assets acquired in the Cal Fed Acquisition.

(c)  Includes $74.5 million of assets acquired in the SFFed  Acquisition and the
     1996  acquisition  of Home Federal  Financial  Corporation  ("Home  Federal
     Acquisition"   and  together   with  the  SFFed   Acquisition,   the  "1996
     Acquisitions"), and in the 1996 LMUSA Purchase.

                                    Page 46

<PAGE>

     Interest income of $7.1 million, $9.7 million and $6.8 million was received
and  recognized  by the  Company  for  nonaccrual  loans  during the years ended
December  31,  1999,  1998 and 1997,  respectively.  Had the loans  performed in
accordance  with their original  terms,  $10.9 million,  $18.2 million and $15.9
million  would have been  recognized  during  December 31, 1999,  1998 and 1997,
respectively.  The  Company has had no loans  contractually  past due 90 days or
more on accrual status in the past five years.

     The  following  table  presents   non-performing   real  estate  assets  by
geographical region of the country as of December 31, 1999:

                                                          Total
                   Non-performing   Foreclosed     Non-performing
                     Real Estate    Real Estate,     Real Estate    Geographic
                   Loans, Net (2)     Net (2)          Assets      Concentration
                   --------------   -----------    --------------  -------------
                                       (dollars in millions)

Region:
  Northeast (1)        $ 15             $ 6            $ 21            11.48%
  California             80              27             107            57.76
  Other regions          45              12              57            30.76
                       ----             ---            ----           ------
     Total             $140             $45            $185           100.00%
                       ====             ===            ====           ======

------------
(1)  Consists of  Connecticut,  Massachusetts,  New Hampshire,  New Jersey,  New
     York, Pennsylvania, Rhode Island and Delaware.

(2)  Net of purchase accounting adjustments.

     At December 31, 1999, the Company's largest  non-performing  asset was $4.9
million and the Company  had two  non-performing  assets over $2 million in size
with balances averaging  approximately  $3.3 million.  At December 31, 1999, the
Company  had 1,192  non-performing  assets  below $2 million in size,  including
1,120 non-performing 1-4 unit residential assets.

     The  level of  non-performing  assets  is  directly  affected  by  economic
conditions throughout the country. The following table indicates  non-performing
real estate loans, net of purchase accounting  adjustments,  by collateral type,
interest rate type and state concentration as of December 31, 1999:

<TABLE>
<CAPTION>

                        1-4 unit             5+ unit           Commercial         Total
                      Residential          Residential          and Other      Non-Performing
                    ----------------    ----------------    ----------------    Real Estate     % of
    State           Variable   Fixed    Variable   Fixed    Variable   Fixed       Loans        Total
    -----           --------   -----    --------   -----    --------   -----  --------------    -----
                                                 (dollars in millions)
<S>                    <C>      <C>       <C>       <C>       <C>       <C>       <C>           <C>
California             $58      $13       $ 5       $--       $ 4       $--       $ 80          57.31%
New York                 7        2        --        --        --        --          9           6.11
Florida                  9        4        --        --        --        --         13          10.04
Hawaii                   6        1        --        --         4        --         11           8.10
New Jersey               3        1        --        --        --        --          4           2.96
Illinois                 1        1        --        --        --        --          2           1.36
Texas                    1        2        --        --        --        --          3           2.01
Other states (1)        10        7         1        --        --        --         18          12.11
                       ---      ---       ---       ---       ---       ---       ----         ------
     Total             $95      $31       $ 6       $--       $ 8       $--       $140         100.00%
                       ===      ===       ===       ===       ===       ===       ====         ======
</TABLE>

-------------------
(1)  There are 44 states,  Puerto Rico, Virgin Islands, Guam and the District of
     Columbia, of which no one state had non-performing loans in excess of 1% of
     the total.

                                    Page 47

<PAGE>

     Allowance for Loan Losses

     An allowance is maintained to absorb losses inherent in the loan portfolio.
The  adequacy of the  allowance  is  periodically  evaluated  by  management  to
maintain the  allowance at a level that is  sufficient  to absorb  expected loan
losses. The allowance for loan losses is increased by provisions for loan losses
as well  as by  balances  acquired  through  acquisitions  and is  decreased  by
charge-offs  (net of recoveries).  The Company  charges current  earnings with a
provision  for  estimated  credit  losses  on loans  receivable.  The  provision
considers both specifically identified problem loans as well as credit risks not
specifically   identified  in  the  loan  portfolio.   The  Company  established
provisions for loan losses of $10 million, $40 million and $79.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively.

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

     The formula allowance element gives  consideration to loss that is imbedded
within loan  portfolios,  but has not yet been  realized.  Losses are recognized
when (a)  available  information  indicates  that it is probable that a loss has
been  incurred  and (b) the  amount  of the  loss can be  reasonably  estimated.
Generally,  the Company  believes  that  borrowers  are  impacted by events that
result in loan  default  and  eventual  loss  which  occur  well in advance of a
lender's  knowledge  of  those  events,  and  that the  time-frame  between  the
occurrence  of such events and the  resulting  default and loss  realization  is
between  one and 2.5  years,  depending  upon the loan  type.  Examples  of such
loss-causing events for single family mortgage and other consumer loans would be
borrower job loss,  divorce,  and medical crisis. An example for commercial real
estate loans would be the loss of a major tenant.

     Therefore,  if the general credit  characteristics of a loan portfolio have
not changed  significantly  over time, and the time-frame  between  loss-causing
event and loss  realization  is estimated to be two years for a given  portfolio
type,  it is  probable  that  historical  losses  approximate  the loss  that is
imbedded  in today's  portfolio,  and such  imbedded  loss can be  estimated  by
calculating historical loss experience over a period of two years.

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

     The specific allowances are established against individual loans, including
impaired  loans in  accordance  with SFAS No. 114,  Accounting  by Creditors for
Impairment of a Loan.  Specific  allowances are established  against  individual
residential  1-4 mortgage  loans,  commercial  loans and commercial  real estate
loans for which  management has performed  analyses and concluded that, based on
current  information and events,  it is probable that the Bank will be unable to
collect  all  amounts  due  according  to the  contractual  terms  of  the  loan
agreement. Generally, management believes that collectibility is improbable if a
loan is severely delinquent or if it has been determined that borrower cash flow
is inadequate for debt repayment. The amount of specific allowance is determined
by an estimation of collateral deficiency, including consideration of costs that
will likely be incurred through the disposal of any repossessed  collateral.  In
other words, management estimates the fair value of collateral,  net of the cost
of disposition of the collateral, and the fair value is compared to the net book
value of the loan.  If the net book value  exceeds  the fair  value,  a specific
allowance is established in an amount equal to the excess.  Loans  evaluated for
specific allowance are excluded from the formula allowance analysis so as not to
double-count loss exposure.

                                    Page 48

<PAGE>

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

     At December  31,  1999,  the  allowance  for loan losses was $555  million,
consisting of a $358 million formula allowance, a $39 million specific allowance
and a $158 million unallocated  allowance.  Although the loan loss allowance has
been  allocated  by type of loan  for  internal  valuation  purposes,  all  such
allowance  is available  to support any losses  which may occur,  regardless  of
type,  in the  Company's  loan  portfolio.  The  following  table sets forth the
allocation  of the  Company's  allowance  for loan losses and the  percentage of
loans in each category to total loans at the dates indicated:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                  ------------------------------------------
                                                  1999      1998      1997     1996     1995
                                                  ----      ----      ----     ----     ----
                                                                 (in millions)
<S>                                              <C>       <C>       <C>      <C>       <C>
Specific allowance:
     Real estate loans:
        1-4 unit residential                     $ 16      $ --      $ --     $ --      $  1
        5+ unit residential and
           commercial real estate                  18        17         8        6        --
                                                 ----      ----      ----     ----      ----
               Total real estate loans             34        17         8        6         1
        Equity-line and consumer loans              5        --        --       --        --
                                                 ----      ----      ----     ----      ----
               Total specific allowance            39        17         8        6         1
                                                 ----      ----      ----     ----      ----
General allowance:
     Real estate loans:
        1-4 unit residential                      219       251       202      123       115
        5+ unit residential and
           commercial real estate                 258       261       190      109        85
                                                 ----      ----      ----     ----      ----
               Total real estate loans            477       512       392      232       200
        Equity-line and consumer loans             39        60        19        9         9
                                                 ----      ----      ----     ----      ----
               Total general allowance            516       572       411      241       209
                                                 ----      ----      ----     ----      ----
               Total allowance for
                  loan losses                    $555      $589      $419     $247      $210
                                                 ====      ====      ====     ====      ====
</TABLE>

     The following  table sets forth the  allocation of the Company's  allowance
for loan losses and the  percentage  of loans in each category to total loans at
the dates indicated (dollars in millions):

<TABLE>
<CAPTION>
                                                                     Year Ended December 31,
                             -------------------------------------------------------------------------------------------------------
                                    1999                 1998                 1997                 1996                 1995
                             -------------------  -------------------  -------------------  -------------------  -------------------
                                          % of                % of                 % of                 % of                 % of
                                          Loans               Loans                Loans                Loans                Loans
                             Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total  Allowance  to Total
                              Balance    Loans     Balance    Loans     Balance    Loans     Balance     Loans    Balance    Loans
                              -------    -----     -------    -----     -------    -----     -------     -----    -------    -----
<S>                            <C>        <C>       <C>         <C>       <C>        <C>      <C>         <C>      <C>        <C>
Real estate:
  1-4 unit residential         $235       79%       $251        76%       $202       71%      $123        58%      $116       59%
  5+ unit residential and
    commercial real estate      276       16         278        18         198       26        115        39         85       39
                               ----      ---        ----       ---        ----      ---       ----       ---       ----      ---
      Total real estate loans   511       95         529        94         400       97        238        97        201       98
  Equity-line and other loans    44        5          60         6          19        3          9         3          9        2
                               ----      ---        ----       ---        ----      ---       ----       ---       ----      ---
      Total                    $555      100%       $589       100%       $419      100%      $247       100%      $210      100%
                               ====      ===        ====       ===        ====      ===       ====       ===       ====      ===
</TABLE>

                                    Page 49

<PAGE>

     The following table summarizes activity in the Company's allowance for loan
losses during the periods indicated:

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                  ---------------------------------------
                                                                  1999     1998     1997     1996    1995
                                                                  ----     ----     ----     ----    ----
                                                                               (in millions)
<S>                                                               <C>      <C>      <C>      <C>      <C>
Balance at beginning of period                                    $589     $419     $247     $210     $203
    Purchases - Glen Fed Merger                                     --      170       --       --       --
    Purchases - Cal Fed Acquisition                                 --       --      144       --       --
    Purchases - SFFed Acquisition                                   --       --       --       40       --
    Purchases - Home Federal Acquisition                            --       --       --        5       --
    Provision for loan losses                                       10       40       80       40       37
    Charge-offs:
         1-4 unit residential                                      (19)     (27)     (38)     (35)     (28)
         5+ unit  residential  and commercial real estate (a)       (7)      (9)      (8)      (4)
         Consumer and other                                        (14)     (10)     (10)      (6)      (5)
                                                                  ----     ----     ----     ----     ----
            Total charge-offs                                      (40)     (46)     (56)     (45)     (33)
    Recoveries                                                       4        6        4        3        3
                                                                  ----     ----     ----     ----     ----
         Net charge-offs                                           (36)     (40)     (52)     (42)     (30)
    Allocation to Nonaccretable Contractual
         Cash Flows of purchased auto loan portfolio                (7)      --       --       --       --
    Reclassifications                                               (1)      --       --       --       --
    Allowance for losses assigned to loans sold                     --       --       --       (6)      --
                                                                  ----     ----      ----    ----     ----
Balance at end of period                                          $555     $589      $419    $247     $210
                                                                  ====     ====      ====    ====     ====
</TABLE>

------------
(a)  Reduced level of activity  during 1996 and 1995 reflects the utilization of
     a  non-performing  asset sale  agreement  between  the  Company and Granite
     Management and Disposition,  Inc. (the "Put  Agreement"),  which expired in
     November, 1996.

     The Company has  increased its allowance for loan losses over the past five
years both through  periodic  provisions (and charges to income) of $207 million
and through  balances of $359 million  acquired in  connection  with the various
acquisitions  which occurred during that time.  Charge-offs during the five-year
period  totalled $220 million.  However,  it should be noted that the charge-off
activity related to predecessor  institutions is not reflected in this table for
periods  prior to  acquisition  by the Company.  Losses  charged by  predecessor
institutions  during the years presented prior to 1999 totalled $470 million. On
a pro forma basis,  average annual charge-offs for the five years ended December
31, 1999 were $138 million, which represents  approximately four years of losses
based on the allowance for loan losses at December 31, 1999.

                                    Page 50

<PAGE>

     A summary of the activity in the  allowance for loan losses by loan type is
as follows for the years ended December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                   5+ Unit
                                                                 Residential
                                                 1-4 Unit       and Commercial      Consumer
                                                Residential      Real Estate       and Other       Total
                                                -----------      -----------       ---------       -----
                                                                        (in millions)
<S>                                                <C>              <C>                <C>         <C>
Balance - December 31, 1996                        $123             $115               $ 9         $247
    Purchases and acquisitions, net                  55               79                10          144
    Provisions for loan losses                       60               12                 8           80
    Charge-offs                                     (38)              (8)              (10)         (56)
    Recoveries                                        2               --                 2            4
                                                   ----             ----               ---         ----
Balance - December 31, 1997                         202              198                19          419
    Purchases and acquisitions, net                  50               78                42          170
    Provisions for loan losses                       25                9                 6           40
    Charge-offs                                     (27)              (9)              (10)         (46)
    Recoveries                                        1                2                 3            6
                                                   ----             ----               ---         ----
Balance - December 31, 1998                         251              278                60          589
    Provisions for loan losses                        2                3                 5           10
    Charge-offs                                     (19)              (7)              (14)         (40)
    Recoveries                                        1                1                 2            4
    Allocation to Nonaccretable
       Contractual Cash Flows
       of purchased auto loan portfolio              --               --                (7)          (7)
    Reclassifications                                --                1                (2)          (1)
                                                   ----             ----               ---         ----
Balance - December 31, 1999                        $235             $276               $44         $555
                                                   ====             ====               ===         ====
</TABLE>

     The table below provides the Company's  ratios of net  charge-offs on loans
to average outstanding loan balances during the periods indicated:

                                               Year Ended December 31,
                                  ---------------------------------------------
                                  1999      1998      1997       1996      1995
                                  ----      ----      ----       ----      ----

Real estate:
    1-4 unit residential          0.07%     0.11%     0.25%      0.55%     0.47%
    5+ unit residential and
        commercial real estate    0.10      0.18      0.15       0.09        --
Consumer and other                0.67      0.50      1.72       1.86      1.00


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

                                    Page 51

<PAGE>

Risk Management

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

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

     The Company's  operations are significantly  influenced by general economic
conditions in the markets and geographic areas in which the Company conducts its
business,  the monetary and fiscal  policies of the federal  government  and the
regulatory policies of certain governmental  agencies.  Deposit balances and the
cost of borrowings are influenced by interest rates on competing investments and
general  market  interest  rates.  The Company's loan volume and yields are also
impacted by market  interest rates on loans,  the supply and demand for housing,
and the availability of funds.

     Asset and Liability Management

     Golden State,  through the Bank,  actively  pursues  investment and funding
strategies  to  minimize  the  sensitivity  of its  earnings  to  interest  rate
fluctuations.  The Company measures the interest rate sensitivity of its balance
sheet  through gap and duration  analysis,  as well as net  interest  income and
market value simulation. After taking into consideration both the variability of
rates and the maturities of various  instruments,  it evaluates strategies which
may reduce the  sensitivity  of its  earnings to interest  rate and market value
fluctuations.  An  important  decision  is  the  selection  of  interest-bearing
liabilities  and the  generation  of  interest-earning  assets  which best match
relative to interest  rate  changes.  In order to reduce  interest  rate risk by
increasing the  percentage of  interest-rate-sensitive  assets,  the Company has
continued its emphasis on the origination of adjustable  rate mortgage  products
for its portfolio.  Where  possible,  the Company seeks to originate real estate
and  other  loans  that  reprice  frequently  and that on the  whole  adjust  in
accordance  with  the  repricing  of its  liabilities.  At  December  31,  1999,
approximately 77% of the Company's loan portfolio consisted of ARMs.

     One of the most important  sources of the Bank's net income is net interest
income,   which  is  the  difference   between  the  combined  yield  earned  on
interest-earning   assets  and  the  combined  rate  paid  on   interest-bearing
liabilities.  Net interest income is also dependent on the relative  balances of
interest-earning assets and interest-bearing liabilities.

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

                                    Page 52

<PAGE>

     As a result of the FN and Cal Fed  Acquisitions,  the Company  acquired the
rights and assumed  obligations related to certain interest rate swap agreements
that were entered into to hedge certain FHLB advances.  Under the terms of these
agreements,  the Company paid a variable rate based on LIBOR and received  fixed
rates. During 1998 and 1997, the Company's net interest margin increased by $2.1
million and $0.6 million,  respectively, as a result of these interest rate swap
agreements,  largely due to the  amortization  of the premium  assigned to these
agreements  in the  FN and  Cal  Fed  Acquisitions.  These  interest  rate  swap
agreements had all expired by December 31, 1998.

     During 1999,  the Company  entered into  interest  rate swap  agreements to
adjust its  interest  rate risk  exposure on variable  rate  reverse  repurchase
agreements and FHLB advances. See --"Balance Sheet  Analysis--Sources of Funds."
During 1999,  the Company's net interest  margin  decreased by $8.9 million as a
result of these interest rate swap agreements.

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

                                    Page 53

<PAGE>

     The  following  table  sets  forth  the  projected  maturities  based  upon
contractual  maturities as adjusted for  projected  prepayments  and  "repricing
mechanisms"  (provisions  for  changes  in the  interest  rates  of  assets  and
liabilities).  Prepayment rates are assumed in each period on the Company's loan
portfolio  based upon expected  loan  prepayments.  Repricing  mechanisms on the
Company's  assets are  subject to  limitations,  such as caps on the amount that
interest  rates and payments on its loans may adjust.  Accordingly,  such assets
may not  respond in the same manner or to the same extent to changes in interest
rates as the Company's  liabilities.  In addition, the interest rate sensitivity
of the assets and liabilities  illustrated in the table would vary substantially
if different  assumptions  were used or if actual  experience  differed from the
assumptions set forth. The Company's  estimated interest rate sensitivity gap at
December 31, 1999 was as follows:

<TABLE>
<CAPTION>
                                                                       Maturity/Rate Sensitivity
                                                       -----------------------------------------------------------
                                                     Within          1-5           Over 5     Noninterest
                                                     1 Year         Years          Years       Bearing       Total
                                                     ------         -----          -----       -------       -----
                                                                          (dollars in millions)
<S>                                                 <C>             <C>             <C>          <C>         <C>
INTEREST-EARNING ASSETS:
   Securities held to maturity, interest-bearing
      deposits in other banks and short term
      investment securities (1)(2)                  $   183         $    --         $   86       $   --      $   269
   Securities held for sale (3)                       1,076              --             --           --        1,076
   Mortgage-backed securities available
      for sale                                       13,765              --             --           --       13,765
   Mortgage-backed securities held
      to maturity (1)(4)                              2,112              22             14           --        2,148
   Loans held for sale, net (3)                         729              --             --           --          729
   Loans receivable, net (1)(5)                      18,694          10,765          4,885           --       34,344
   Investment in FHLB                                 1,167              --             --           --        1,167
                                                    -------         -------         ------       ------      -------
           Total interest-earning assets             37,726          10,787          4,985           --       53,498

   Noninterest-earning assets                            --              --             --        3,521        3,521
                                                    -------         -------         ------       ------      -------
                                                    $37,726         $10,787         $4,985       $3,521      $57,019
                                                    =======         =======         ======       ======      =======

INTEREST-BEARING LIABILITES:
   Deposits (6)                                     $19,748         $ 3,283         $    5       $   --      $23,036
   Securities sold under agreements to
      repurchase (1)                                  5,482              --             --           --        5,482
   FHLB advances (1)                                 11,823          11,639             --           --       23,462
   Other borrowings (1)                                 110           1,204            892           --        2,206
                                                    -------         -------         ------       ------      -------
      Total interest-bearing liabilities             37,163          16,126            897           --       54,186

   Noninterest-bearing liabilities                       --              --             --          771          771
   Minority interest                                     --              --             --          500          500
   Stockholders' equity                                  --              --             --        1,562        1,562
                                                    -------         -------         ------       ------      -------
                                                    $37,163         $16,126         $  897       $2,833      $57,019
                                                    =======         =======         ======       ======      =======

   Gap before interest rate swap agreements         $   563         $(5,339)        $4,088                   $  (688)
   Interest rate swap agreements                      2,550          (1,650)          (900)                       --
                                                    -------         -------         ------                   -------
   Gap                                              $ 3,113         $(6,989)        $3,188                   $  (688)
                                                    =======         =======         ======                   =======

   Cumulative gap                                   $ 3,113         $(3,876)        $ (688)                  $  (688)
                                                    =======         =======         ======                   =======

   Gap as a percentage of total assets                 5.46%         (12.26)%         5.59%                    (1.21)%
                                                    =======         =======         ======                   =======

   Cumulative gap as a percentage of total assets      5.46%          (6.80)%        (1.21)%                   (1.21)%
                                                    =======         =======         ======                   =======

                                                                               (Footnotes continued on next page)
</TABLE>

                                    Page 54

<PAGE>

----------------------
(1)  Based upon (a)  contractual  maturity,  (b) instrument  repricing  date, if
     applicable,  and (c) projected repayments and prepayments of principal,  if
     applicable.  Prepayments  were estimated  generally by using the prepayment
     rates  forecast by various large  brokerage  firms as of December 31, 1999.
     The  actual  maturity  and  rate  sensitivity  of  the  assets  could  vary
     substantially if future prepayments differ from prepayment estimates.

(2)  Consists of less than $0.1  million of  interest-bearing  deposits in other
     banks, $84 million of short-term  investment securities and $185 million of
     securities held to maturity.

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

(4)  Excludes underlying non-performing loans of $2 million.

(5)  Excludes allowance for loan losses of $555 million and non-performing loans
     of $149 million.

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

     At December 31, 1999, Golden State's  cumulative gap totalled $688 million.
At December 31, 1998, Golden State's cumulative gap totalled $373 million.

     The  Company  utilizes   computer  modeling  under  various  interest  rate
scenarios  to provide a dynamic  view of the  effects  of the  changes in rates,
spreads,   and  yield  curve  shifts  on  net  interest  income.   However,  the
maturity/rate  sensitivity  analysis is a static view of the balance  sheet with
assets and  liabilities  grouped into certain  defined  time  periods,  and only
partially  depicts the dynamics of the  Company's  sensitivity  to interest rate
changes.  Therefore,  this  analysis may not fully  describe the  complexity  of
relationships  between product  features and pricing,  market rates,  and future
management of the balance sheet mix.

     Mortgage Banking Risk Management

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

     The Company owned several derivative instruments at December 31, 1999 which
were used to hedge against prepayment risk in its mortgage servicing  portfolio.
These derivative  instruments  included Constant Maturity Treasury interest rate
floor  contracts,  swaptions and principal  only swaps.  The interest rate floor
contracts had a notional  amount of $950 million,  strike rates of 5.70%,  5.75%
and  6.06%,  mature in the year 2004 and had an  estimated  fair  value of $10.4
million at December 31, 1999.  Premiums paid to  counter-parties in exchange for
cash payments when the 10-year Constant Maturity Treasury falls below the strike
rate are  recorded as part of the MSR asset on the balance  sheet.  The swaption
contracts had notional amounts of $834.0 million, a weighted average strike rate
of  6.98%,  expire  in the year 2002 and had an  estimated  fair  value of $24.3
million at December 31, 1999.  Premiums paid to  counter-parties in exchange for
the right to enter into an  interest  rate swap are  recorded as part of the MSR
asset on the balance sheet.  Principal only swap agreements had notional amounts
of $202.3 million and an estimated  (negative)  fair value of $(15.8) million at
December 31, 1999. All outstanding prepayment-linked swaps matured during 1999.

     These instruments effect a 39% hedge, at December 31, 1999, on the value of
the MSRs related to the fixed-rate loans serviced by FNMC,  excluding loans with
prepayment penalties. The comparable hedge ratio at December 31, 1998 was 53%. A
reduction  in the hedge  during 1999 was  executed in light of the  reduction in
overall prepayment rates on the servicing portfolio.

                                    Page 55

<PAGE>

     For  information  on the  accounting for and activities in MSRs and the MSR
Hedge,  refer  to  notes 2, 17 and 36 of the  Company's  Notes  to  Consolidated
Financial Statements.

     Recently Issued Accounting Pronouncements

     In  connection  with  its  off-balance-sheet   activities,   management  is
assessing  the  potential  effect of SFAS No.  133,  Accounting  for  Derivative
Instruments and Hedging  Activities ("SFAS No. 133"). SFAS No. 133 was issued by
the Financial  Accounting  Standards Board ("FASB") in June 1998. It establishes
standards for derivative  instruments  and for hedging  activities.  It requires
that an entity  recognize all derivatives as either assets or liabilities in the
balance sheet and measure those  instruments at fair value.  Under SFAS No. 133,
an entity that elects to apply hedge  accounting is required to establish at the
inception of the hedge the method it will use for assessing the effectiveness of
the  hedging  derivative  and  the  measurement  approach  for  determining  the
ineffective aspect of the hedge.

     SFAS No.  133,  as  amended  by SFAS No.  137,  Accounting  for  Derivative
Instruments  and  Hedging  Activities-Deferral  of the  Effective  Date  of FASB
Statement No. 133-an  amendment of FASB  Statement No. 133, is effective for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  2000.  Initial
application  of this  statement  should be as of the  beginning  of an  entity's
fiscal quarter. On that date, hedging  relationships must be designated anew and
documented pursuant to the provisions of this statement.  Earlier application of
all of the provisions of SFAS No. 133 is encouraged, but is permitted only as of
the beginning of any fiscal quarter that begins after issuance of the statement.
SFAS No. 133 should not be applied  retroactively  to  financial  statements  of
prior periods.  For more information,  refer to note 2 in the Company's Notes to
Consolidated Financial Statements.

Liquidity

     The standard  measure of liquidity in the savings  industry is the ratio of
cash and short-term U.S.  government and other specified  securities to deposits
and  borrowings  due within  one year.  Effective  November  24,  1997,  the OTS
established a minimum  liquidity  requirement  of 4.00%,  a reduction from 5.00%
which had been in effect prior to that date. The Bank was in compliance with the
liquidity regulations during 1999 and 1998.

     The major source of funding for Golden State on an unconsolidated  basis is
distributions  from its  subsidiary,  GS Holdings,  which  receives  most of its
funding from distributions of the Bank's earnings and tax sharing payments.  Net
income generated by the Bank is used to meet its own cash flow needs,  including
paying  dividends  on its  preferred  stock  owned  by GS  Holdings,  and may be
distributed,  subject to  certain  restrictions,  to GS  Holdings.  In turn,  GS
Holdings  uses  distributions  received  from the Bank  primarily  to meet  debt
service  requirements,  pay any expenses it may incur, and make distributions to
Golden State, subject to certain restrictions.  For more information on dividend
restrictions  for the Bank and GS  Holdings,  refer to note 25 of the  Company's
Notes to Consolidated Financial Statements.

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

     The  consolidated  Company's  primary uses of funds are the originations or
purchases of loans, the purchase of mortgage-backed  securities,  the funding of
maturing  certificates of deposit,  demand deposit withdrawals and the repayment
of  borrowings.  Certificates  of deposit  scheduled to mature during the twelve
months ending December 31, 2000 total $8.7 billion.  The Company may renew these
certificates,  attract new replacement  deposits,  replace such funds with other
borrowings,  or it may  elect  to  reduce  the  size of the  balance  sheet.  In
addition,  at December 31, 1999, the Company had FHLB advances,  securities sold
under  agreements to repurchase and other borrowings  aggregating  $17.4 billion
maturing or repricing  within  twelve  months.  The Company may elect to pay off
such  debt

                                    Page 56

<PAGE>

or to replace such borrowings  with  additional  FHLB advances,  securities sold
under agreements to repurchase or other borrowings at prevailing rates.

     During 1994,  California  Federal  issued  3,007,300  shares of its 11 1/2%
noncumulative  perpetual  preferred stock (the "11 1/2% Bank Preferred  Stock").
Cash dividends on the 11 1/2% Bank  Preferred  Stock are  noncumulative  and are
payable at an annual rate of 11 1/2% if,  when,  and as declared by the Board of
Directors  of the Bank.  The  payment  of  dividends  by the Bank is  subject to
certain federal laws applicable to savings  associations.  Dividends paid by the
Bank on the 11 1/2% Bank  Preferred  Stock for each year ended December 31, 1999
and 1998 totalled  $34.6 million.  However,  GS Holdings  repurchased  2,688,959
shares of the 11 1/2% Bank Preferred Stock in connection with the Bank Preferred
Stock Tender Offers in 1998, and redeemed the remaining  318,341 shares in 1999,
which  reduced  dividend  expenses  on the 11 1/2%  Bank  Preferred  Stock  on a
consolidated  basis to $1.8 million for the year ended  December  31,  1999.  At
December 31, 1999, all of the 11 1/2% Bank Preferred  Stock was held  indirectly
by Golden State.

     In the Cal Fed  Acquisition,  the Company assumed certain  indebtedness and
Old California  Federal's 10 5/8% noncumulative  perpetual  preferred stock (the
"10 5/8% Bank  Preferred  Stock" and  together  with the 11 1/2% Bank  Preferred
Stock, the "Bank Preferred  Stock"),  which have an annual interest cost of $0.6
million  and an  annual  dividend  cost of  $18.3  million,  respectively.  Cash
dividends on the 10 5/8% Bank Preferred Stock are  noncumulative and are payable
at an  annual  rate of 10  5/8%,  if,  when,  and as  declared  by the  Board of
Directors of the Bank.  Similar to the 11 1/2% Bank Preferred Stock, the payment
of  dividends  by the Bank is subject  to certain  federal  laws  applicable  to
savings  associations.  Dividends paid by the Bank on the 10 5/8% Bank Preferred
Stock,  for each year ended  December 31, 1999 and 1998 totalled  $18.3 million.
However,  GS Holdings  purchased  1,117,701 shares of the 10 5/8% Bank Preferred
Stock in connection  with the Bank  Preferred  Stock Tender Offers in 1998,  and
redeemed the remaining 607,299 shares in 1999, which reduced dividend expense on
the 10 5/8% Bank Preferred  Stock on a  consolidated  basis to zero for the year
ended December 31, 1999. At December 31, 1999, all of the 10 5/8% Bank Preferred
Stock was held indirectly by Golden State.

     The dividends,  net of tax benefits,  on the preferred  stock of California
Federal  Preferred Capital Corp. (the "REIT Preferred Stock") were $26.4 million
and $33.1 million for the years ended December 31, 1999 and 1998,  respectively.
The terms of the REIT Preferred Stock provide that California  Federal Preferred
Capital Corp.  ("Preferred  Capital Corp.") may not declare or pay any dividends
or other  distributions  (other  than in  shares of  common  stock of  Preferred
Capital Corp. or other Preferred  Capital Corp.  Junior Stock),  with respect to
any Preferred  Capital  Corp.  Junior Stock or  repurchase,  redeem or otherwise
acquire, or set apart funds for the repurchase,  redemption or other acquisition
of any Preferred  Capital Corp. Junior Stock (including the common stock held by
the Bank) through a sinking fund or otherwise,  unless and until:  (a) Preferred
Capital Corp. has paid full  dividends on the REIT Preferred  Stock for the four
most  recent  dividend  periods  or funds  have been  paid over to the  dividend
disbursing agent of Preferred  Capital Corp. for payment of such dividends,  and
(b) Preferred  Capital Corp.  has declared a cash dividend on the REIT Preferred
Stock  at the  annual  dividend  rate  for  the  current  dividend  period,  and
sufficient  funds  have  been  paid  over to the  dividend  disbursing  agent of
Preferred  Capital  Corp.  for the payment of a cash  dividend  for such current
dividend  period.  Preferred  Capital Corp. is currently in compliance with such
requirement.

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

     During the year ended December 31, 1998, $914.5 million of the FN Holdings'
12 1/4% Senior Notes due 2001, 9 1/8% Senior  Subordinated Notes due 2003 and 10
5/8% Senior  Subordinated  Notes due 2003 (collectively the "FN Holdings Notes")
were purchased in connection with the Debt Tender Offers, with related premiums,
fees and other expenses  totalling  $98.7  million,  on an after-tax  basis.  In
addition,  during the year ended December 31, 1998,  $455 million of the 12 1/2%
Senior  Notes due 2003 (the "Parent  Holdings  Notes")  were  defeased  ("Parent
Holdings

                                    Page 57

<PAGE>

Defeasance"),  with related  premiums,  fees and other expenses  totalling $51.6
million on an after-tax  basis.  An additional  $225 thousand of the FN Holdings
12 1/4% Senior Notes due 2001 was redeemed in 1999.

     The Company  anticipates  that cash and cash  equivalents on hand, the cash
flows  from  assets as well as other  sources  of funds  will  provide  adequate
liquidity  for its  operating,  investing  and  financing  needs and the  Bank's
regulatory   liquidity    requirements   for   the   foreseeable   future.   See
"Business--Regulation and Supervision." In addition to cash and cash equivalents
of $593.0 million at December 31, 1999, the Company has  substantial  additional
secured borrowing capacity with the FHLB and other sources.

     Net cash provided by operating  activities  for the year ended December 31,
1999 totalled $2.0 billion  compared to net cash used of $572.2  million  during
the year ended December 31, 1998. The change was  principally due to an increase
in net proceeds from the sale of loans held for sale.

     Net cash used in operating  activities for the year ended December 31, 1998
totalled  $572.2  compared to $431.8  million during the year ended December 31,
1997.  The  change  was  principally  due  to  the  increase  in  purchases  and
originations of loans held for sale, net of proceeds from sales.

     Net cash used in investing  activities for the year ended December 31, 1999
totalled $4.5 billion,  an increase of $1.5 billion from the year ended December
31,  1998.  Cash  flows  used in  investing  activities  included  purchases  of
mortgage-backed  securities  available  for sale of $4.8  billion,  purchases of
loans  receivable  of $2.2 billion,  a net increase in loans  receivable of $1.7
billion,  purchases of  securities  of $836.6  million and purchases of mortgage
servicing rights of $357.6 million.  Cash flows provided by investing activities
included  principal  payments  on  mortgage-backed   securities  totalling  $4.2
billion,  proceeds from  maturities of securities of $526.8 million and proceeds
from sales of mortgage-backed securities available for sale of $193.7 million.

     Net cash used in investing  activities for the year ended December 31, 1998
totalled $3.0 billion,  an increase of $1.9 billion from the year ended December
31, 1997.  Cash flows used in investing  activities  included  purchases of $9.0
billion  in  mortgage-backed  securities  available  for sale and  purchases  of
securities  of $892.0  million.  Cash flows  provided  by  investing  activities
included a net decrease in loans receivable of $2.3 billion,  principal payments
on  mortgage-backed   securities   totalling  $3.7  billion  and  proceeds  from
maturities of securities of $978.1 million.

     Net cash provided by financing  activities  for the year ended December 31,
1999  totalled  $2.1  billion,  a decrease of $2.0  billion  from the year ended
December  31,  1998.  Cash  flows  provided  by  financing  activities  included
additional  borrowings of $33.0  billion and a net increase in  securities  sold
under  agreements to  repurchase  of $1.2 billion.  Cash flows used in financing
activities  included  principal  payments on borrowings of $29.7 billion,  a net
decrease in  deposits of $2.1  billion,  purchases  of treasury  stock of $250.2
million and  dividends  paid to minority  stockholders,  net of taxes,  of $30.8
million. Additionally, $97.6 million was used in the Bank Preferred Stock Tender
Offers and $69.3 million was used in the branch sales.

     Net cash provided by financing  activities  for the year ended December 31,
1998 totalled $4.1  billion,  an increase of $2.5 billion from 1997.  Cash flows
provided  by  financing  activities  included  additional  borrowings  of  $25.6
billion,  a net increase in  securities  sold under  agreements to repurchase of
$1.9 billion and proceeds from the GS Escrow Merger of $2.0 billion.  Cash flows
used in financing activities included principal payments on borrowings totalling
$20.5  billion,  a decrease in deposits of $1.4  billion,  and funds used in the
Debt Tender Offers,  Parent Holdings  Defeasance and Bank Preferred Stock Tender
Offers  of $1.1  billion,  $553.7  million  and  $423.5  million,  respectively.
Additionally,  $1.3 billion was used in the Florida  Branch Sale,  $25.0 million
was used in the redemption of the FN Holdings Preferred Stock and dividends paid
to minority stockholders totalled $80.5 million.

                                    Page 58

<PAGE>

Other Activities

     Litigation Tracking Warrants(TM)

     In  connection  with  the  Glendale  Goodwill   Litigation,   Golden  State
distributed  Litigation  Tracking  Warrants(TM)  ("LTW(TM)s")  to  its  security
holders representing the right to receive, upon exercise of the LTW(TM)s, Golden
State common stock equal in value to 85% of the net after-tax proceeds,  if any,
from the Glendale Goodwill Litigation.  For more information on LTW(TM)s,  refer
to note 26 of the Company's Notes to Consolidated Financial Statements.

     Litigation Interests

     In July 1995, Old California Federal distributed to its common shareholders
its  Contingent  Litigation  Recovery  Participation  Interests (the "CALGZs" or
"Litigation Interests"),  each entitling the holder thereof to receive an amount
(the  aggregate of such payments  being  referred to as the "Recovery  Payment")
equal to five  millionths  of one percent  (0.000005%)  of the cash payment (the
"Cash  Payment"),  if any,  actually  received  by the Bank  pursuant to a final
nonappealable  judgment in or final  settlement  of its claim against the United
States Government (the "Government") in the lawsuit,  California Federal Bank v.
United  States,  Civil Action No.  92-138C  (the  "California  Federal  Goodwill
Litigation") after deduction of:

     (a)  aggregate  expenses incurred by the Bank in prosecuting the California
          Federal Goodwill Litigation and obtaining such Cash Payment including,
          but not limited to, a portion of the annual  salaries in the aggregate
          amount of  $1,000,000,  an incentive fee in the amount of 0.25% of the
          aggregate  value of the pre-tax  recovery from the California  Federal
          Goodwill Litigation,  annual pension benefits aggregating  $1,325,000,
          and  certain  medical  benefits  and  expenses,   under  a  litigation
          management  agreement,  for two executives of the Company ("Litigation
          Management Agreement");

     (b)  any income tax  liability of the Bank,  computed on a pro forma basis,
          as a result of the  Bank's  receipt of such Cash  Payment  (net of any
          income tax benefit to the Bank from making the Recovery  Payment,  and
          disregarding (c) for purposes of this clause);

     (c)  the  effect  of any net  operating  loss  carryforwards  or other  tax
          attributes  held by the Bank or any of its  subsidiaries or affiliated
          entities; and

     (d)  the expenses  incurred by the Bank in  connection  with the  creation,
          issuance and trading of the Litigation  Interests,  including  without
          limitation, legal and accounting fees and the fees and expenses of the
          interest agent.

     Pursuant  to the merger  agreement  with Old  California  Federal,  Cal Fed
distributed to common shareholders  entitled to receive the merger consideration
one-tenth of a Secondary Contingent Litigation Recovery  Participation  Interest
(each a "CALGL" or "Secondary  Litigation  Interest")  for each share of Cal Fed
common stock held.  Each Secondary  Litigation  Interest will entitle the holder
thereof  to  receive  an  amount  equal  to  twenty  millionths  of one  percent
(0.000020%)  of the  "Secondary  Recovery  Payment,"  if any, as defined  below.
"Secondary  Recovery  Payment" means sixty percent (60%) of the amount  obtained
from the following equation:  the Cash Payment, if any, actually received by the
Bank in respect of a final, nonappealable judgment in or final settlement of the
California Federal Goodwill Litigation, minus the sum of the following:

     (a)  the  aggregate  expenses  incurred  by the  Bank  in  prosecuting  the
          California Federal Goodwill Litigation and obtaining such Cash Payment
          including, but not limited to, a portion of the annual salaries in the
          aggregate  amount of  $1,000,000,  an  incentive  fee in the amount of
          0.25%  of  the  aggregate  value  of the  pre-tax  recovery  from  the
          California  Federal  Goodwill  Litigation,   annual  pension  benefits
          aggregating $1,325,000,  and certain medical benefits and expenses for
          two  executives  of  the  Company  under  the  Litigation   Management
          Agreement;

     (b)  any income tax  liability of the Bank,  computed on a pro forma basis,
          as a result of the  Bank's  receipt of such Cash  Payment  (net of any
          income tax benefit to the Bank,  computed on a pro forma  basis,  from
          the  payment of a portion  of the  Secondary  Recovery  Payment to the
          holders of Secondary Litigation Interests);

     (c)  the expenses  incurred by the Bank in  connection  with the  creation,
          issuance and trading of the  Litigation  Interests  and the  Secondary
          Litigation   Interests,   including  without  limitation,   legal  and
          accounting fees and the fees and expenses of the interest agent;

     (d)  the payment due to the holders of the Litigation Interests; and

                                    Page 59

<PAGE>

     (e)  one hundred twenty-five million dollars ($125,000,000).

     "Income tax  liability of the Bank computed on a pro forma basis" means the
aggregate  amount  of any and all  relevant  items of  income,  gain,  loss,  or
deduction associated with the receipt by the Bank of the Cash Payment multiplied
by the highest,  combined marginal rate of federal, state and local income taxes
in the  relevant  year and  disregarding  for purposes of such  computation  the
effect of any net operating  loss  carryforwards  or other tax attributes of the
Bank or any of its subsidiaries or affiliated  entities.  "Income tax benefit to
the Bank  computed on a pro forma basis" means the  aggregate  amount of any and
all relevant  items of income,  gain,  loss,  or deduction  associated  with the
payment by the Bank of the Secondary Recovery Payment multiplied by the highest,
combined marginal rate of federal,  state and local income taxes in the relevant
year and  disregarding  for purposes of such  computation  the effect of any net
operating loss  carryforwards  or other tax attributes of the Bank or any of its
subsidiaries  or  affiliated  entities.  Any  distribution  with  respect to the
Litigation   Interests   will  be  subject  to  the  OTS  capital   distribution
regulations.

     Holders of the CALGZs and the CALGLs are  entitled  to vote  together  as a
single  class  with the  holders  of the  common  stock of the Bank and the Bank
Preferred  Stock,  with each CALGZ and CALGL entitling the holder thereof to 1/5
of one vote.

     In connection with the Cal Fed  Acquisition,  the Bank recorded as an asset
part of the  estimated  after-tax  cash  recovery  from the  California  Federal
Goodwill  Litigation  that will  inure to the Bank,  net of  amounts  payable to
holders of the Litigation  Interests and the Secondary  Litigation  Interests in
any such recovery (the "Goodwill Litigation Asset"). In connection with the Glen
Fed Merger, the Bank recorded a second Goodwill  Litigation Asset related to the
estimated  after-tax cash recovery from the Glendale  Goodwill  Litigation  that
will inure to the Bank, net of amounts payable to the holders of the LTWTMs. The
Goodwill  Litigation Asset related to the California Federal Goodwill Litigation
was recorded at its estimated  fair value of $100 million,  net of estimated tax
liabilities, as of January 3, 1997. The Goodwill Litigation Asset related to the
Glendale  Goodwill  Litigation was recorded at its estimated fair value of $56.9
million, net of estimated tax liabilities, as of September 11, 1998.

     In  connection  with the Golden  State  Acquisition,  the merger  agreement
included a provision that  "equalized" the effect of the litigation  between the
two shareholder  groups -i.e., the former Golden State  shareholders who were to
benefit from the Glendale Goodwill Litigation,  and GSB Investments and Hunter's
Glen who were to benefit from the California Federal Goodwill  Litigation.  This
provision  contemplated  that GSB Investments and Hunter's Glen would retain all
the risks and rewards of the California  Federal Goodwill  Litigation,  but that
they would be required to  contribute  (either in cash or in stock) an amount to
equalize the contribution from the Glendale Goodwill Litigation.

     Accordingly,  at September 11, 1998, the net carrying value of $100 million
of the California  Federal  Goodwill  Litigation  Asset was  "dividended" to GSB
Investments  and Hunter's  Glen, and a receivable  from them was  established to
reflect the required  "make whole"  value of the  Glendale  Goodwill  Litigation
Asset.  This  receivable  amounted  to $41.2  million,  and was  recorded  as an
increase in equity.  Since the market value of the  LTW(TM)s,  which the Company
uses to  estimate  the fair value of the  ultimate  goodwill  litigation  award,
declined to $.875 per share at December  31,  1999,  the  inherent  value of the
amount to be contributed by GSB Investments and Hunter's Glen also declined,  to
$17.1 million, resulting in a $24.1 million reduction in equity.

Capital management

     At December 31, 1999,  stockholders' equity was $1.6 billion, a decrease of
$20.0 million from December 31, 1998. The decrease is principally the net result
of a reduction of $281.4  million in the fair value of securities  available for
sale,   $250.2  million  in  purchases  of  treasury   stock,  a  $24.1  million
equalization  adjustment related to the Goodwill  Litigation and a $12.4 million
reduction in the purchase price of the Golden State  Acquisition.  These amounts
were  partially  offset by $323.2  million in net  income  for the year,  $202.0
million in issuable  shares,  a $15.5  million  adjustment to reduce the initial
dividend  of tax  benefits  to former  parent due to  deconsolidation,  and $7.9
million from the exercise of stock options. For further information, see note 25
of the Company's Notes to Consolidated Financial Statements.

                                    Page 60

<PAGE>

     The unrealized loss on securities  available for sale is primarily a result
of a decline in the value of the Company's mortgage-backed  securities available
for sale due to an  increase  in  Treasury  yields and wider  spreads on private
label collateralized mortgage obligations. This unrealized loss reflects general
declines  in  the  prices  of  fixed-rate  instruments  during  the  year  as  a
consequence  of rising  interest  rates,  which led to a slowing  of  prepayment
expectations and extended the expected lives of the mortgage-related  securities
in the  portfolio.  This  unrealized  loss  represents  a  decline  in the total
mortgage-backed  securities  available  for  sale  portfolio  of less  than  2%.
However,  this adjustment does not take into account market changes in the value
of borrowings or deposits. At December 31, 1999, the market valuation adjustment
of the offsetting  borrowings  would have been a positive $344.7  million.  This
does not include any increase in the value of deposits.

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

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

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

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

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

     Supplementary  Capital.  Supplementary  capital includes certain  permanent
capital instruments, such as qualifying cumulative perpetual preferred stock, as
well as some forms of term capital instruments,  such as qualifying subordinated
debt.  Supplementary capital may not exceed 100% of core capital for purposes of
the risk-based requirement.

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

     Under OTS regulations,  a savings  association with a greater than "normal"
level of  interest  rate  exposure  must deduct an  interest  rate risk  ("IRR")
component in calculating  its total capital for purposes of determining  whether
it meets its risk-based capital requirement. Interest rate exposure is measured,
generally,  as the decline in an  institution's  net portfolio  value that would
result from a  200-basis-point  increase or  decrease in market  interest  rates
(whichever would result in lower net portfolio value),  divided by the estimated
economic  value of the savings  association's  assets.  The  interest  rate risk
component  to be  deducted  from  total  capital  is  equal to  one-half  of the
difference between an institution's  measured exposure and "normal" IRR exposure
(which is defined as 2%),  multiplied  by the  estimated  economic  value of the
institution's   assets.   In  August   1995,   the  OTS   indefinitely   delayed
implementation  of its IRR regulation.  However,  based on internal  measures of
interest  rate risk at December 31, 1999,  the Bank would not have been required
to deduct an IRR component in calculating  total risk-based  capital had the IRR
component of the capital regulations been in effect.

     The  Bank is also  subject  to the  "prompt  corrective  action"  standards
prescribed  in FDICIA and related OTS  regulations,  which,  among other things,
define specific capital categories based on an association's capital ratios. The
capital  categories,  in declining  order, are "well  capitalized,"  "adequately
capitalized,"   "undercapitalized,"    "significantly   undercapitalized,"   and
"critically  undercapitalized." Under the regulation, the ratio of total capital
to risk-weighted  assets, core capital to risk-weighted  assets and the leverage
capital ratio are used to determine an

                                    Page 61

<PAGE>

association's capital classification. The Bank met the capital requirements of a
"well  capitalized"  institution  under  the  FDICIA  prompt  corrective  action
standards  as of December  31, 1999.  The Bank is not  presently  subject to any
enforcement  action or other  regulatory  proceeding  with respect to the prompt
corrective action regulation.

     At December 31, 1999, the Bank's  regulatory  capital  levels  exceeded the
minimum  regulatory  capital  requirements,  with tangible,  core and risk-based
capital ratios of 5.81%, 5.81% and 12.89%, respectively.

     The following is a  reconciliation  of the Bank's  stockholder's  equity to
regulatory capital as of December 31, 1999:

<TABLE>
<CAPTION>
                                                                    Tangible           Core             Risk-based
                                                                     Capital          Capital            Capital
                                                                     -------          -------            -------
                                                                               (dollars in millions)
<S>                                                                  <C>               <C>                <C>
Stockholder's equity of the Bank                                     $3,556            $3,556             $3,556
Minority interest - REIT Preferred Stock                                500               500                500
Unrealized holding gain on securities available for sale, net           276               276                276
Non-allowable capital:
       Intangible assets                                               (819)             (819)              (819)
       Goodwill Litigation Assets                                      (159)             (159)              (159)
       Investment in non-includable subsidiaries                        (60)              (60)               (60)
Supplemental capital:
       Qualifying subordinated debentures                                --                --                 93
       General loan loss allowance                                       --                --                363
Assets required to be deducted:
       Land loans with more than 80% LTV ratio                           --                --                 (7)
       Equity in subsidiaries                                            --                --                 (7)
       Low-level recourse deduction                                      --                --                (11)
                                                                     ------            ------             ------
Regulatory capital of the Bank                                        3,294             3,294              3,725
Minimum regulatory capital requirement                                  850             2,266              2,313
                                                                     ------            ------             ------
Excess above minimum capital requirement                             $2,444            $1,028             $1,412
                                                                     ======            ======             ======

                                                                     Tangible        Leverage          Risk-based
                                                                      Capital         Capital           Capital
                                                                       Ratio           Ratio             Ratio
                                                                       -----           -----             -----

Regulatory capital of the Bank                                         5.81%           5.81%              12.89%
Minimum regulatory capital requirement                                 1.50            4.00                8.00
                                                                       ----            ----               -----
Excess above minimum capital requirement                               4.31%           1.81%               4.89%
                                                                       ====            ====               =====
</TABLE>

     The amount of adjusted  total  assets used for the  tangible  and  leverage
capital  ratios is $56.6 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $28.9 billion.

     At December 31, 1999, the Bank's  capital levels were  sufficient for it to
be considered "well capitalized."


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

Regulatory capital of the Bank            5.81%       11.36%         12.89%
"Well capitalized" ratio                  5.00         6.00          10.00
                                          ----        -----          -----
Excess above "well capitalized" ratio     0.81%        5.36%          2.89%
                                          ====        =====          =====

                                    Page 62

<PAGE>

     OTS  capital  regulations  allow a  savings  association  to  include a net
deferred tax asset in regulatory capital, subject to certain limitations. To the
extent  that the  realization  of a  deferred  tax  asset  depends  on a savings
association's  future  taxable  income,  such  deferred tax asset is limited for
regulatory  capital  purposes  to the lesser of the amount  that can be realized
within one year or 10 percent of core capital. At December 31, 1999, none of the
net tax  benefit  was  determined  to be  attributable  to the amount of taxable
income that may be realized in periods beyond one year.  Accordingly,  no amount
has been excluded from regulatory capital at December 31, 1999.

     Other Capital Activities

     Warrants.  The Company had common stock purchase warrants outstanding which
were  exercised or expired  during 1999.  The Company has  transferable  Standby
Warrants,  of which  10,768,153 were  outstanding at December 31, 1999. For more
information on the Standby Warrants,  refer to note 25 of the Company's Notes to
Consolidated  Financial  Statements.  For information on LTW(TM)s,  see - "Other
Activities - Litigation Tracking Warrants(TM)."

     Issuable  Shares.  The Golden  State  Merger  agreement  provides  that GSB
Investments   and  Hunter's   Glen  will  be  entitled  to  receive   contingent
consideration,  through the  issuance by Golden  State of  additional  shares of
Golden State common stock,  par value of $1.00 per share  ("Golden  State Common
Stock"),  based on (a) the use by the combined company of certain  potential tax
benefits  resulting  from  certain  net  operating  loss  carryforwards  of  the
consolidated  group of which Parent  Holdings was a part, and the realization of
certain other  potential tax assets and  liabilities  of Golden State and Parent
Holdings  and  (b)  California  Federal's  net  after-tax  recovery  in  certain
specified  litigation,  including a percentage of the net after-tax recovery, if
any,  in the  California  Federal  Goodwill  Litigation  (following  payment  by
California  Federal of all amounts due, if any, to the holders of the CALGZs and
the CALGLs and the  retention of certain  amounts of such recovery by the Bank).
The Golden State Merger agreement  provides generally that the amount of the net
after-tax  recovery,  if any,  resulting  from the California  Federal  Goodwill
Litigation  which will be excluded in determining  the number of shares issuable
in respect of the California Federal Goodwill Litigation will be based on 15% of
the value of the net after-tax  recovery in the Glendale Goodwill  Litigation to
be excluded  for  purposes of  determining  the number of shares of Golden State
Common Stock issuable upon exercise of the LTW(TM)s, adjusted to reflect the pro
forma ownership interest of GSB Investments and Hunter's Glen in Golden State at
the time of the Golden  State  Merger.  At December 31,  1999,  issuable  shares
valued at $204.7  million  were  included  in equity.  For more  information  on
issuable  shares,  refer  to  notes  2(q)  and  25 of  the  Company's  Notes  to
Consolidated Financial Statements.

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.

Year 2000

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

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

                                    Page 63

<PAGE>

     Final  testing in the fourth  quarter of 1999,  and  completion  of the Y2K
event  management plans resulted in a smooth  transition  during the rollover to
the Year 2000. No significant  Y2K-related events were reported,  and it was not
necessary to activate any of the Company's  contingency plans. Special attention
has been  provided to possible  Y2K-related  exceptions  throughout  January and
February 2000.

     It is currently  expected that costs related to making the Bank's  computer
systems,   applications   and   facilities   Year  2000   compliant  will  total
approximately  $17.6 million over the years 1997 to 2000. Of this amount,  $17.3
million has been incurred  since the inception of the Year 2000 project  through
December  31,  1999.  Noninterest  expense for the year ended  December 31, 1999
included  approximately  $7.5  million in  connection  with the Bank's Year 2000
efforts.

     Historically,  cost estimates and actuals by year for the Year 2000 project
are as follows (in millions):

                                          1999          1998          1997
                                          ----          ----          ----
                Estimates                 $7.5          $8.9          $1.2
                Actual                     7.5           8.6           1.2

     Of the total Year 2000  project  costs,  $11.4  million  were  third  party
expenses  funded  through  operating  cash flows.  Costs  related to purchase of
equipment,  both project  equipment and replacement of non-compliant  equipment,
were $2.8 million,  also funded through  operating cash flows.  Expenditures  in
1999 represented 10.4% of the total Information and Technology  Services ("ITS")
expenses.  No critical ITS projects  have been  deferred as a result of the Year
2000 efforts. Instead, incremental resources including consultants, contractors,
software  utilities  and  hardware  were  obtained  from  outside the Company to
supplement  existing  staff.  In  addition,  the  Company  has a  prioritization
mechanism in place to ensure that other  critical  projects are  addressed.  The
Company is currently not aware of any asserted or unasserted claims of breach of
contract  or  warranty  related to Y2K.  The  Company  does not  anticipate  any
assertion  of such claims in the future that will have a material  effect on the
Company.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk

     In the normal  course of business,  the Company is exposed to interest rate
risk,  which is the  potential  for  loss  due to  changes  in  interest  rates.
Financial  products  that  expose the  Company  to  interest  rate risk  include
securities,  loans, deposits,  debt and derivative financial instruments such as
swaps, swaptions and floors.

     ALCO,  which  includes  senior  management  representatives,  monitors  and
considers methods of managing the rate and sensitivity repricing characteristics
of the balance sheet components consistent with maintaining acceptable levels of
changes in net portfolio value ("NPV") ratio and net interest  income. A primary
purpose of the Company's  asset and liability  management is to manage  interest
rate risk to effectively  invest the Company's capital and to preserve the value
created by its core business operations.  As such, certain management monitoring
processes  discussed  below are  designed to  minimize  the impact of sudden and
sustained changes in interest rates on NPV ratio and net interest income.

     The  Company's  exposure  to  interest  rate risk is reviewed on at least a
quarterly basis by the Board of Directors and ALCO.  Interest rate risk exposure
is measured  using  interest rate  sensitivity  analysis to determine the Bank's
change in NPV ratio and net interest income in the event of hypothetical changes
in  interest  rates,  and  interest  rate  sensitivity  gap  analysis is used to
determine the repricing characteristics of the Bank's assets and liabilities. If
estimated changes to NPV ratio and net interest income are not within the limits
established  by the Board,  the Board may direct  management to adjust its asset
and liability mix to bring interest rate risk within Board-approved limits.

     In order to reduce the exposures to interest rate fluctuations, the Company
has  developed  strategies  to  manage  its  liquidity,  shorten  its  effective
maturities of certain  interest-earning  assets, and increase the ability of its
asset base to respond to changes in  interest  rates.  Management  has sought to
decrease the average  maturity of its assets by emphasizing  the  origination of
adjustable-rate  residential  mortgage  loans  and  consumer  loans,  which  are
retained by the Company for its portfolio.  In addition,  long-term,  fixed-rate
single-family   residential   mortgage  loans  are  underwritten   according  to
guidelines of FHLMC,  GNMA and FNMA, and are either swapped with FHLMC, GNMA and
FNMA in exchange for mortgage-backed  securities secured by such loans which are
then sold or are sold directly for cash in the secondary market,  generally with
servicing retained.

                                    Page 64

<PAGE>

     Interest rate  sensitivity  analysis is used to measure the Bank's interest
rate risk by  computing  estimated  changes  in NPV ratio of its cash flows from
assets,  liabilities  and  off-balance  sheet  items in the  event of a range of
assumed changes in market interest rates. NPV ratio is equal to the market value
of assets  minus the market  value of  liabilities,  with  adjustments  made for
off-balance  sheet items  divided by the market value of assets.  This  analysis
assesses the risk of loss in market risk sensitive instruments in the event of a
sudden and  sustained  increase  or  decrease  in market  interest  rates of one
hundred to three hundred basis points. The Bank's Board of Directors has adopted
an interest  rate risk policy which  establishes  minimum NPV ratios for various
interest rate scenarios.

     The  following  table  presents  the Bank's NPV ratios for the various rate
shock  levels at  December  31,  1999.  All market  risk  sensitive  instruments
presented in this table are held to maturity or available for sale. The Bank has
no trading securities.


                       Change in
                    Interest Rates                    NPV Ratio
                    --------------                    ---------
               300 basis point rise                     4.66%
               200 basis point rise                     5.85
               100 basis point rise                     6.87
               Base Scenario                            7.61
               100 basis point decline                  8.02
               200 basis point decline                  7.71
               300 basis point decline                  6.78

     The preceding  table indicates that at December 31, 1999, in the event of a
sudden and sustained  increase in prevailing  market interest rates,  the Bank's
NPV ratio, would be expected to decrease,  and that in the event of a sudden and
sustained  decrease in prevailing  market interest  rates,  the Bank's NPV ratio
would be expected to slightly  increase or  experience a much lower  decline for
the extreme scenarios. At December 31, 1999, the Bank's estimated changes in NPV
ratios were within the targets established by the Board of Directors.

     The fair market value of portfolio  equity  decreases in a rising  interest
rate environment because the Company's  interest-bearing  liabilities  generally
reprice faster than its  interest-earning  assets, and certain  interest-earning
assets  are  subject  to  periodic  caps.  The  reduction  in  value  of the net
interest-earning assets is partially offset by an increase in value of MSRs that
appreciate in value as rates rise. In a declining interest rate environment, the
reduction in value of MSRs generally outweighs the increase in value of the rest
of the portfolio  resulting from the repricing  differences of  interest-earning
assets and interest-bearing liabilities.

     NPV ratio is calculated by the Bank pursuant to guidelines  established  by
the  OTS.  The  calculation  is  based on the net  present  value  of  estimated
discounted cash flows utilizing market  prepayment  assumptions and market rates
of interest  provided by independent  broker quotations and other public sources
as of  December  31,  1999,  with  adjustments  made to reflect the shift in the
Treasury yield curve as appropriate.

     The  computation  of  prospective  effects of  hypothetical  interest  rate
changes is based on numerous  assumptions,  including  relative levels of market
interest rates,  loan  prepayments and deposits decay,  and should not be relied
upon  as  indicative  of  actual  results.  Further,  the  computations  do  not
contemplate  any  actions  the ALCO could  undertake  in  response to changes in
interest rates.

     Certain  shortcomings  are inherent in the method of analysis  presented in
the  computation  of NPV.  Actual  values  may  differ  from  those  projections
presented,   should  market   conditions  vary  from  assumptions  used  in  the
calculation of the NPV ratio.  Certain assets,  such as  adjustable-rate  loans,
which  represent one of the Bank's  primary loan  products,  have features which
restrict  changes in interest  rates on a short-term  basis and over the life of
the assets. In addition,  the proportion of adjustable-rate  loans in the Bank's
portfolio could decrease in future periods if market interest rates remain at or
decrease below current levels due to refinance  activity.  Further, in the event
of a change in interest  rates,  prepayment  and early  withdrawal  levels would
likely deviate significantly from those assumed in the NPV. Finally, the ability
of many borrowers to repay their adjustable-rate  mortgage loans may decrease in
the event of interest rate increases.

                                    Page 65

<PAGE>

     In  addition,  the Bank uses  interest  rate  sensitivity  gap  analysis to
monitor  the   relationship   between  the   maturity   and   repricing  of  its
interest-earning assets and interest-bearing  liabilities,  while maintaining an
acceptable   interest  rate  spread.   See  --"Risk   Management"   for  further
information.

ITEM 8.  Financial Statements and Supplementary Data

     The following consolidated financial statements of Golden State at December
31, 1999 and 1998 and for the years ended  December 31, 1999,  1998 and 1997 are
included in this report at the pages indicated.

                                                                          Page
                                                                          ----
Independent Auditor's Report                                               F-1
Consolidated Balance Sheets                                                F-2
Consolidated Statements of Income                                          F-3
Consolidated Statements of Comprehensive Income                            F-4
Consolidated Statements of Stockholders' Equity                            F-5
Consolidated Statements of Cash Flows                                      F-7
Notes to Consolidated Financial Statements                                 F-9

ITEM  9.  Changes  in and  Disagreements  With  Accountants  On  Accounting  and
          Financial Disclosure

     None.

                                    Page 66

<PAGE>

                                    PART III

ITEM 10.  Directors and Executive Officers of the Registrant

     Those portions of Golden  State's  definitive  Proxy  Statement to be filed
with the Securities and Exchange  Commission  pursuant to Regulation 14A for use
in connection  with Golden State's Annual Meeting of  Stockholders to be held on
May 15, 2000 ("Proxy  Statement")  appearing  under the  captions  "Proposal I -
Election  of  Directors"  and  "Section  16(a)  Beneficial  Ownership  Reporting
Compliance" are incorporated herein by reference.

     The  following  table sets forth certain  information  (ages as of March 1,
2000) concerning the executive officers of Golden State.

<TABLE>
<CAPTION>

Name                                 Age             Position
----                                 ---             --------
<S>                                   <C>            <C>
Gerald J. Ford                        55             Chairman  of  the  Board,   Chief  Executive  Officer  and Director
Carl B. Webb                          50             President, Chief Operating Officer and Director
Richard H. Terzian                    63             Executive Vice President and Chief Financial Officer
Christie S. Flanagan                  61             Executive Vice President and General Counsel
Richard A. Fink                       59             Executive Vice President
Richard P. Hodge                      45             Executive Vice President
Scott A. Kisting                      52             Executive Vice President
James R. Staff                        52             Executive Vice President
Stephen J. Trafton                    53             Executive Vice President
Renee Nichols Tucei                   43             Executive Vice President and Controller
</TABLE>

     In addition to the officers listed above,  below are those  individuals who
hold senior  positions with the Bank and are deemed to be executive  officers of
the Company for reporting purposes under the Securities Exchange Act of 1934.

Name                                 Age             Position
----                                 ---             --------
Kendall M. Fugate                     62             Executive Vice President
Walter C. Klein, Jr.                  56             Executive Vice President
Richard A. Leweke                     46             Executive Vice President
Lacy G. Newman, Jr.                   50             Executive Vice President
Peter K. Thomsen                      57             Executive Vice President
Dennis L. Verhaegen                   48             Executive Vice President
Michael R. Walker                     54             Executive Vice President

     Mr.  Ford has been  Chairman  of the Board and Chief  Executive  Officer of
Golden State since 1998 and of  California  Federal and its  predecessors  since
1988. Mr. Ford has also been Chairman of the Board and Chief  Executive  Officer
of GS Holdings since 1998 and of Preferred  Capital  Corporation since 1996. Mr.
Ford is  Chairman  of the  Board of FNMC and  Chairman  of the  Board  and Chief
Executive  Officer of Liberte  Investors  Inc.  Mr.  Ford is also a Director  of
Auto One, Freeport-McMoRan Copper & Gold Co. and McMoRan Exploration Co.

     Mr. Webb has been  President  and Chief  Operating  Officer of Golden State
since 1998,  of  California  Federal  and its  predecessors  since 1988,  and of
Preferred  Capital  Corporation since 1996. Mr. Webb has also been President and
Chief  Operating  Officer of GS Holdings  since 1998.  Mr. Webb is a of Director
Golden State,  California  Federal,  Preferred Capital Corporation FNMC and Auto
One.

     Mr. Terzian has been Executive Vice President and Chief  Financial  Officer
of Golden  State since 1998 and of the Bank since April  1995.  Mr.  Terzian has
been the Executive Vice  President,  Chief  Financial  Officer and a Director of
Preferred  Capital  Corp.  since  1996.  Mr.  Terzian is also a Director  of 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.

                                    Page 68

<PAGE>

     Mr.  Flanagan has been  Executive  Vice  President  and General  Counsel of
Golden State since  September 1998 and of the Bank since 1994.  Mr.  Flanagan is
also the Executive Vice  President,  General Counsel and a Director of Preferred
Capital Corp.  and a Director of FNMC and Auto One. Mr.  Flanagan was previously
the  managing  partner  of the law firm of  Jenkens  &  Gilchrist,  P.C.  and is
currently of counsel to the firm.

     Mr. Fink has been an  Executive  Vice  President of Golden State and of the
Bank since  September  1998. Mr. Fink was Vice Chairman and a Director of Golden
State from 1997 until 1998 and was the Senior  Executive  Vice  President  and a
Director of  Glendale  Federal  from May 1992 until  September  1998.  He served
Glendale  Federal  as  Director,  Corporate  Development  from  April 1994 until
February  1996 and  served as Chief  Credit  Officer  from  February  1996 until
September 1998.

     Mr. Hodge has been  Executive  Vice President and Corporate Tax Director of
Golden State since  September 1998 and of the Bank since January 1996. Mr. Hodge
has been employed with the Bank since November 1995.  Prior to joining the Bank,
Mr. Hodge was a tax partner of the public  accounting  firm of KPMG Peat Marwick
LLP.

     Mr. Kisting has been Executive Vice President of Golden State and Executive
Vice  President and Director of Consumer and Business  Banking of the Bank since
September  1998.  Mr.  Kisting  has also been  Chairman of the Board of Auto One
since  February 2000.  Mr.  Kisting  was Chief  Operating  Officer  of  Citizens
Financial  Group from 1997 to 1998 and was  previously  associated  with Norwest
Corporation from 1993 to 1997, most recently as Group Executive Vice President.

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

     Mr. Trafton has been an Executive Vice President of Golden State and of the
Bank since  September  1998.  Mr.  Trafton  was  Chairman  of the  Board,  Chief
Executive  Officer,  President  and a Director  of Golden  State from 1997 until
1998. Mr. Trafton also served as Chairman of the Board,  Chief Executive Officer
and President of Glendale Federal from 1992 until 1998.

     Ms. Tucei has been  Executive Vice President and Controller of Golden State
since May 1999 and served as Senior  Vice  President  and  Controller  from 1998
until 1999.  Ms. Tucei has been  Executive  Vice President and Controller of the
Bank since January 1999 and served as Senior Vice  President  and  Controller of
the Bank from 1994 until 1998 and of its predecessor,  First Madison,  from 1993
until 1994.

     Mr. Fugate has been Executive Vice President and Information and Technology
Services  Director  of the Bank since 1994.  Mr.  Fugate also served in the same
capacity for the Bank's  predecessor,  First  Nationwide  Bank,  from 1991 until
1994.

     Mr.  Klein  has  been an  Executive  Vice  President  of the  Bank  and the
President  of FNMC since  January  1996.  He also  serves as a Director of FNMC.
Prior to joining the Bank, Mr. Klein was  associated  with PNC Mortgage Corp. of
America  and its  predecessor,  Sears  Mortgage  Corporation,  most  recently as
Chairman and Chief Executive Officer.

     Mr. Leweke has been Executive Vice  President and  Administrative  Services
Director  of the Bank since  January  1998.  Mr.  Leweke  served as Senior  Vice
President-Administrative  Services  of the  Bank  from  1994 to 1997  and of its
predecessor, First Nationwide Bank, from 1992 until 1994.

     Mr. Newman has been  Executive  Vice  President and Chief Credit Officer of
the Bank since  1994.  Mr.  Newman  also  previously  served as  Executive  Vice
President of First Madison and First Gibraltar,  both  predecessors of the Bank,
from 1992 until 1994.

     Mr.  Thomsen  has been  Executive  Vice  President  and  Director of Retail
Banking of the Bank since 1994 and of its  predecessor,  First  Nationwide Bank,
from 1991 until 1994.

                                    Page 68

<PAGE>

     Mr.  Verhaegen has been  Executive  Vice  President  and Corporate  Finance
Director  of the Bank  since  February  1997.  Mr.  Verhaegen  operated  his own
financial  advisory  and  consulting  firm  from  1994 to 1996 and  served  as a
Managing  Director of First Southwest  Company from 1992 to 1994. Mr.  Verhaegen
was also Senior Managing  Director of the Financial  Institutions  Group of Bear
Stearns & Co. Inc. from 1988 to 1992.

     Mr. Walker has been Executive Vice  President-Commercial Real Estate of the
Bank since 1994 and served as Senior Vice  President of First  Madison and First
Gibraltar, the Bank's predecessors, from 1988 until 1994.

ITEM 11. Executive Compensation

     Those  portions  of Golden  State's  Proxy  Statement  appearing  under the
caption  "Executive   Compensation  and  Other  Information,"   "Report  of  the
Compensation  Committee on Executive  Compensation" and "Stock Price Performance
Graph" are incorporated herein by reference.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

     That portion of Golden State's Proxy Statement  appearing under the caption
"Beneficial  Ownership of Golden State  Securities"  is  incorporated  herein by
reference.

ITEM 13. Certain Relationships and Related Transactions

     That portion of Golden State's Proxy Statement  appearing under the caption
"Certain  Relationships  and Related  Transactions"  is  incorporated  herein by
reference.

                                    Page 69

<PAGE>

                                     PART IV

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

(a) 1. Financial Statement Schedules

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

(b)  Exhibits

         2.1      Agreement and Plan of Reorganization,  dated as of February 4,
                  1998, by and among First  Nationwide  (Parent)  Holdings Inc.,
                  First Gibraltar  Holdings,  Inc.,  Hunter's  Glen/Ford,  Ltd.,
                  Golden  State   Bancorp   Inc.  and  Golden  State   Financial
                  Corporation.  (Incorporated by reference to Exhibit 2.1 to the
                  Registrant's Current Report on Form 8-K dated February 4, 1998
                  (the "February 1998 Form 8-K").)

         2.2      Amendment  No. 1 dated as of July 31, 1998, by and among First
                  Nationwide  (Parent) Holdings Inc., First Nationwide  Holdings
                  Inc.,  Golden  State  Bancorp  Inc.,  Golden  State  Financial
                  Corporation,   First  Gibraltar  Holdings  Inc.  and  Hunter's
                  Glen/Ford  Ltd., to the Agreement and Plan of  Reorganization,
                  dated as of  February  4,  1998,  by and  among  the  Parties.
                  (Incorporated  by reference to Exhibit 2.2 to the Registrant's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1998 (the "1998 Form 10-K").)

         2.3      Amended and Restated  Agreement and Plan of Merger dated as of
                  the 27th  day of  July,  1996 by and  among  First  Nationwide
                  Holdings  Inc.,  CFB Holdings,  Inc., Cal Fed Bancorp Inc. and
                  California Federal Bank, A Federal Savings Bank. (Incorporated
                  by  reference  to  Exhibit  2.1 to FN  Holdings'  Registration
                  Statement on Form S-1 (File No. 333-21015).)

         3.1      Certificate of Incorporation of the Registrant.  (Incorporated
                  by  reference  to  Exhibits  3.1 and  3.2 to the  Registrant's
                  Annual Report on Form 10-K for the year ended June 30, 1998.)

         3.2      By-laws  of  the  Registrant,  as  amended.  (Incorporated  by
                  reference to Exhibit 3.2 to the Registrant's  Quarterly Report
                  on Form 10-Q for the  quarterly  period  ended  September  30,
                  1999.)

         4.1      Indenture,  dated as of  September  19,  1996,  between  First
                  Nationwide  Escrow Corp. and The Bank of New York, as trustee,
                  relating to the 10 5/8% Senior Subordinated Exchange Notes Due
                  2003 (the  "10 5/8%  Notes").  (Incorporated by  reference  to
                  Exhibit 4.1 to Amendment  No. 1 to FN  Holdings'  Registration
                  Statement on Form S-1 (File No. 333-21015).)

         4.2      First  Supplemental  Indenture,  dated as of  January 3, 1997,
                  among FN Holdings,  First Nationwide Escrow Corp. and The Bank
                  of New  York,  as  trustee,  relating  to the  10 5/8%  Notes.
                  (Incorporated  by reference to Exhibit 4.2 to Amendment  No. 1
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-21015).)

         4.3      Second  Supplemental   Indenture  dated  September  11,  1998,
                  supplementing  the Indenture,  dated as of September 19, 1996,
                  as Supplemented,  between First  Nationwide  Holdings Inc. and
                  The Bank of New York,  as  Trustee,  relating  to the  10 5/8%
                  Senior Subordinated Exchange Notes Due 2003.  (Incorporated by
                  reference to Exhibit 4.5 to the Registrant's 1998 Form 10-K.)

         4.4      Third Supplemental Indenture dated September 14, 1998, between
                  Golden  State  Holdings  Inc.  (formerly  known  as New  First
                  Nationwide  Holdings Inc.),  as successor to First  Nationwide
                  Holdings Inc., and The Bank of New York, as Trustee,  relating
                  to the 10 5/8%  Senior Subordinated  Exchange  Notes Due 2003.
                  (Incorporated  by reference to Exhibit 4.6 to the Registrant's
                  1998 Form 10-K.)

                                    Page 70

<PAGE>

         4.5      Indenture,   dated  as  of  October  1,  1986,  between  First
                  Nationwide  Bank, A Federal  Savings Bank, and Bank of America
                  National Trust and Savings  Association Re:  $100,000,000  10%
                  Subordinated  Debentures  due  2006  (the  "2006  Indenture").
                  (Incorporated  by  reference  to Exhibit  4.5 to FN  Holdings'
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1994.)

         4.6      First Supplemental Indenture,  dated as of September 30, 1994,
                  among First  Madison  Bank,  FSB,  First  Nationwide  Bank,  A
                  Federal  Savings Bank, and Bank of America  National Trust and
                  Savings   Association,   supplementing   the  2006  Indenture.
                  (Incorporated  by  reference  to Exhibit  4.6 to FN  Holdings'
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1994.)

         4.7      Second  Supplemental  Indenture,  dated as of January 3, 1997,
                  among  First   Nationwide   Bank,  A  Federal   Savings  Bank,
                  California  Federal  Bank, A Federal  Savings Bank and Bank of
                  America  National Trust and Savings  Association,  as trustee,
                  supplementing  the 2006 Indenture.  (Incorporated by reference
                  to Exhibit 4.8 to Amendment No. 1 to FN Holdings' Registration
                  Statement on Form S-1 (File No. 333-21015).)

         4.8      Indenture,  dated  February 15, 1986,  between Cal Fed Bancorp
                  Inc. and  Manufacturers  Hanover  Trust  Company,  as trustee,
                  relating to the 6 1/2% Convertible Subordinated Debentures Due
                  2001   (the  "6  1/2%   Convertible   Debenture   Indenture").
                  (Incorporated  by reference to Exhibit 4.11 to Amendment No. 1
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-21015).)

         4.9      First Supplemental  Indenture,  dated as of December 16, 1992,
                  among  Cal  Fed  Bancorp  Inc.,  XCF  Acceptance  Corporation,
                  California  Federal Bank, A Federal Savings Bank, and Chemical
                  Bank,   supplementing   the  6  1/2%   Convertible   Debenture
                  Indenture.  (Incorporated  by  reference  to  Exhibit  4.12 to
                  Amendment No. 1 to FN Holdings' Registration Statement on Form
                  S-1 (File No. 333-21015).)

         4.10     Second  Supplemental  Indenture  dated as of December 13, 1996
                  among XCF Acceptance  Corporation,  California Federal Bank, A
                  Federal  Savings  Bank,  and  The  Chase  Manhattan  Bank,  as
                  trustee,   supplementing  the  6  1/2%  Convertible  Debenture
                  Indenture.  (Incorporated  by  reference  to  Exhibit  4.13 to
                  Amendment No. 1 to FN Holdings' Registration Statement on Form
                  S-1 (File No. 333-21015).)

         4.11     Third  Supplemental  Indenture  dated as of December  13, 1996
                  among  Cal  Fed  Bancorp  Inc.,  XCF  Acceptance  Corporation,
                  California Federal Bank, A Federal Savings Bank, and The Chase
                  Manhattan   Bank,  as  Trustee,   supplementing   the  6  1/2%
                  Convertible Debenture Indenture. (Incorporated by reference to
                  Exhibit 4.14 to Amendment  No. 1 to FN Holdings'  Registration
                  Statement on Form S-1 (File No. 333-21015).)

         4.12     Fourth  Supplemental  Indenture  dated as of December 13, 1996
                  among Cal Fed Bancorp Inc.,  XCF Acceptance  Corporation,  and
                  The Chase Manhattan Bank, as trustee, supplementing the 6 1/2%
                  Convertible Debenture Indenture. (Incorporated by reference to
                  Exhibit 4.15 to Amendment  No. 1 to FN Holdings'  Registration
                  Statement on Form S-1 (File No. 333-21015).)

         4.13     Indenture,  dated December 1, 1992, between California Federal
                  Bank, A Federal  Savings Bank and Chemical  Bank,  as trustee,
                  relating  to  the  10%   Subordinated   Debentures  Due  2003.
                  (Incorporated  by reference to Exhibit 4.16 to Amendment No. 1
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-21015).)

         4.14     Agreement    Regarding    Contingent    Litigation    Recovery
                  Participation  Interests,  dated as of June 30, 1995,  between
                  California  Federal Bank, A Federal Savings Bank, and Chemical
                  Trust Company of California, as Interest Agent.  (Incorporated
                  by  reference  to  Exhibit  4.17  to  Amendment  No.  1 to  FN
                  Holdings'   Registration  Statement  on  Form  S-1  (File  No.
                  333-21015).)

                                    Page 71

<PAGE>

         4.15     Agreement Regarding Secondary  Contingent  Litigation Recovery
                  Participation Interests, dated as of December 2, 1996, between
                  California  Federal Bank, A Federal  Savings  Bank,  and Chase
                  Mellon  Shareholder  Services,   L.L.C.,  as  Interest  Agent.
                  (Incorporated  by reference to Exhibit 4.18 to Amendment No. 1
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-21015).)

         4.16     Warrant  Agreement,  dated  as  of  August  15,  1993  between
                  Glendale Federal and Chemical Trust Company of California,  as
                  amended by  Amendment  No. 1 dated July 24,  1997 by and among
                  Glendale Federal, Chase Mellon Shareholder Services, L.L.C. as
                  successor to Chemical  Trust Company of California  and Golden
                  State.  (Incorporated  by  reference  to  Exhibit  4.4  to the
                  Registrant's  Annual  Report on Form  10-K for the year  ended
                  June 30, 1998.)

         4.17     Warrant  Agreement,  dated as of May 4,  1998  between  Golden
                  State  Bancorp  Inc. and Chase  Mellon  Shareholder  Services,
                  L.L.C. as Warrant Agent. (Incorporated by reference to Exhibit
                  4.5 to the  Registrant's  Annual  Report  on Form 10-K for the
                  year ended June 30, 1998.)

         4.18     Indenture  dated as of August 6, 1998  between GS Escrow Corp.
                  and  The  Bank  of New  York,  as  Trustee.  (Incorporated  by
                  reference  to  Exhibit  4.1 to Golden  State  Holdings  Inc.'s
                  Registration Statement on Form S-1 (File No. 333-64597).)

         4.19     First  Supplemental  Indenture  dated  as of  August  6,  1998
                  between GS Escrow Corp.  and The Bank of New York, as Trustee.
                  (Incorporated  by  reference  to Exhibit  4.2 to Golden  State
                  Holdings Inc.'s  Registration  Statement on Form S-1 (File No.
                  333-64597).)

         4.20     Second  Supplemental  Indenture  dated as of  August  6,  1998
                  between GS Escrow Corp.  and The Bank of New York, as Trustee.
                  (Incorporated  by  reference  to Exhibit  4.3 to Golden  State
                  Holdings Inc.'s  Registration  Statement on Form S-1 (File No.
                  333-64597).)

         4.21     Third  Supplemental  Indenture  dated  as of  August  6,  1998
                  between GS Escrow Corp.  and The Bank of New York, as Trustee.
                  (Incorporated  by  reference  to Exhibit  4.4 to Golden  State
                  Holdings Inc.'s  Registration  Statement on Form S-1 (File No.
                  333-64597).)

         4.22     Fourth  Supplemental  Indenture  dated as of  August  6,  1998
                  between GS Escrow Corp.  and The Bank of New York,  as Trustee
                  (Incorporated  by  reference  to Exhibit  4.5 to Golden  State
                  Holdings Inc.'s  Registration  Statement on Form S-1 (File No.
                  333-64597).)

         4.23     Fifth  Supplemental  Indenture  dated as of September 11, 1998
                  between  Golden State  Holdings Inc. and the Bank of New York,
                  as Trustee (Incorporated by reference to Exhibit 4.6 to Golden
                  State Holdings Inc.'s Registration Statement on Form S-1 (File
                  No. 333-64597).)

         10.1     Tax Sharing Agreement, effective as of January 1, 1994, by and
                  among First Madison Bank,  FSB, FN Holdings and Mafco Holdings
                  Inc.  (Incorporated  by  reference  to  Exhibit  10.10  to  FN
                  Holdings'   Registration  Statement  on  Form  S-1  (File  No.
                  33-82654).)

         10.2     Amendment to Tax Sharing  Agreement,  effective  September 11,
                  1998, by and among Mafco Holdings  Inc.,  Golden State Bancorp
                  Inc., First Nationwide Holdings Inc., Glendale Federal Bank, A
                  Federal Savings Bank, and New First  Nationwide  Holdings Inc.
                  (Incorporated by reference to Exhibit 10.2 to the Registrant's
                  1998 Form 10-K.)

         10.3     Tax Sharing  Modification  Agreement  dated as of December 22,
                  1998,  between  Mafco  Holdings  Inc. and Golden State Bancorp
                  Inc.  (Incorporated  by  reference  to  Exhibit  10.3  to  the
                  Registrant's 1998 Form 10-K.)

         10.4     Asset Purchase Agreement,  dated as of April 14, 1994, between
                  First Madison Bank, FSB, and First  Nationwide Bank, A Federal
                  Savings Bank.  (Incorporated by reference to Exhibit 2.1 to FN
                  Holdings'  Current  Report on Form 8-K dated October 3, 1994.)

                                    Page 72

<PAGE>

         10.5     Amendment No. 1 to the Asset Purchase  Agreement,  dated as of
                  September 30, 1994, between First Madison Bank, FSB, and First
                  Nationwide  Bank, A Federal  Savings  Bank.  (Incorporated  by
                  reference  to Exhibit 2.3 to FN  Holdings'  Current  Report on
                  Form 8-K dated October 3, 1994.)

         10.6     Amendment No. 2 to the Asset Purchase  Agreement,  dated as of
                  September 30, 1994, between First Madison Bank, FSB, and First
                  Nationwide  Bank, A Federal  Savings  Bank.  (Incorporated  by
                  reference  to Exhibit 2.4 to FN  Holdings'  Current  Report on
                  Form 8-K dated October 3, 1994.)

         10.7     Office Lease,  dated as of November 15, 1990, between Webb/San
                  Francisco Ventures,  Ltd. and First Nationwide Bank, A Federal
                  Savings  Bank.  Confidential  treatment  has been  granted for
                  portions  of  this  document  (Incorporated  by  reference  to
                  Exhibit 10.6 to Amendment  No. 3 to FN Holdings'  Registration
                  Statement on Form S-1 (File No. 33-82654).)

         10.8     Amendment  No. 2 to Lease  between  First  Nationwide  Bank, A
                  Federal  Savings Bank,  and RNM 135 Main,  L.P. dated April 6,
                  1995.   (Incorporated   by  reference  to  Exhibit   10.26  to
                  Post-Effective  Amendment  No. 1 to FN Holdings'  Registration
                  Statement on Form S-1 (File No. 33-82654).)

         10.9     Employment  Agreement between First Nationwide Bank, A Federal
                  Savings Bank, and Gerald J. Ford, dated as of October 1, 1994.
                  (Incorporated  by reference  to Exhibit  10.13 to FN Holdings'
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  1994.)

         10.10    Amendment to Employment  Agreement between  California Federal
                  Bank, A Federal Savings Bank, and Gerald J. Ford,  dated as of
                  January 1, 1998.  (Incorporated  by reference to Exhibit 10.10
                  to the  Registrant's  Annual  Report on Form 10-K for the year
                  ended December 31, 1997 (the "1997 Form 10-K").)

         10.11    Employment   Agreement,   dated  November  22,  1999,  between
                  California Federal Bank, A Federal Savings Bank, and Gerald J.
                  Ford.

         10.12    Employment  Agreement,  dated as of  January  1, 1998  between
                  California  Federal Bank, A Federal  Savings Bank, and Carl B.
                  Webb, II.  (Incorporated  by reference to Exhibit 10.13 to the
                  Registrant's 1997 Form 10-K.)

         10.13    Employment  Agreement,  dated as of December 17, 1999, between
                  California  Federal Bank, A Federal  Savings Bank, and Carl B.
                  Webb, II.

         10.14    Employment  Agreement,  dated as of June 1, 1996 between First
                  Nationwide  Bank,  A Federal  Savings  Bank,  and  Christie S.
                  Flanagan.  (Incorporated  by  reference to Exhibit 10.4 to the
                  August 1996 Form 8-K.)

         10.15    Amendment to  Employment  Agreement,  dated as of May 1, 1999,
                  between  California  Federal Bank, A Federal Savings Bank, and
                  Christie S.  Flanagan.  (Incorporated  by reference to Exhibit
                  10.1 to the Registrant's Quarterly Report on Form 10-Q for the
                  quarterly period ended June 30, 1999.)

         10.16    Employment  Agreement,  dated as of  August 1,  1999,  between
                  California  Federal Bank, A Federal Savings Bank, and Christie
                  S. Flanagan. (Incorporated by reference to Exhibit 10.1 to the
                  Registrant's  Quarterly  Report on Form 10-Q for the quarterly
                  period ended September 30, 1999.)

         10.17    Employment  Agreement,  dated as of January  1, 1998,  between
                  California  Federal Bank, A Federal Savings Bank, and J. Randy
                  Staff.  (Incorporated  by  reference  to Exhibit  10.17 to the
                  Registrant's 1997 Form 10-K.)

         10.18    Employment  Agreement,  dated as of December 17, 1999, between
                  California  Federal Bank, A Federal Savings Bank, and J. Randy
                  Staff.

                                    Page 73

<PAGE>

         10.19    Employment  Agreement,  dated as of  August 1,  1999,  between
                  California  Federal Bank, A Federal Savings Bank, and Scott A.
                  Kisting.  (Incorporated  by  reference  to Exhibit 10.2 to the
                  Registrant's  Quarterly  Report on Form 10-Q for the quarterly
                  period ended September 30, 1999.)

         10.20    Consulting Agreement between First Nationwide Management Corp.
                  and Gerald J. Ford, dated as of October 1, 1994. (Incorporated
                  by reference to Exhibit 10.27 to Post-Effective  Amendment No.
                  1 to FN Holdings' Registration Statement on Form S-1 (File No.
                  33-82654).)

         10.21    Amendment to Consulting  Agreement  between  First  Nationwide
                  Management Corp. and Gerald J. Ford, dated effective  December
                  17, 1997.  (Incorporated  by reference to Exhibit 10.43 to the
                  Registrant's 1997 Form 10-K.)

         10.22    First  Amendment,  dated as of January  1, 1995,  by and among
                  First Nationwide Management Corp., Diamond A-Ford Corporation,
                  Trans  Network  Insurance  Services,  Inc. and Gerald J. Ford,
                  supplementing   the   Consulting   Agreement   between   First
                  Nationwide  Management  Corp.  and  Gerald J. Ford dated as of
                  October 1, 1994.  (Incorporated  by reference to Exhibit 10.33
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-00854).)

         10.23    Management  Incentive  Plan  for  Certain  Employees  of First
                  Nationwide  Bank, A Federal  Savings  Bank.  (Incorporated  by
                  reference  to  Exhibit  10.34  to  FN  Holdings'  Registration
                  Statement on Form S-1 (File No. 333-00854).)

         10.24    1998 Change of Control Plan, dated as of March 25, 1999.

         10.25    Golden State Bancorp Inc. Omnibus Stock Plan. (Incorporated by
                  reference to Exhibit 10.2 to the Registrant's Quarterly Report
                  on Form 10-Q for the quarterly period ended June 30, 1999.)

         10.26    Golden  State  Bancorp  Inc.   Executive   Compensation  Plan.
                  (Incorporated by reference to Exhibit 10.3 to the Registrant's
                  Quarterly  Report on Form 10-Q for the quarterly  period ended
                  June 30, 1999.)

         10.27    Registration  Agreement,  dated  September 13, 1996,  among FN
                  Holdings Inc., First  Nationwide  Escrow Corp. and the initial
                  purchasers  named  therein  relating  to  the 10  5/8%  Notes.
                  (Incorporated  by reference to Exhibit 4.20 to Amendment No. 1
                  to FN Holdings'  Registration  Statement on Form S-1 (File No.
                  333-21015).)

         10.28    Litigation Management Agreement, dated as of February 4, 1998,
                  by and among  Golden State  Bancorp,  Inc.,  Glendale  Federal
                  Bank, Federal Savings Bank, California Federal Bank, A Federal
                  Savings  Bank,   Stephen  J.  Trafton  and  Richard  A.  Fink.
                  (Incorporated  by  reference  to Exhibit  99.2 to the February
                  1998 Form 8-K.)

         10.29    Purchase and Assumption Agreement between Norwest Bank Nevada,
                  N.A.,  and  California  Federal Bank, A Federal  Savings Bank,
                  dated October 30, 1998.  (Incorporated by reference to Exhibit
                  10.54 to the Registrant's 1998 Form 10-K.)

         10.30    Purchase and  Assumption  Agreement  between Wells Fargo Bank,
                  N.A.,  and  California  Federal Bank, A Federal  Savings Bank,
                  dated October 30, 1998.  (Incorporated by reference to Exhibit
                  10.55 to the Registrant's 1998 Form 10-K.)

         10.31    Reimbursement and Expense Allocation  Agreement between Golden
                  State  Bancorp Inc.  and  California  Federal  Bank, A Federal
                  Savings  Bank,  dated  November  23,  1998.  (Incorporated  by
                  reference  to  Exhibit  10.56 to the  Registrant's  1998  Form
                  10-K.)

         10.32    Agreement for Provision of Services between California Federal
                  Bank, A Federal Savings Bank and Golden State Management Inc.,
                  dated November 23, 1998. (Incorporated by reference to Exhibit
                  10.57 to the Registrant's 1998 Form 10-K.)

                                    Page 74

<PAGE>

         10.33    Agreement  for Provision of Services  between  Mafco  Holdings
                  Inc. and Golden State  Bancorp  Inc.,  dated  January 1, 1999.
                  (Incorporated   by   reference   to  Exhibits   10.58  to  the
                  Registrant's 1998 Form 10-K.)

         12.1     Statement  regarding the  computation  of ratio of earnings to
                  combined   fixed   charges  and  minority   interest  for  the
                  Registrant.

         21.1     Subsidiaries of the Registrant.

         23.1     Consent of KPMG LLP, Independent Auditors of the Registrant.

         24.1     Power of Attorney executed by Ronald O. Perelman.

         27.1     Financial Data Schedule.

(c) Reports On Form 8-K

     None.

                                    Page 75

<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 21, 2000

                                    GOLDEN STATE BANCORP INC.





                                    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 21, 2000
---------------------------------------------
         Gerald J. Ford                              Executive Officer and Director
                                                     (Principal Executive Officer)

      /s/Carl B. Webb                                President, Chief Operating Officer            March 21, 2000
---------------------------------------------
         Carl B. Webb                                and Director


      /s/Richard H. Terzian                          Executive Vice President                      March 21, 2000
---------------------------------------------
         Richard H. Terzian                          and Chief Financial Officer
                                                     (Principal Financial Officer)

      /s/Renee Nichols Tucei                         Executive Vice President and                  March 21, 2000
---------------------------------------------
         Renee Nichols Tucei                         Controller
                                                     (Principal Accounting Officer)

                 *                                   Director                                      March 21, 2000
---------------------------------------------
         Ronald O. Perelman


      /s/Paul M. Bass, Jr.                           Director                                      March 21, 2000
---------------------------------------------
         Paul M. Bass, Jr.


      /s/George W. Bramblett, Jr.                    Director                                      March 21, 2000
---------------------------------------------
         George W. Bramblett, Jr.
</TABLE>


                                    Page 76

<PAGE>

<TABLE>
<CAPTION>

<S>                                                  <C>                                           <C>

      /s/Brian P. Dempsey                            Director                                      March 21, 2000
---------------------------------------------
         Brian P. Dempsey


      /s/Howard Gittis                               Director                                      March 21, 2000
---------------------------------------------
         Howard Gittis


      /s/John F. King                                Director                                      March 21, 2000
---------------------------------------------
         John F. King


      /s/John F. Kooken                              Director                                      March 21, 2000
---------------------------------------------
         John F. Kooken


      /s/Gabrielle K. McDonald                       Director                                      March 21, 2000
---------------------------------------------
         Gabrielle K. McDonald


      /s/John A. Moran                               Director                                      March 21, 2000
---------------------------------------------
         John A. Moran


      /s/B.M. Rankin, Jr.                            Director                                      March 21, 2000
---------------------------------------------
         B.M. Rankin, Jr.


      /s/Thomas S. Sayles                            Director                                      March 21, 2000
---------------------------------------------
         Thomas S. Sayles


      /s/Robert Setrakian                            Director                                      March 21, 2000
---------------------------------------------
         Robert Setrakian


      /s/Cora M. Tellez                              Director                                      March 21, 2000
---------------------------------------------
         Cora M. Tellez
</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

                                    Page 77

<PAGE>


                          INDEPENDENT AUDITORS' REPORT



The Stockholders and Board of Directors
Golden State Bancorp Inc.:

We have audited the  accompanying  consolidated  balance  sheets of Golden State
Bancorp Inc. and subsidiaries  (the "Company") as of December 31, 1999 and 1998,
and  the  related  consolidated  statements  of  income,  comprehensive  income,
stockholders'  equity  and cash  flows for each of the  years in the  three-year
period ended December 31, 1999. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Golden State Bancorp
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.





                                             KPMG LLP



San Francisco, California
January 18, 2000

















                                      F-1

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 1999 and 1998
                  (dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                       Assets                                               1999              1998
                                       ------
                                                                                          ----------       -----------
<S>                                                                                     <C>               <C>
Cash and due from banks                                                                 $    508,959      $     854,954
Interest-bearing deposits in other banks                                                           5             52,671
Short-term investment securities                                                              84,061             60,325
                                                                                         -----------       ------------
     Cash and cash equivalents                                                               593,025            967,950

Securities available for sale, at fair value                                               1,075,766            770,747
Securities held to maturity (fair value $180,449 and $251,489 at December 31,
     1999 and 1998, respectively)                                                            185,357            250,964
Mortgage-backed securities available for sale, at fair value                              13,764,565         12,947,992
Mortgage-backed securities held to maturity (fair value $2,150,014 and $2,825,227
     at December 31, 1999 and 1998, respectively)                                          2,149,696          2,770,913
Loans held for sale, net                                                                     729,062          2,366,583
Loans receivable, net                                                                     33,953,461         30,280,944
Investment in Federal Home Loan Bank ("FHLB") System                                       1,167,144          1,000,147
Premises and equipment, net                                                                  324,582            336,874
Foreclosed real estate, net                                                                   45,091             80,068
Accrued interest receivable                                                                  321,596            317,455
Intangible assets (net of accumulated amortization of $183,433 and $113,709 at
     December 31, 1999 and 1998, respectively)                                               819,561            923,598
Mortgage servicing rights                                                                  1,272,393            943,581
Other assets                                                                                 617,761            911,168
                                                                                         -----------        -----------
         Total assets                                                                    $57,019,060        $54,868,984
                                                                                         ===========        ===========


         Liabilities, Minority Interest and Stockholders' Equity

Deposits                                                                                 $23,035,757        $24,620,066
Securities sold under agreements to repurchase                                             5,481,747          4,238,395
Borrowings                                                                                25,668,626         22,375,557
Other liabilities                                                                            771,147          1,459,750
                                                                                         -----------       ------------
         Total liabilities                                                                54,957,277         52,693,768
                                                                                         -----------       ------------

Commitments and contingencies                                                                     --                 --

Minority interest                                                                            500,000            593,438

Stockholders' equity
     Common stock, $1.00 par value, (250,000,000 shares authorized;  134,720,685
         and 128,687,763 shares issued at December 31, 1999
         and 1998, respectively)                                                             134,721            128,688
     Issuable shares                                                                         204,681                 --
     Additional paid-in capital                                                            1,378,735          1,392,155
     Accumulated other comprehensive (loss) income                                          (275,209)             6,151
     Retained earnings (substantially restricted)                                            371,096             56,471
     Treasury stock (12,478,097 and 89,994 shares at
         December 31, 1999 and 1998, respectively)                                          (252,241)            (1,687)
                                                                                         -----------        -----------
     Total stockholders' equity                                                            1,561,783          1,581,778
                                                                                         -----------        -----------
         Total liabilities, minority interest and stockholders' equity                   $57,019,060        $54,868,984
                                                                                         ===========        ===========


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

                                      F-2

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                        Consolidated Statements of Income
                  Years Ended December 31, 1999, 1998 and 1997
                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                       1999            1998            1997
                                                                                     ---------       ---------        --------
<S>                                                                                  <C>            <C>             <C>
Interest income:
     Loans receivable                                                                $2,332,500     $1,739,294      $1,553,210
     Mortgage-backed securities available for sale                                      872,823        482,567         297,816
     Mortgage-backed securities held to maturity                                        177,644        134,537         113,300
     Loans held for sale                                                                109,486        115,714          76,364
     Securities available for sale                                                       76,669         49,736          53,936
     Securities held to maturity                                                         11,459          4,702           2,436
     Interest-bearing deposits in other banks                                            12,049         22,263           5,638
     Dividends on FHLB stock                                                             59,639         36,042          24,790
                                                                                     ----------     ----------      ----------

         Total interest income                                                        3,652,269      2,584,855       2,127,490
                                                                                     ----------      ---------      ----------
Interest expense:
     Deposits                                                                           888,286        791,112         746,985
     Securities sold under agreements to repurchase                                     265,467        153,697         140,547
     Borrowings                                                                       1,312,629        874,736         610,885
                                                                                    -----------   ------------    ------------
         Total interest expense                                                       2,466,382      1,819,545       1,498,417
                                                                                    -----------    -----------     -----------
         Net interest income                                                          1,185,887        765,310         629,073
Provision for loan losses                                                                10,000         40,000          79,800
                                                                                   -------------  -------------   -------------
         Net interest income after provision for loan losses                          1,175,887        725,310         549,273
                                                                                    -----------   ------------    ------------
Noninterest income:
     Loan servicing fees, net                                                           146,682        132,543         143,704
     Customer banking fees and service charges                                          187,022        121,283         100,263
     Gain on sale of assets, net                                                         21,699            193          38,230
     Gain on sale of  branches, net                                                       2,343        108,825           3,569
     Gain on sale and settlement of loans, net                                           32,885         54,217          24,721
     Other income                                                                        28,211         23,896          29,207
                                                                                   -------------  -------------   -------------
         Total noninterest income                                                       418,842        440,957         339,694
                                                                                   ------------   ------------    ------------
Noninterest expense:
     Compensation and employee benefits                                                 391,597        293,982         256,448
     Occupancy and equipment                                                            148,411         99,746          81,914
     Professional fees                                                                   52,667         56,360          48,771
     Loan expense                                                                        36,048         48,183          60,437
     Foreclosed real estate operations, net                                              (6,411)        (6,152)         (3,304)
     Amortization of intangible assets                                                   69,724         53,415          49,153
     Merger and integration costs                                                         7,747         59,162              --
     Other expense                                                                      225,674        159,307         157,150
                                                                                   ------------   ------------    ------------
         Total noninterest expense                                                      925,457        764,003         650,569
                                                                                   ------------   ------------    ------------

Income before income taxes, minority interest and extraordinary items                   669,272        402,264         238,398
Income tax expense (benefit)                                                            186,483       (106,351)         41,315
Minority interest: provision in lieu of income tax expense                              122,684             --              --
Minority interest: other                                                                 39,390        110,527         102,135
                                                                                    -----------    -----------    ------------
     Income before extraordinary items                                                  320,715        398,088          94,948
Extraordinary items - gain (loss) on early extinguishment of debt, net of
     applicable taxes of $1,801 and ($103,823) in 1999 and 1998, respectively             2,472       (150,333)             --
                                                                                    -----------    -----------    ------------
         Net income                                                                 $   323,187    $   247,755    $     94,948
                                                                                    ===========    ===========    ============

Earnings per share:
Basic
     Income before extraordinary items                                                    $2.45          $5.00           $1.67

     Extraordinary items                                                                   0.02          (1.89)             --
                                                                                          -----          -----           -----
         Net income                                                                       $2.47          $3.11           $1.67
                                                                                          =====          =====           =====
Diluted
     Income before extraordinary items                                                    $2.29          $4.88           $1.67

     Extraordinary items                                                                   0.02          (1.84)             --
                                                                                          -----          -----           -----
         Net income                                                                       $2.31          $3.04           $1.67
                                                                                          =====          =====           =====
See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-3

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 Consolidated Statements of Comprehensive Income
                  Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                     1999              1998              1997
                                                                                  ---------         ---------           ------
<S>                                                                               <C>                <C>                <C>
Net income                                                                        $323,187           $247,755           $94,948

Other comprehensive (loss) income, net of tax:
Unrealized holding (loss) gain on securities available for sale:
     Unrealized holding (loss) gain arising during the period                     (280,618)           (28,167)           10,907
     Less: reclassification adjustment for gain included in net income                (742)              (844)          (21,964)
                                                                                  --------           --------           -------
          Other comprehensive loss                                                (281,360)           (29,011)          (11,057)
                                                                                  --------           --------           -------

Comprehensive income                                                              $ 41,827           $218,744           $83,891
                                                                                  ========           ========           =======


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

                                      F-4

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 Consolidated Statements of Stockholders' Equity
                  Years Ended December 31, 1999, 1998 and 1997
                             (dollars in thousands)

<TABLE>
<CAPTION>
                                                       Preferred Stock
                                                          Series A                Common Stock
                                                       ----------------        -------------------     Issuable
                                                       Shares    Amount        Shares       Amount      Shares
                                                       ------    ------        ------       ------     --------
<S>                                                        <C>   <C>         <C>           <C>         <C>
Balance at December 31, 1996                               --    $   --      56,722,988    $ 56,723    $     --

Net income                                                 --        --              --          --          --
FN Escrow Merger                                           --        --              --          --          --
Redemption of FN Holdings Preferred Stock                  --        --              --          --          --
Costs of FN Holdings Preferred Stock issuance              --        --              --          --          --
Issuance costs of REIT Preferred Stock                     --        --              --          --          --
  on securities available for sale                         --        --              --          --          --
Dividends to Parent                                        --        --              --          --          --
Capital contribution                                       --        --              --          --          --
                                                   ----------    ------     -----------    --------    --------

Balance at December 31, 1997                               --        --      56,722,988      56,723          --

Net income                                                 --        --              --          --          --
Golden State Acquisition                            4,183,599     4,184      61,880,950      61,881          --
Conversion of Series A Preferred Stock             (4,181,061)   (4,181)     10,051,200      10,051          --
Redemption of Additional FN Holdings
  Preferred Stock                                          --        --              --          --          --
Change in net unrealized holding gain
  on securities available for sale                         --        --              --          --          --
Liability reflecting value of Golden State
  Common Stock to be distributed to GSB
  Investments and Hunter's Glen in respect
  of theirproportionate ownership of the
  California Federal Goodwill Litigation Asset             --        --              --          --          --
Liability reflecting value of Golden State
  Common Stock to be distributed to GSB
  Investments and Hunter's Glen upon use
  of Parent Holdings' pre-merger tax benefits              --        --              --          --          --
GS Escrow Merger                                           --        --              --          --          --
Dividend of tax benefits to parent due to
  deconsolidation                                          --        --              --          --          --
Pre-merger dividends to parent                             --        --              --          --          --
Redemption of Series A Preferred Stock                 (2,538)       (3)             --          --          --
Exercise of stock options                                  --        --          32,625          33          --
Capital contribution                                       --        --              --          --          --
Sale of common stock in treasury                           --        --              --          --          --
                                                   ----------    ------     -----------    --------    --------
Balance at December 31, 1998                               --        --     128,687,763     128,688          --

                                                                                                      (Continued)
See accompanying notes to consolidated financial statements.
</TABLE>


<PAGE>

<TABLE>
<CAPTION>
                                                                 Accumulated       Retained
                                                  Additional        Other          Earnings           Common Stock         Total
                                                   Paid-in       Comprehensive  (Substantially        in Treasury      Stockholders'
'                                                                                                  -----------------
                                                   Capital       Income (Loss)    Restricted)      Shares     Amount      Equity
                                                  ----------     -------------  -------------      ------     ------   -------------
<S>                                               <C>               <C>           <C>                  <C>    <C>        <C>
Balance at December 31, 1996                      $                 $46,219       $222,352             --     $   --     $ 325,294

Net income                                               --              --         94,948             --         --        94,948
FN Escrow Merger                                     (1,164)             --             --             --         --        (1,164)
Redemption of FN Holdings Preferred Stock             2,339              --             --             --         --         2,339
Costs of FN Holdings Preferred Stock issuance          (650)             --             --             --         --          (650)
Issuance costs of REIT Preferred Stock                 (574)             --        (16,977)            --         --       (17,551)
Change in net unrealized holding gain
  on securities available for sale                       --         (11,057)            --             --         --       (11,057)
Dividends to Parent                                      --              --        (22,724)            --         --       (22,724)
Capital contribution                                     49              --             --             --         --            49
                                                  ---------         -------       --------       --------     ------      --------

Balance at December 31, 1997                             --          35,162        277,599             --         --       369,484

Net income                                               --              --        247,755             --         --       247,755
Golden State Acquisition                          1,400,332              --             --       (108,574)    (2,036)    1,464,361
Conversion of Series A Preferred Stock               (5,870)             --             --             --         --            --
Redemption of Additional FN Holdings
  Preferred Stock                                       787              --             --             --         --           787
Change in net unrealized holding gain
  on securities available for sale                       --         (29,011)            --             --         --       (29,011)
Liability reflecting value of Golden State
  Common Stock to be distributed to GSB
  Investments and Hunter's Glen in respect
  of theirproportionate ownership of the
  California Federal Goodwill Litigation Asset           --              --        (58,791)            --         --       (58,791)
Liability reflecting value of Golden State
  Common Stock to be distributed to GSB
  Investments and Hunter's Glen upon use
  of Parent Holdings' pre-merger tax benefits            --              --        (170,139)           --         --      (170,139)
GS Escrow Merger                                     (3,535)             --              --            --         --        (3,535)
Dividend of tax benefits to parent due to
  deconsolidation                                        --              --        (230,161)           --         --      (230,161)
Pre-merger dividends to parent                           --              --          (9,793)           --         --        (9,793)
Redemption of Series A Preferred Stock                  (61)             --               1            --         --           (63)
Exercise of stock options                               611              --              --            --         --           644
Capital contribution                                     22              --              --            --         --            22
Sale of common stock in treasury                       (131)             --              --        18,580        349           218
                                                  ---------         -------        --------      --------   --------     ---------
Balance at December 31, 1998                      1,392,155           6,151          56,471       (89,994)    (1,687)    1,581,778

                                                                                                                        (Continued)
See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-5

<PAGE>

<TABLE>
<CAPTION>

                                                   Preferred Stock
                                                      Series A                Common Stock
                                                   ----------------     -----------------------     Issuable
                                                   Shares    Amount        Shares       Amount       Shares
                                                   ------    ------        ------       ------      --------
<S>                                                    <C>   <C>        <C>           <C>           <C>
Balance at December 31, 1998                           --    $   --     128,687,763   $ 128,688     $     --

Net income                                             --        --              --          --           --
Golden State Acquisition - see note 3                  --        --              --          --           --
Adjustment to initial dividend of tax
  benefits  to former parent
  due to deconsolidation                               --        --              --          --           --
Adjustment to contribution receivable
  from GSB Investments and Hunter's
  Glen in respect of their proportionate
  ownership of the California Federal
  Goodwill Litigation Asset                            --        --              --          --           --
Reclassification of Litigation Tracking
  Warrants owned by the Bank                           --        --              --          --           --
Change in net unrealized holding gain
  (loss) on securities available for sale              --        --              --          --           --
Issuable shares (1999 usage of pre-merger
  NOLs)                                                --        --              --          --      197,562
Issuable shares (1998 tax benefits)                    --        --              --          --        2,665
Issuable shares (interest on Old California
  Federal tax refund)                                  --        --              --          --        4,454
Distribution of issuable shares                        --        --       5,540,319       5,540           --
Impact of restricted stock                             --        --          56,908          57           --
Purchase of treasury stock                             --        --              --          --           --
Exercise of stock options and warrants                 --        --         435,695         436           --
Sale of common stock in treasury                       --        --              --          --           --
                                               ----------    ------    ------------   ---------     --------
Balance at December 31, 1999                           --    $   --    $134,720,685   $ 134,721     $204,681
                                               ==========    ======    ============   =========     ========

                                                                                                          (Continued)

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

<PAGE>

<TABLE>
<CAPTION>
                                                             Accumulated       Retained
                                              Additional       Other          Earnings           Common Stock           Total
                                               Paid-in      Comprehensive  (Substantially        in Treasury         Stockholders'
                                                                                              ------------------
                                               Capital      Income (Loss)    Restricted)      Shares      Amount        Equity
                                              ----------    -------------  -------------      ------      ------     -------------
<S>                                           <C>             <C>           <C>               <C>       <C>            <C>
Balance at December 31, 1998                  $1,392,155      $  6,151      $ 56,471          (89,994)  $  (1,687)     $1,581,778

Net income                                            --            --       323,187               --          --         323,187
Golden State Acquisition - see note 3            (12,380)           --            --               --          --         (12,380)
Adjustment to initial dividend of tax
  benefits  to former parent
  due to deconsolidation                              --            --        15,519               --          --          15,519
Adjustment to contribution receivable
  from GSB Investments and Hunter's
  Glen in respect of their proportionate
  ownership of the California Federal
  Goodwill Litigation Asset                           --            --       (24,081)              --          --         (24,081)
Reclassification of Litigation Tracking
  Warrants owned by the Bank                          --            --            --               --      (1,987)         (1,987)
Change in net unrealized holding gain
  (loss) on securities available for sale             --      (281,360)           --               --          --        (281,360)
Issuable shares (1999 usage of pre-merger
  NOLs)                                               --            --            --               --          --         197,562
Issuable shares (1998 tax benefits)               (2,665)           --            --               --          --              --
Issuable shares (interest on Old California
  Federal tax refund)                                 --            --            --               --          --           4,454
Distribution of issuable shares                   (5,540)           --            --               --          --              --
Impact of restricted stock                           420            --            --               --          --             477
Purchase of treasury stock                            --            --            --      (12,463,800)   (250,245)       (250,245)
Exercise of stock options and warrants             7,444            --            --               --          --           7,880
Sale of common stock in treasury                    (699)           --            --           75,697       1,678             979
                                              ----------     ---------      --------      -----------   ---------      ----------
Balance at December 31, 1999                  $1,378,735     $(275,209)     $371,096      (12,478,097)  $(252,241)     $1,561,783
                                              ==========     =========      ========      ===========   =========      ==========



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

                                      F-6

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 1999, 1998 and 1997
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                       1999               1998               1997
                                                                    -----------        ----------         ----------
<S>                                                                 <C>                <C>                <C>
Cash flows from operating activities:
Net income                                                          $  323,187         $  247,755         $   94,948
Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
      Amortization of intangible assets                                 69,724             53,415             49,153
      Provision (benefit) for deferred income taxes                     94,780           (206,931)             9,441
      Accretion of discount on borrowings                                1,018                832                744
      Amortization (accretion) of purchase accounting
          premiums and discounts, net                                    7,541               (236)           (20,650)
      Amortization of mortgage servicing rights                        212,310            158,163            110,282
      Provision for loan losses                                         10,000             40,000             79,800
      Gain on sale of assets, net                                      (21,699)              (193)           (38,230)
      Gain on sale of branches, net                                     (2,343)          (108,825)            (3,569)
      Gain on sale of foreclosed real estate                           (13,069)           (13,559)           (12,087)
      Loss on sale and settlement of loans, net                        160,970            115,755             95,744
      Capitalization of originated mortgage servicing rights          (193,855)          (169,972)          (120,465)
      Extraordinary items - (gain) loss on early
          extinguishment of debt, net                                   (2,472)           150,333                 --
      Depreciation and amortization of premises and
          equipment                                                     40,895             26,720             16,773
      Amortization of deferred debt issuance costs                       7,295              8,592              7,591
      FHLB stock dividends                                             (59,639)           (36,042)           (24,790)
      Purchases and originations of loans held for sale             (8,345,470)        (8,843,499)        (6,293,262)
      Net proceeds from the sale of loans held for sale              9,703,072          7,892,122          5,510,777
      Decrease in other assets                                          47,793            155,037            156,306
      Increase in accrued interest receivable                           (4,141)           (17,630)           (11,197)
      Decrease in other liabilities                                   (183,181)          (134,531)          (136,673)
      Amortization of deferred compensation expense -
          restricted stock                                                 477                 --                 --
      Minority interest: provision in lieu of income
          tax expense                                                  122,684                 --                 --
      Minority interest: other                                          39,390            110,527             97,555
                                                                    ----------         ----------         ----------
             Net cash provided by (used in) operating                2,015,267           (572,167)          (431,809)
                                                                    ----------         ----------         ----------
           activities

Cash flows from investing activities:
      Acquisitions and divestitures:
          Nevada Purchase                                              458,943                 --                 --
          Golden State Acquisition                                          --            782,228                 --
          Cal Fed Acquisition                                               --                 --           (161,196)
          GSAC Acquisition                                                  --            (13,577)                --
          Auto One Acquisition                                              --                 --             (2,845)
          Mortgage loan servicing rights and operations                     --                 --            (34,260)

                                                                                                          (Continued)
         See accompanying notes to consolidated financial statements.
</TABLE>

                                      F-7

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows, Continued
                  Years Ended December 31, 1999, 1998 and 1997
                               (in thousands)

<TABLE>
<CAPTION>
                                                                                    1999               1998              1997
                                                                                 ----------         -----------      ------------
<S>                                                                              <C>                <C>               <C>
Cash flows from investing activities (continued):
     Purchases of securities available for sale                                  $ (807,690)        $  (891,643)      $(1,340,881)
     Proceeds from sales of securities available for sale                                --                  --            52,014
     Proceeds from maturities of securities available for sale                      431,934             975,288         1,015,410
     Purchases of securities held to maturity                                       (28,869)               (384)          (58,965)
     Principal payments and proceeds from maturities of securities
         held to maturity                                                            94,820               2,827             4,938
     Purchases of mortgage-backed securities available for sale                  (4,832,344)         (8,955,882)       (2,547,200)
     Principal payments on mortgage-backed securities available for sale          3,623,918           3,261,363         1,057,642
     Proceeds from sales of mortgage-backed securities available for sale           193,732              25,292            50,772
     Purchases of mortgage-backed securities held to maturity                            --                  --              (458)
     Principal payments on mortgage-backed securities held to maturity              621,179             468,544           283,696
     Proceeds from sales of loans                                                    18,528              10,875            21,179
     Net (increase) decrease in loans receivable                                 (1,694,325)          2,280,576           889,575
     Purchases of loans receivable                                               (2,197,573)           (593,378)         (375,198)
     Purchases of FHLB stock, net                                                  (110,477)           (278,955)          (50,721)
     Purchases of premises and equipment                                            (49,241)            (71,361)          (66,131)
     Proceeds from disposal of premises and equipment                                14,549              30,634            31,400
     Proceeds from sales of foreclosed real estate                                  136,565             164,278           200,275
     Purchases of mortgage servicing rights                                        (357,557)           (157,224)          (29,627)
     Proceeds from sales of mortgage servicing rights                                30,802                  --            31,051
                                                                                 ----------         -----------       -----------

         Net cash used in investing activities                                   (4,453,106)         (2,960,499)       (1,029,530)
                                                                                 ----------         -----------       -----------


Cash flows from financing activities:
     Branch sales                                                                   (69,340)         (1,267,517)          (79,900)
     Net decrease in deposits                                                    (2,052,128)         (1,449,687)       (1,196,360)
     Proceeds from additional borrowings                                         33,029,009          25,559,922        19,595,218
     Principal payments on borrowings                                           (29,717,967)        (20,496,018)      (17,495,008)
     Net increase (decrease) in securities sold under agreements
         to repurchase                                                            1,243,352           1,945,646           (40,289)
     Proceeds from the GS Escrow Merger                                                  --           1,970,285                --
     Bank Preferred Stock Tender Offers                                             (97,621)           (423,509)               --
     Debt Tender Offers                                                                (253)         (1,089,885)               --
     Defeasance of Parent Holdings Notes                                                 --            (553,667)               --
     Proceeds from FN Escrow Merger                                                      --                  --           603,313
     Issuance of FN Holdings Preferred Stock, net                                        --                  --              (650)
     Issuance of REIT Preferred Stock, net                                               --                  --           482,449
     Redemption of FN Holdings Preferred Stock                                           --             (25,000)         (125,000)
     Redemption of FN Holdings/FN Escrow Preferred Stock                                 --                  --           (17,250)
     Redemption of Series A Preferred Stock                                              --                 (68)               --
     Dividends                                                                           --                  --           (22,724)
     Dividends paid to minority stockholders, net of taxes                          (30,752)            (80,506)         (100,067)
     Exercise of stock options and warrants                                           7,880                 644                --
     Purchase of treasury stock                                                    (250,245)                 --                --
     Sale of treasury stock                                                             979                 218                --
     Capital contribution from parent                                                    --                  --                49
     Capital distribution                                                                --              (2,553)               --
                                                                                 ----------         -----------       -----------
         Net cash provided by financing activities                                2,062,914           4,088,305         1,603,781
                                                                                 ----------         -----------       -----------
Net change in cash and cash equivalents                                            (374,925)            555,639           142,442
Cash and cash equivalents at beginning of year                                      967,950             412,311           269,869
                                                                                 ----------         -----------       -----------
Cash and cash equivalents at end of year                                         $  593,025         $   967,950       $   412,311
                                                                                 ==========         ===========       ===========


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

                                      F-8

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


(1)    Organization
       ------------
       Golden State Bancorp Inc. (the "Company" or "Golden  State") is a holding
company with no business  operations of its own. The Company's only  significant
asset is its ownership of all of the common stock of Golden State  Holdings Inc.
("GS Holdings"), formerly First Nationwide Holdings Inc. ("FN Holdings"), which
owns all of the  voting  common  stock of  California  Federal  Bank,  A Federal
Savings Bank and its  subsidiaries  ("California  Federal" or "Bank"),  formerly
First  Nationwide  Bank,  A  Federal  Savings  Bank  ("First  Nationwide").  The
Company's principal business operations are conducted by California Federal.

       The Bank is a  diversified  financial  services  company  that  primarily
serves  consumers in California and, to a lesser extent,  in Nevada.  The Bank's
principal  business  consists of (a)  operating  retail  deposit  branches  that
provide  retail  consumers and small  businesses  with deposit  products such as
demand,  transaction and savings  accounts;  investment  products such as mutual
funds, annuities and insurance;  and (b) mortgage banking activities,  including
originating  and  purchasing  1-4 unit  residential  loans  for sale to  various
investors in the secondary market and servicing loans for itself and others.  To
a lesser extent,  the Bank originates and/or purchases  certain  commercial real
estate,  commercial business and consumer loans for investment.  These operating
activities are financed  principally with customer deposits,  secured short-term
and  long-term  borrowings,  collections  on loans,  asset  sales  and  retained
earnings.

(4)    Summary of Significant Accounting Policies
       ------------------------------------------
       The accounting and reporting policies of the Company conform to generally
accepted accounting  principles and prevailing  practices within the banking and
thrift  industries.  The  following  summarizes  the more  significant  of these
policies.

       (a) Basis of Presentation

       The accompanying  consolidated  financial statements include the accounts
of Golden State which owns all of the common  stock of GS  Holdings,  which owns
all of the  voting  common  stock of the  Bank.  Unless  the  context  otherwise
indicates,  "Golden  State" or "Company"  refers to Golden State Bancorp Inc. as
the surviving entity after the consummation of the Golden State  Acquisition (as
defined herein).  On September 11, 1998,  Glendale Federal Bank, Federal Savings
Bank ("Glendale Federal") merged with and into the Bank pursuant to the Glen Fed
Merger (as defined herein). Unless the context otherwise indicates,  "California
Federal" or "Bank"  refers to California  Federal as the surviving  entity after
the consummation of the Golden State Merger (as defined  herein).  On January 3,
1997,  First  Nationwide  merged with and into the Bank  pursuant to the Cal Fed
Acquisition.  Unless  the  context  otherwise  indicates,  (a)  "Old  California
Federal" refers to California  Federal Bank, A Federal Savings Bank prior to the
consummation of the Cal Fed  Acquisition and (b) "California  Federal" or "Bank"
refers to  California  Federal  Bank, A Federal  Savings  Bank, as the surviving
entity  after  the  consummation  of the  Cal  Fed  Acquisition,  and  to  First
Nationwide and its  predecessors  for periods prior to the Cal Fed  Acquisition.
All significant  intercompany  balances and transactions have been eliminated in
consolidation.  Certain  amounts in the prior  years have been  reclassified  to
conform to the current period's presentation.

       Golden State is a holding  company  whose only  significant  asset is its
indirect  ownership of all of the common stock of the Bank, and  therefore,  all
activities  for the  consolidated  entity  are  carried  out by the Bank and its
operating subsidiaries.

       (b) Cash and Cash Equivalents

       For purposes of the consolidated  statements of cash flows, cash and cash
equivalents include cash and amounts due from banks,  interest-bearing  deposits
in other  banks,  and  other  short-term  investment  securities  with  original
maturities of three months or less.  Savings and loan  associations are required
by the Federal  Reserve  System to maintain  non-interest  bearing cash reserves
equal  to  a  percentage  of  certain  deposits.  The  reserve  requirement  for
California  Federal at December 31, 1999 was $106.2 million,  which was met with
vault cash of $109.3 million and cash reserves of $23.7 million.

                                      F-9

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       (c) Securities and Mortgage-backed Securities

       The  Company's  investment  in  securities  consists  primarily  of  U.S.
government and agency  securities and  mortgage-backed  securities.  The Company
classifies debt and equity  securities,  including  mortgage-backed  securities,
into one of three  categories:  held to maturity,  available for sale or trading
securities.  Securities held to maturity  represent  securities which management
has the  positive  intent and  ability to hold to  maturity  and are  carried at
amortized  cost.  Securities  bought  and held  principally  for the  purpose of
selling them in the near term are classified as trading  securities and reported
at fair value,  with unrealized  gains and losses included in income.  All other
securities including equity securities with readily determinable fair values are
classified as available for sale and are carried at fair value,  with unrealized
holding  gains and  losses,  net of tax,  reported  as a separate  component  of
stockholders'  equity until realized.  Declines in the value of held-to-maturity
and  available-for-sale  securities below their cost that are deemed to be other
than temporary are reflected in earnings as realized losses.  Realized gains and
losses  on   securities   available   for  sale  are   computed  on  a  specific
identification basis and are accounted for on a trade-date basis.

       Amortization  and  accretion  of  premiums  and  discounts   relating  to
mortgage-backed  securities  is  recognized  using the interest  method over the
estimated lives of the underlying mortgages with adjustments based on prepayment
experience.

       (d) Loans Held for Sale, Net

       One-to-four  unit  residential  loans originated and intended for sale in
the secondary  market are carried at the lower of aggregate cost or market value
as determined by  outstanding  commitments  from  investors or current  investor
yield  requirements  calculated on an aggregate basis. Net unrealized losses are
recognized in a valuation allowance by charges to income.

       (e)  Loans Receivable, Net

       Loans receivable,  net, is stated at unpaid principal balances,  less the
allowance  for  loan  losses,  and net of  deferred  loan  origination  fees and
purchase discounts or premiums.

       Discounts  or  premiums  on 1-4 unit  residential  loans are  accreted or
amortized  to income  using the interest  method over the  remaining  period the
loans are  expected to be  outstanding.  Discounts  or premiums on consumer  and
other  loans  are  recognized  over the lives of the  loans  using the  interest
method.

       A  significant  portion of the  Company's  real estate loan  portfolio is
comprised of adjustable-rate  mortgages.  The interest rate and payment terms of
these mortgages adjust on a periodic basis in accordance with various  published
indices. The majority of these adjustable-rate  mortgages have terms which limit
the amount of  interest  rate  adjustment  that can occur each year and over the
life of the mortgage.  During  periods of limited  payment  increases,  negative
amortization may occur on certain adjustable-rate mortgages. See note 33.

       The  allowance  for loan  losses is  adjusted  by  charges  to income and
decreased by charge-offs (net of recoveries).  Management's  periodic evaluation
of the adequacy of the allowance is based on such factors as the Company's  past
loan  loss  experience,  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.  Management's methodology for assessing the adequacy of the
allowance  includes the evaluation of the following three key elements:  (a) the
formula allowance,  (b) specific allowances for identified problem loans and (c)
the  unallocated   allowance.   As  management  utilizes  information  currently
available to make such  evaluation,  the allowance for loan losses is subjective
and may be adjusted in the future depending on changes in economic conditions or
other  factors.  Additionally,  regulatory  authorities,  as an integral part of
their regular  examination  process,  review the Bank's  allowance for estimated
losses on a periodic basis.  These authorities may require the Bank to recognize
adjustments to the allowance based on their judgment of information available to
them at the time of their examination.

                                      F-10

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Uncollectible  interest  on loans that are  contractually  ninety days or
more  past  due is  charged  off,  or an  allowance  is  established,  based  on
management's  periodic  evaluation.  The allowance is established by a charge to
interest  income  equal  to all  interest  previously  accrued,  and  income  is
subsequently  recognized  only to the extent that cash  payments  are  received.
When, in management's judgment, the borrower's ability to make periodic interest
and principal payments resumes, the loan is returned to accrual status.

       (f) Auto One Loans

       The  Company,  through  its 80% owned  subsidiary,  Auto One (as  defined
herein),  purchases loans individually and in groups. Such loans are grouped and
accounted  for in  homogeneous  pools based upon certain  risk  characteristics,
including  interest coupon rate, credit quality,  and period of origination.  At
acquisition,  the  Company  estimates  the  amount  and  timing of  undiscounted
expected  principal  and interest  cash flows  ("Expected  Cash Flows") for each
pool.  For  certain  purchased  pools of loans,  the amount  paid  reflects  the
Company's  determination  that it is  probable  the  Company  will be  unable to
collect all amounts due  according to the  contractual  terms of the  underlying
loans in the pool.  Accordingly,  at  acquisition,  the Company  recognizes  the
excess of the pool's scheduled  contractual  principal and contractual  interest
payments  over its Expected  Cash Flows as an amount that should not be accreted
("Nonaccretable  Contractual  Cash Flows").  The remaining amount - representing
the excess of the pool's  Expected Cash Flows over the amount paid - is accreted
into interest income over the remaining life of each pool ("Accretable Yield").

       Over the life of each pool of loans,  the Company  continues  to estimate
Expected  Cash Flows.  In the event a pool's actual cash flows plus the expected
cash payments are less than the Expected Cash Flows estimated at the time of the
purchase, the amount by which the current carrying value of the pool exceeds the
present value of the expected cash flows discounted at the originally  estimated
internal  rate of return is an  impairment  and  requires an  allocation  of the
allowance  for loan losses  established  by provisions  for loan losses.  If the
present  value of a pool's  expected  remaining  cash  flows  discounted  at the
originally  estimated internal rate of return exceeds the current carrying value
of the pool, the amount of the  Accretable  Yield is increased and the amount of
the Nonaccretable Contractual Cash Flows is decreased by the amount the sum of a
pool's expected  remaining cash flows exceeds the sum of the remaining  payments
less the Nonaccretable  Contractual Cash Flows. The adjusted Accretable Yield is
accreted into interest income over the pool's  remaining life using the interest
method.

       (g) Impaired Loans

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

       The  measurement  of impairment  may be based on (a) the present value of
the expected  future cash flows of the impaired  loan  discounted  at the loan's
original  effective  interest  rate,  (b) the  observable  market  price  of the
impaired loan, or (c) the fair value of the collateral of a collateral-dependent
loan. The Company bases the measurement of  collateral-dependent  impaired loans
on the fair value of the loan's collateral,  less disposal costs. The amount, if
any, by which the  recorded  investment  of the loan  exceeds the measure of the
impaired  loan's value is recognized by recording a valuation  allowance.  Large
groups of smaller  balance  homogeneous  loans are  collectively  evaluated  for
impairment.

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

                                      F-11

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       (h) Loan Origination and Commitment Fees and Related Costs

       Loan origination fees, net of direct  underwriting and closing costs, are
deferred  and  amortized to interest  income using the interest  method over the
contractual  term of the loan,  adjusted for actual loan prepayment  experience.
Unamortized  fees on  loans  sold or paid in  full  are  recognized  as  income.
Adjustable-rate  loans with lower initial interest rates during the introductory
period result in the  amortization of a substantial  portion of the net deferred
fees during the introductory period.

       Fees  received in  connection  with loan  commitments  are  deferred  and
recognized  as fee  revenue  on a  straight-line  basis  over  the  term  of the
commitment.  If the commitment is subsequently  exercised  during the commitment
period,  the  remaining  unamortized  commitment  fee at the time of exercise is
recognized over the term of the loan using the interest method.

       Commitment fees paid to investors,  for the right to deliver  residential
loans in the future to the investors at specified yield,  are deferred.  Amounts
are  included  in the  recognition  of gain (loss) on sale of loans as loans are
delivered to the investor in proportion to the percentage  relationship of loans
delivered to the total commitment  amount.  Any unused fees are recognized as an
expense  at  the  expiration  of  the  commitment  date,  or  earlier,  if it is
determined the commitment will not be filled.

       Other loan fees and charges,  which represent  income from the prepayment
of loans,  delinquent  payment charges,  and  miscellaneous  loan services,  are
recognized as income when collected.

       (i) Premises and Equipment

       Land is carried at cost. Premises,  equipment and leasehold  improvements
are stated at cost,  less  accumulated  depreciation.  Premises,  equipment  and
leasehold  improvements are depreciated on a straight-line basis over the lesser
of the lease  term or the  estimated  useful  lives of the  various  classes  of
assets. Maintenance and repairs on premises and equipment are charged to expense
in the period incurred.

       Closed facilities of the Company and its subsidiaries are carried at fair
value.  In the case of  leased  premises  that are  vacated  by the  Company,  a
liability is recorded  representing the difference between the net present value
of  future  lease  payments  plus  holding  costs and the net  present  value of
anticipated sublease income, if any, for the remaining term of the lease.

       (j) Foreclosed Real Estate

       Real  estate  acquired  through,  or in  lieu  of,  loan  foreclosure  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 if 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.  Carrying costs such as maintenance
and property taxes are expensed as incurred.

       (k) Intangible Assets

       Intangible  assets,  which  primarily  consist of the excess of cost over
fair value of net assets  acquired in business  combinations  accounted for as a
purchase,  are amortized on a straight-line basis over the expected period to be
benefited of 15 years.  The Company  periodically  reviews the operations of the
businesses  acquired  to  determine  that income from  operations  continues  to
support the recoverability of its intangible assets and the amortization periods
used.

       (l) Mortgage Servicing Rights

       The Company purchases  mortgage  servicing rights separately and acquires
mortgage  servicing rights through the sale of loans it purchases or originates.
Generally,  purchased  mortgage  servicing rights are capitalized at the cost to
acquire  the rights and are  carried  at the lower of cost,  net of  accumulated
amortization, or fair value.

                                      F-12

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Originated  mortgage servicing rights are capitalized based on the relative fair
value of the  servicing  right to the fair  value of the loan and the  servicing
right and are carried at the lower of the capitalized amount, net of accumulated
amortization, or fair value.

       A portion of the cost of  originating a mortgage loan is allocated to the
mortgage servicing right based on its relative fair value. To determine the fair
value of mortgage servicing rights the Company uses market prices for comparable
mortgage servicing contracts, when available, or alternatively, uses a valuation
model that calculates the present value of future net servicing income. In using
this  valuation  method,  the  Company  incorporates   assumptions  that  market
participants would use in estimating future net servicing income, which includes
estimates of the cost of servicing,  the discount rate, mortgage escrow earnings
rate, an inflation rate,  ancillary income,  prepayment speeds and default rates
and losses.

       Mortgage  servicing  rights are amortized in proportion  to, and over the
period of,  estimated net servicing  income.  The  amortization  of the mortgage
servicing rights is analyzed  periodically and is adjusted to reflect changes in
prepayment rates and other estimates. Prepayment rates used in the determination
of amortization during 1999 and 1998 were 18.5% Constant Prepayment Rate ("CPR")
and 23.1% CPR,  respectively.  A decline in long-term  interest rates  generally
results in an acceleration in mortgage loan prepayments.

       The Company  evaluates the possible  impairment of servicing rights based
on the  difference  between the  carrying  amount and current  fair value of the
servicing rights. In determining impairment, the Company aggregates all mortgage
servicing   rights  and   stratifies   them  based  on  the   predominant   risk
characteristics  of interest  rate,  loan type and investor  type. If impairment
were to exist,  a valuation  allowance  would be  established  for any excess of
amortized cost over the current fair value, by risk stratification,  by a charge
to income.

       The Company employs hedging  techniques  through the use of interest rate
floor contracts, swaptions, principal-only swap agreements and prepayment linked
swap  agreements  to reduce the  sensitivity  of its  earnings  and value of its
servicing rights to declining interest rates and borrower prepayments as further
discussed  in note 36.  The  Company  uses  hedge  accounting  because  mortgage
servicing rights expose the Company to interest risk and at the inception of the
hedge and throughout the hedge period, high correlation of changes in the market
value of the hedge  instruments  and the fair  value of the  mortgage  servicing
rights  are  probable  so  that  the  results  of  the  hedge  instruments  will
substantially  offset  the  effects of  interest  rate  changes on the  mortgage
servicing rights. If these requirements are not met, the hedge instruments would
be considered  speculative  and would be marked to market with changes in market
value reflected in current income.

       The premium paid by the Company on the interest rate floor  contracts and
swaptions is amortized  over the life of the  contract.  Amounts  receivable  or
payable under the principal  only swap  agreements  and  prepayment  linked swap
agreements  and amounts  receivable  under the  interest  rate floor  contracts,
swaptions or  terminated  hedges are included in the carrying  value of mortgage
servicing  rights and are  amortized as part of the basis in mortgage  servicing
rights.

       (m) Gains/Losses on Sales and Settlement of Loans

       Mortgage  loans are  generally  sold with the mortgage  servicing  rights
retained by the Company. The carrying value of mortgage loans sold is reduced by
the cost allocated to the associated mortgage servicing rights.  Gains or losses
on sales of mortgage  loans are recognized  based on the difference  between the
selling  price  and the  carrying  value of the  related  mortgage  loans  sold.
Deferred  origination  fees  and  expenses,  net  of  commitment  fees  paid  in
connection with the sale of the loans, are recognized at the time of sale in the
gain or loss determination.

       In the normal course of business,  the Company  purchases  loans held for
investment at a discount.  Proceeds received in settlement of loans in excess of
the carrying value are included in gain on sale and settlement of loans, net.

                                      F-13

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       (n) Servicing Fee Income

       Servicing fee income is recorded for fees earned for  servicing  mortgage
loans  under  servicing  agreements  with  Fannie  Mae  ("FNMA"),   Freddie  Mac
("FHLMC"),  the Government National Mortgage Association  ("GNMA"),  and certain
private  investors.  The  fees  are  based on a  contractual  percentage  of the
outstanding  principal  balance or a fixed  amount per loan and are  recorded as
income when received.  The  amortization of mortgage  servicing rights is netted
against servicing fee income.

       (o) Derivatives

       The Company uses interest rate derivative financial instruments (interest
rate swaps, interest rate floors, swaptions, principal only swaps and prepayment
linked  swaps)  primarily  to  hedge  against  prepayment  risk in its  mortgage
servicing  portfolio caused by declining interest rates and, to a lesser extent,
to hedge against the interest rate risk  inherent in fixed-rate  FHLB  advances.
These instruments serve to reduce rather than increase the Company's exposure to
movements in interest rates,  both at inception and throughout the hedge period.
At the inception of the hedge,  the Company  identifies  an individual  asset or
liability,   or  an  identifiable   group  of  essentially   similar  assets  or
liabilities,  that expose the Company to interest rate risk at the  consolidated
level.

       Interest rate derivative  financial  instruments receive hedge accounting
treatment  only if they are  designated  as a hedge and are  expected to be, and
are,  effective in  substantially  reducing  interest rate risk arising from the
assets and  liabilities  identified  as  exposing  the  Company  to risk.  Those
derivative financial instruments that do not meet the hedging criteria discussed
below would be  classified as trading  activities  and would be recorded at fair
value with changes in fair value recorded in income.  Derivative hedge contracts
must meet specific correlation tests (i.e., the change in their fair values must
be within 80 to 125  percent of the  opposite  change in the fair  values of the
hedged assets or liabilities). Changes in fair value of the derivative financial
instruments  must be  effective at  offsetting  changes in the fair value of the
hedged items during the term of the hedge.  Further, if the underlying financial
instrument  differs  from the hedged asset or  liability,  there must be a clear
economic relationship between the prices of the two financial instruments.

       If  periodic  assessment  indicates  derivatives  no  longer  provide  an
effective  hedge,  the  derivatives  contracts  would be closed out,  settled or
classified  as a  trading  activity.  The  net  settlement  (upon  close  out or
termination)  that offsets changes in the value of the hedged asset or liability
is deferred and amortized  into net interest  income over the life of the hedged
asset or liability.  The portion,  if any, of the net settlement amount that did
not offset  changes in the value of the hedge asset or liability  is  recognized
immediately in noninterest income.

       Interest  rate  swaps  are  accounted  for under  the  "accrual  method."
Interest rate floors,  swaptions,  principal  only swaps and  prepayment  linked
swaps are accounted for under the "deferral  method." Under the accrual  method,
the net interest payment due or owed under the instrument is recognized over the
life of the contract in net interest income. Under the deferral method, realized
gains or losses,  or  payments  made or  received  on the  derivative  financial
instrument,  are reported as  adjustments  to the  carrying  value of the hedged
asset or liability.  There is no recognition  under either method on the balance
sheet for changes in the derivative's fair value.

       Except  for  contracts  designated  as a hedge  of an  available-for-sale
security,  derivative  financial  instruments  are not carried at fair value. If
there were  contracts that were  designated as a hedge of an  available-for-sale
security,  in addition to the accrual method and deferral  method of accounting,
these  contracts  would be carried at fair value with the resulting gain or loss
recognized in other comprehensive income.

       Swaption and interest rate floor  premiums are  classified on the balance
sheet with the hedged asset or liability at the time the premium is paid.  These
premiums  are  amortized to net loan  servicing  fee income over the life of the
contract.

                                      F-14

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       If a hedged asset or  liability  settles  before  maturity of the hedging
interest  rate  derivatives,  the  derivatives  are closed out,  and  previously
unrecognized hedge results,  if any, and the net settlement upon close out would
be  accounted  for as part of the  gains  and  losses  on the  hedged  asset  or
liability.  If derivative  financial  instruments used in an effective hedge are
closed out  before  the  hedged  item  settles,  previously  unrecognized  hedge
results,  if  any,  and the net  settlement  upon  close  out are  deferred  and
amortized over the life of the hedged asset or liability.

       Cash flows resulting from the derivative  financial  instruments that are
accounted  for as hedges of assets and  liabilities  are  classified in the cash
flow statement in the same category as the cash flows of the items being hedged.

       (p) Income Taxes

       Income  taxes are  accounted  for under the asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

       A valuation  allowance is maintained against the deferred tax asset in an
amount  representing the amount of such asset which is more likely than not that
the Company will be unable to utilize.  The  deferred  tax asset is  continually
evaluated for realizability.  To the extent that management's judgment regarding
the  realization  of the  deferred  tax  asset  changes,  an  adjustment  to the
allowance is recorded,  with an offsetting increase or decrease, as appropriate,
in income tax  expense.  Such  adjustments  are  recorded in the period in which
management's estimate as to the realizability of the asset changed.

       Prior to the Golden State Merger, for federal income tax purposes, Parent
Holdings and FN Holdings  were  members of the Mafco  Holdings  Inc.  affiliated
group,  ("Mafco Group"),  and accordingly,  their federal taxable income or loss
prior to the Golden State  Acquisition was included in the consolidated  federal
income  tax return  filed by Mafco.  Parent  Holdings  may also be  included  in
certain state and local income tax returns of Mafco or its subsidiaries.  The FN
Holdings tax sharing agreement with Mafco provided that income taxes be based on
the separate results of FN Holdings.  The agreement  generally  provided that FN
Holdings  would pay Mafco amounts  equal to the taxes that FN Holdings  would be
required  to pay if it were to file a  return  separately  from  the  affiliated
group. Furthermore, the agreement provided that FN Holdings would be entitled to
take into account any net  operating  loss  carryovers  in  determining  its tax
liability.  The agreement also provided that Mafco pay FN Holdings amounts equal
to tax  refunds  FN  Holdings  would be  entitled  to if it had  always  filed a
separate company tax return.  Parent Holdings did not enter into any tax sharing
agreements with Mafco.

       In  connection  with  the  Golden  State  Acquisition,  the  tax  sharing
agreement with Mafco was assumed by the Company for taxable periods ending after
the acquisition.  The Company,  the successor of Parent Holdings,  is the parent
corporation of the Golden State affiliated group.  Accordingly,  the Company and
its subsidiaries file consolidated  federal income tax returns and certain state
and local income tax returns for periods subsequent to September 11, 1998.

       (q) Issuable Shares

       The Golden State  Merger  agreement  provides  that GSB  Investments  (as
defined  herein),  as successor to First  Gibraltar,  and Hunter's  Glen will be
entitled to receive  contingent  consideration,  through the  issuance by Golden
State of  additional  shares of Golden State  Common  Stock (as defined  herein)
("Issuable  Shares") to GSB Investments and Hunter's Glen,  based on (a) the use
by the combined  company of certain tax benefits  resulting  from net  operating
loss  carryforwards  of the  consolidated  group of which Parent  Holdings was a
part,  and the  realization  of certain  other   tax assets and  liabilities  of
Golden State and Parent  Holdings and (b)  California  Federal's  net  after-tax
recovery in certain  specified  litigation,  including a  percentage  of the net
after-tax  recovery,  if any, in the California Federal Goodwill  Litigation (as
defined herein)  (following payment by California Federal of all amounts due, if
any,  to  the  holders  of  the  Contingent  Litigation  Recovery  Participation
Interests   ("CALGZs")  and  the

                                      F-15

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Secondary Contingent Litigation Recovery Participation  Interests ("CALGLs") and
the retention of certain amounts of such recovery by the Bank). The Golden State
Merger  agreement  provides  generally  that  the  amount  of the net  after-tax
recovery,  if any,  resulting from the California  Federal  Goodwill  Litigation
which will be excluded in determining  the number of Issuable Shares issuable in
respect of the California  Federal  Goodwill  Litigation will be based on 15% of
the value of the net after-tax recovery in the Glendale Goodwill  Litigation (as
defined  herein) to be excluded for purposes of determining the number of shares
of Golden State Common Stock  issuable upon exercise of the LTW(TM)s (as defined
herein), adjusted to reflect the pro forma ownership interest of GSB Investments
and Hunter's Glen in Golden State at the time of the Golden State Merger.

       The total number of Issuable  Shares  cannot be determined at the present
time, as such number depends upon factors that are not subject to  determination
at this time.  These factors  include,  among other things,  the market price of
Golden State Common  Stock,  the net value to the Company of certain  assets and
liabilities of Golden State and Parent Holdings,  including potential recoveries
in the Glendale Goodwill  Litigation,  the California Federal Goodwill Litgation
and certain other litigation to which affiliates of Parent Holdings are parties,
and  potential  tax  benefits  resulting  from  the  use of net  operating  loss
carryforwards of the consolidated  group of which Parent Holdings was a part and
the  realization of certain other tax assets and liabilities of Golden State and
Parent Holdings.

       For financial  reporting  purposes,  the Company  records its estimate of
Issuable  Shares related to the use of tax benefits based upon the Company's net
income, adjusted for permanent tax differences.  For interim quarterly reporting
periods,  a  pro-rata  portion of the  Company's  annual  estimate  is used when
determining diluted shares  outstanding.  For purposes of determining the number
of  additional  shares to actually be issued in a given year,  computations  are
based  upon  contractual   provisions  contained  in  the  Golden  State  Merger
agreement.  Such provisions  pertain to the Company's taxable income (net income
as reported,  adjusted for permanent tax  differences  and adjusted  further for
timing differences), as reported on the Company's federal income tax returns and
are subject to certain limitations.

       (r) Stock Compensation Plan

       The Financial  Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based  Compensation,
encourages  all  entities to adopt a fair value based method of  accounting  for
employee stock compensation plans,  whereby compensation cost is measured at the
grant date based on the value of the award and is  recognized  over the  service
period,  which is usually the vesting period.  However, it also allows an entity
to continue  to measure  compensation  cost for those plans using the  intrinsic
value based method of  accounting  prescribed  by  Accounting  Principles  Board
("APB")  Opinion  No. 25,  Accounting  for Stock  Issued to  Employees,  whereby
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date (or other  measurement  date) over the amount an employee must
pay to acquire the stock. Stock options issued under Golden State's stock option
plan established for the benefit of the Bank's employees have no intrinsic value
at the grant  date,  and under APB  Opinion  No.  25, no  compensation  cost was
recognized for them.  Compensation  expense  related to restricted  stock issued
under Golden  State's stock plan is recognized on a straight line basis over the
vesting period for each tranche of the award,  with a corresponding  increase to
additional  paid-in  capital.  The  Company  has  elected to  continue  with the
accounting  methodology  prescribed  in APB Opinion No. 25 and complies with the
disclosure requirements of SFAS No. 123.

       (s) Earnings per Common Share

       The Company has adopted  SFAS No. 128  Earnings  per Share.  SFAS No. 128
requires the  presentation of earnings per common share and diluted earnings per
common  share.  Consistent  with the  provisions  of SFAS No. 128,  earnings per
common share includes the dilutive effect of issuable  shares,  but excludes the
dilutive  effect of stock  options and  warrants.  The dilutive  effect of stock
options and warrants  issued prior to September 11, 1998 (which are  convertible
into the right to receive both shares of Golden State Common Stock and LTW(TM)s)
used to compute  diluted  earnings  per share,  is based on the  average  market
prices of Golden State's Common Stock and LTW(TM)s for the period.  The dilutive
effect of issuable shares (used in both the basic and dilutED earnings per share
computation)  and stock options issued after  September 11, 1998 is based solely
on the average  market  price of Golden  State's  Common Stock for the period as
such shares are not eligible to receive  LTW(TM)s  upon  issuance.

                                      F-16

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Earnings per common shaRE is computed by dividing net income available to common
stockholders  by the  average  number of common  shares  outstanding  during the
period,  including  the  dilutive  effect of issuable  shares,  as  appropriate.
Diluted  earnings per common share is computed by dividing net income  available
to common stockholders by the average number of common shares outstanding during
the period,  including the dilutive effect of issuable shares, stock options and
warrants outstanding during the period.

       (t) Management's Use of Estimates

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

       (u) Recent Accounting Pronouncements

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

       SFAS No. 133 applies to all entities and amends SFAS No. 107, Disclosures
About Fair Values of  Financial  Instruments,  to include in  Statement  107 the
disclosure  provisions about  concentrations  of credit risk from Statement 105.
SFAS No. 133 supersedes SFAS No. 80, Accounting for Futures Contracts,  SFAS No.
105,  Disclosure of Information  about Financial  Instruments  with  Off-Balance
Sheet Risk and Financial  Instruments  with  Concentrations  of Credit Risk, and
SFAS  No.  119,  Disclosure  about  Derivative  Instruments  and  Fair  Value of
Financial  Instruments.  SFAS No. 133 also nullifies or modifies the consensuses
reached on a number of issues addressed by the Emerging Issues Task Force.

       SFAS No.  133,  as amended by SFAS No.  137,  Accounting  for  Derivative
Instruments  and Hedging  Activities  - Deferral of the  Effective  Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133, is effective for all
fiscal  quarters  of  fiscal  years  beginning  after  June  15,  2000.  Initial
application  of this  statement  should be as of the  beginning  of an  entity's
fiscal quarter. On that date, hedging  relationships must be designated anew and
documented pursuant to the provisions of this statement.  Earlier application of
all of the provisions of SFAS No. 133 is encouraged, but is permitted only as of
the beginning of any fiscal quarter that begins after issuance of the statement.
SFAS No. 133 should not be applied  retroactively  to  financial  statements  of
prior periods.  Management has  established a  multi-disciplinary  task force to
assess the statement's effect on the Company's consolidated financial statements
and to coordinate its implementation.

(3)    Acquisitions and Divestitures
       -----------------------------
       Golden State Acquisition

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

                                      F-17

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

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

       Pursuant to the Golden State Merger agreement,  First Gibraltar  Holdings
Inc. ("First  Gibraltar"),  the parent company of Parent Holdings,  and Hunter's
Glen, a 20% minority shareholder of FN Holdings,  received at the closing of the
Golden State Acquisition, in consideration of their interests as stockholders of
Parent Holdings and FN Holdings,  56,722,988  shares of common stock,  par value
$1.00 (the "Golden State Common  Stock"),  that  constituted,  in the aggregate,
47.9% of the common stock  outstanding,  immediately  after giving effect to the
Golden  State  Acquisition.  In  connection  with the Golden State  Merger,  the
Hunter's Glen minority interest in FN Holdings was  extinguished.  Subsequent to
the Golden State Merger, GSB Investments Corp. ("GSB Investments"),  an indirect
subsidiary of Mafco Holdings Inc., became the successor to First Gibraltar under
the Golden  State Merger  agreement  and the owner of the shares of common stock
previously held by First Gibraltar.

       At September 11, 1998, Glendale Federal had total assets of approximately
$18.9  billion and  deposits of $11.3  billion and  operated 181 branches and 26
loan offices in  California.  The following is a summary of assets  acquired and
liabilities assumed in connection with the Golden State Acquisition at September
11, 1998.

<TABLE>
<CAPTION>
                                                                                                              Estimated
                                                             Carrying       Fair Value           Fair         Remaining
                                                              Value        Adjustments          Value           Lives
                                                              -----        -----------          -----           -----
                                                                        (dollars in thousands)                (in years)
       <S>                                                <C>              <C>               <C>                <C>

       Cash and cash equivalents                        $     782,233       $      --        $   782,233           --
       Securities and mortgage-backed securities            2,354,263          16,015          2,370,278          1-5
       Loans receivable, net                               14,432,389         129,718         14,562,107          6-9
       Office premises and equipment, net                     158,446          (9,692)           148,754         2-12
       Investment in FHLB System                              314,591              --            314,591           --
       Foreclosed real estate, net                             47,504              --             47,504           --
       Accrued interest receivable                            115,165              --            115,165           --
       Mortgage servicing rights                              230,764         (17,831)           212,933          2-7
       Goodwill                                               271,743        (271,743)                --           --
       Other assets                                           204,372          77,465            281,837          2-5
       Deposits                                           (11,293,173)        (10,547)       (11,303,720)         1-8
       Borrowings                                          (5,877,574)        (45,310)        (5,922,884)         1-5
       Other liabilities                                     (399,737)        (65,017)          (464,754)        1-10
                                                         ------------       ---------        -----------
                                                         $  1,340,986       $(196,942)         1,144,044
                                                         ============       =========
       Purchase price                                                                          1,451,982
                                                                                             -----------
       Excess cost over fair value of net assets acquired                                    $   307,938           15
                                                                                             ===========
</TABLE>

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

       Merger and integration costs associated with the Golden State Acquisition
were $7.7  million and $59.2  million for the years ended  December 31, 1999 and
1998,  respectively,  including  severance  for  terminated  California  Federal
employees,  expenses for California Federal branch closures,  and conversion and
consolidation  costs,  as well as transition  expenses for duplicate  personnel,
facilities and computer systems during the integration period.

                                      F-18

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       During the year ended December 31, 1999, the Company  recorded fair value
and  other  adjustments  to  increase  intangible  assets  in the  Golden  State
Acquisition by $0.3 million,  increasing a previously  recorded  vacant facility
accrual.  In addition,  intangible  assets were reduced by $16.6 million,  $18.1
million  and $12.4  million  related to (a)  previously  accrued  severance  and
termination   costs  (which  had  not  been  utilized  upon  completion  of  the
integration plan), (b) a "true-up"  adjustment of the deferred tax asset and (c)
the purchase price, respectively.

       Nevada Branch Purchase

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

       Florida Branch Sale

       On September 11, 1998, the Bank  consummated the sale of its Florida bank
franchise  (consisting  of 24 branches  with  deposits of $1.4 billion) to Union
Planters Bank of Florida, a wholly owned subsidiary of Union Planters Corp. (the
"Florida  Branch Sale").  The Company  recorded a pre-tax gain of  approximately
$108.9  million in  connection  with the Florida  Branch  Sale,  representing  a
deposit premium of approximately 7.92%.

       Texas Branch Sale

       On December 12, 1997,  the Bank sold its retail  deposits and all related
retail banking  facilities in the state of Texas  (consisting of three branches)
totalling $57.6 million at a gross price  representing a deposit premium of 4.1%
and  resulting  in a pre-tax  gain on sale of $2.5  million  (the "Texas  Branch
Sale").

       Auto One and GSAC Acquisitions

       On September 1, 1997, the Bank acquired Auto One  Acceptance  Corporation
("Auto One") in a purchase  transaction (the "Auto One  Acquisition").  Auto One
primarily  engages in indirect  sub-prime auto financing  activities,  providing
loan processing,  funding and loan servicing, for over 800 franchised automobile
dealers.  Auto One is a  licensed  lender in 47 states and is  headquartered  in
Dallas,  Texas.  The Company's  consolidated  statements  of income  include the
results of operations for Auto One from September 1, 1997.

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

       Weyerhaeuser Purchase

       On May 31, 1997,  FNMC  acquired a 1-4 unit  residential  loan  servicing
portfolio of approximately $3.2 billion and approximately  40,000 loans from WMC
Mortgage  Corporation  (the  "Weyerhaeuser  Purchase")  for $37.1  million.  The
Company's consolidated  statements of income include the results of the acquired
servicing portfolio from June 1, 1997.

       Garberville Branch Sale

       On May 9, 1997,  the Bank  consummated  the sale of deposit  accounts and
related retail banking assets  comprised of cash on hand,  loans on deposits and
facilities totalling $21.7 million to Humbolt Bank at a gross price representing
a deposit premium of 4.5% (the  "Garberville  Branch Sale"),  and resulting in a
pre-tax gain on sale of $1.1 million.

                                      F-19

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Cal Fed Acquisition

       On January 3, 1997,  pursuant  to an  Agreement  and Plan of Merger  (the
"Merger  Agreement")  among FN Holdings,  Cal Fed Bancorp  Inc.  ("Cal Fed") and
California Federal Bank, A Federal Savings Bank ("Old California  Federal"),  FN
Holdings  acquired 100% of the  outstanding  stock of Cal Fed and Old California
Federal,  and First Nationwide merged with and into Old California  Federal (the
"Cal Fed  Acquisition").  The  aggregate  consideration  paid  under the  Merger
Agreement  consisted of  approximately  $1.2 billion in cash and the issuance of
litigation interests. Cal Fed, a savings and loan holding company, owned 100% of
the common stock of Old California Federal. At December 31, 1996, Old California
Federal had total  assets of  approximately  $14.1  billion and deposits of $8.9
billion,  and operated 119 branches in California and Nevada.  Effective January
3, 1997, First Nationwide changed its name to California Federal Bank, A Federal
Savings  Bank. In connection  with the Cal Fed  Acquisition,  FN Holdings made a
capital  contribution  to the Bank on  January  3,  1997 of  approximately  $685
million.

       The following is a summary of the assets acquired and liabilities assumed
in connection with the Cal Fed Acquisition at January 3, 1997:
<TABLE>
<CAPTION>

                                                                 Cal Fed                           Bank          Estimated
                                                                Carrying       Fair Value          Fair          Remaining
                                                                  Value        Adjustments         Value           Lives
                                                                  -----        -----------         -----           -----
                                                                          (dollars in thousands)                 (in years)
       <S>                                                    <C>              <C>            <C>                  <C>
       Cash and cash equivalents                              $  1,027,491     $      --      $  1,027,491            --
       Securities                                                    6,013            12             6,025             1
       Mortgage-backed securities                                1,963,869         4,532         1,968,401           6-9
       Loans receivable, net                                    10,084,170       (23,991)       10,060,179          2-12
       Office premises and equipment, net                           58,900       (17,592)           41,308          3-10
       Investment in FHLB System                                   166,786            --           166,786            --
       Foreclosed real estate, net                                  18,482           (16)           18,466            --
       Accrued interest receivable                                  71,868            --            71,868            --
       Mortgage servicing rights                                     4,759        39,738            44,497           2-7
       Other assets                                                 87,096       142,634           229,730           2-5
       Deposits                                                 (8,985,630)       (9,699)       (8,995,329)          1-8
       Borrowings                                               (3,468,004)       (2,918)       (3,470,922)          1-5
       Other liabilities                                          (198,454)      (79,467)         (277,921)         1-10
       Preferred stock                                            (172,500)           --          (172,500)           --
                                                              ------------     ---------      ------------
                                                              $    664,846     $  53,233           718,079
                                                              ============     =========
       Purchase price                                                                            1,188,687
                                                                                              ------------
       Excess cost over fair value of net assets acquired                                     $    470,608            15
                                                                                              ============
</TABLE>

       The Cal Fed Acquisition was accounted for as a purchase and  accordingly,
the purchase price was allocated to assets acquired and  liabilities  assumed in
the transaction based on estimates of fair value at the date of purchase. During
1998, the Company  recorded fair value  adjustments to reduce other  liabilities
and excess cost over fair value of net assets  acquired by $71.2 million related
to (a) to receipt of a tax  refund  related to periods  prior to January 3, 1997
and (b) previously  accrued severance and contract  termination costs (which had
not been utilized upon  completion of the  integration  plan).  During 1999, the
Company recorded an adjustment to reduce other  liabilities and excess cost over
fair value of net assets acquired by $38.2 million, also related to a tax refund
for periods prior to January 3, 1997. Since the date of purchase, the results of
operations  related to such  assets and  liabilities  have been  included in the
Company's consolidated statements of income.

                                      F-20

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Servicing Sales

       During April 1999,  FNMC sold servicing  rights on  approximately  49,000
loans with an unpaid  principal  balance of $2.0 billion,  recognizing a pre-tax
gain of $16.3 million.  On September 30, 1997,  FNMC sold  servicing  rights for
approximately  52,000 loans with an unpaid  principal  balance of  approximately
$2.3 billion, recognizing a pre-tax gain of $14.0 million.

       Pro Forma Financial Information

       The following  unaudited  pro forma  financial  information  combines the
historical  results  of the  Company  as if the Golden  State  Acquisition,  the
issuance  of the GS  Holdings  Notes (as  defined  herein)  and the  Refinancing
Transactions (as defined herein) had occurred as of the beginning of each of the
years presented (in thousands, except per share data):

                                        Year Ended December 31,
                                          1998          1997
                                          ----          ----
       Net interest income            $1,053,314     $1,001,484
       Net income                        556,834        136,810

       Earnings per Share:
         Basic                             $4.21          $1.18
         Diluted                            3.68           1.09

       The pro forma information does not include the effect of the Weyerhaeuser
Purchase, the Auto One Acquisition,  the GSAC Acquisition,  the Servicing Sales,
the  Garberville  Branch Sale, the Texas Branch Sale, or the Florida Branch Sale
because  such  effect  is  not  significant.  The  pro  forma  results  are  not
necessarily indicative of the results which would have actually been obtained if
the Golden  State  Acquisition,  the  issuance of the GS  Holdings  Notes or the
Refinancing  Transactions  had been  consummated in the past nor do they project
the results of operations in any future period.

       Purchase Accounting Adjustments

       Premiums and discounts  related to  interest-earning  assets acquired and
interest-bearing  liabilities  assumed are  amortized  (accreted)  to operations
using the interest  method over the estimated  remaining lives of the respective
assets and liabilities.

(4)    Issuance of Debt Securities
       ---------------------------

       On August 6, 1998,  GS Escrow  Corp,  ("GS  Escrow"),  an affiliate of GS
Holdings, issued $2 billion in debt securities (the "GS Holdings Notes"). The GS
Holdings  Notes were issued to fund, in part,  the cash tender offers  discussed
below,  that occurred  following the Golden State  Acquisition.  The GS Holdings
Notes  consist of (a) $250 million  aggregate  principal  amount of its Floating
Rate Notes due 2003 (the  "Floating  Rate  Notes"),  (B) $350 million  aggregate
principal  amount of its 6 3/4% Senior  Notes due 2001 (the "2001  Notes"),  (c)
$600  million  aggregate  principal  amount of its 7% Senior Notes Due 2003 (the
"2003  Notes") and (d) $800  million  aggregate  principal  amount of ITS 7 1/8%
Senior  Notes Due 2005 (the "2005 Notes" and,  together  with the 2001 Notes and
the 2003 Notes,  the "Fixed Rates Notes" and,  together with the Floating  Rates
Notes,  the "GS  Holdings  Notes").  Interest on the Fixed Rate Notes is payable
semi-annually in arrears on February 1 and August 1 of each year,  commencing on
February 1, 1999.  The Floating  Rate Notes bear interest at a rate equal to the
three-month  LIBOR plus 100 basis point per annum,  except that the initial rate
was 6 3/4% per annum,  based on six-month  LIBOR (which  initial  interest  rate
resets on the first  interest  payment  date,  and,  thereafter,  on a quarterly
basis). The first interest payment date for the Floating Rate Notes was February
1,  1999.  Thereafter,  interest  is  payable,  and the  interest  rate  resets,
quarterly  on each May 1,  August 1,  November 1 and  February  1. The  weighted
average interest rate on the

                                      F-21

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Floating Rate Notes during 1999 was 6.33%.  The 2001 Notes,  2003 Notes and 2005
Notes will mature on August 1 of the respective year.

       The GS  Holdings  Notes were  issued to fund,  in part,  the  Refinancing
Transactions  that  occurred  following the Golden State  Acquisition.  Deferred
issuance costs of $38.6 million related to the GS Holdings Notes are included in
the Company's  other assets and are being amortized over the life of such notes.
See note 20.

(5)    Refinancing Transactions
       ------------------------

       On August 17, 1998, FN Holdings  commenced  cash tender offers (the "Bank
Preferred Stock Tender Offers") for each of the Bank's two outstanding series of
Bank  Preferred  Stock  (as  defined  herein),   which  had  a  total  aggregate
liquidation preference of $473.2 million. The Bank Preferred Stock Tender Offers
expired on  September  14,  1998,  at which time  222,721  shares of the 10 5/8%
Preferred  Stock (as defined herein) and 995,437 shares of the 11 1/2% Preferred
Stock (as defined  herein) were  purchased  for an aggregate  purchase  price of
$135.8 million.  During the remainder of 1998 and 1999, GS Holdings continued to
purchase Bank Preferred Stock through privately negotiated transactions. Through
December 31, 1998,  894,980 additional shares of the 10 5/8% Preferred Stock and
1,693,522  shares  of the 11 1/2%  Preferred  Stock  had been  purchased  for an
aggregate  purchase  price of $287.7  million.  On April 1,  1999,  GS  Holdings
redeemed all of the remaining 607,299  outstanding  shares of the Bank's 10 5/8%
Preferred  Stock not already  owned by it for  $105.313  per share,  for a total
redemption  price of $63.9 million.  On September 1, 1999, GS Holdings  redeemed
all of the remaining 318,341  outstanding shares of the Bank's 11 1/2% Preferred
Stock not already owned by it for $105.75 per share for a total redemption price
of $33.7 million.  The net tender  premiums and expenses paid in connection with
the Bank Preferred  Stock Tender Offers  totalled $5.1 million and $36.9 million
for the years ended December 31, 1999 and 1998, respectively,  and are reflected
as minority  interest on the Company's  consolidated  statements of income.  See
note 24.

       On September  14, 1998,  GS Holdings  commenced  cash tender  offers (the
"Debt Tender  Offers" and together with the Bank  Preferred  Stock Tender Offers
and the  Parent  Holdings  Defeasance  (as  defined  herein),  the  "Refinancing
Transactions")  for the FN Holdings 12 1/4% Senior Notes, the Fn Holdings 9 1/8%
Senior Sub Notes and the Fn Holdings  10 5/8% Notes (each as defined  herein and
collectively,  the "FN Holdings  Notes"),  which together had a total  aggregate
principal  amount of $915  million.  Through  December  31,  1998,  GS  Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an  aggregate  purchase  price,  including  accrued  interest  payable,  of $1.1
billion.  On May 15,  1999,  GS Holdings  redeemed  the  remaining  $0.2 million
aggregate  principal  amount  of the FN  Holdings  12 1/4%  Senior  Notes for an
aggregate  redemption  price,  including  accrued  interest  payable,  of $252.6
thousand.  AT December  31, 1999,  only $0.3 million of the FN Holdings  10 5/8%
Notes remained  outstanding.  The after tax tender premiums and expenses paid in
connection  with the Debt Tender Offers totalled $98.7 million and are reflected
as an extraordinary loss, net of taxes, on the Company's  consolidated statement
of income for the year ended December 31, 1998.

       Concurrently with the closing of the Debt Tender Offers, GS Financial, as
the  successor  obligor,  gave  a  30-day  notice  of  redemption  for  all  the
outstanding $455 million aggregate  principal amount of 12 1/2% Senior Notes Due
2003 of Parent Holdings (the "Parent Holdings Notes"), and irrevocably deposited
money or  government  obligations  in trust in an amount  sufficient  to pay the
redemption price therefor,  together with any accrued and unpaid interest to the
date of redemption,  for the purpose of defeasing the Parent Holdings Notes (the
"Parent Holdings  Defeasance").  The Parent Holdings Defeasance was completed on
October 14,  1998.  The  after-tax  redemption  premiums  and  expenses  paid in
connection  with the Parent Holdings  Defeasance  totalled $51.6 million and are
reflected as extraordinary loss, net of taxes, on the consolidated  statement of
income for the year ended December 31, 1998.

(6)    GS Escrow Merger
       ----------------
       On September  14,  1998,  GS Escrow was merged with and into GS Holdings,
pursuant to a merger agreement by and between GS Escrow and GS Holdings (the "GS
Escrow Merger"). In connection therewith,  GS Holdings acquired the net proceeds
of $2.0 billion from the Refinancing  Transactions and became successor  obligor
on the GS  Holdings  Notes.  GS  Escrow  was a newly  formed  subsidiary  of GSB
Investments,  an indirect parent company of FN

                                      F-22

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Holdings,  and had no  significant  assets.  GS Escrow  had not  engaged  in any
business operations, acquired any assets or incurred any liabilities, other than
in connection with the issuance of the GS Holdings Notes.

<TABLE>
<CAPTION>
(7)    Supplemental Disclosure of Cash Flow Information
       ------------------------------------------------

                                                                                Year Ended December 31,

                                                                          1999             1998            1997
                                                                          ----             ----            ----
                                                                                       (in thousands)
       <S>                                                             <C>              <C>             <C>
       Cash paid for:
           Interest                                                    $2,255,685       $1,783,032      $1,459,676
           Income taxes, net                                                9,608         (142,012)         20,778

       Non-cash investing and financing activities:
           Principal reductions to loans due to foreclosure               101,692          118,801         179,607
           Loans made to facilitate the sale of real estate                10,039           10,898          19,413
           Loans exchanged for mortgage-backed securities                 227,099        1,905,274          50,772
           Reclassification of loans from loans held
               for sale to loans receivable                               110,313               --              --
           Reduction of previously accrued severance
               and contract termination costs                              18,908               --              --
           True-up of deferred tax asset                                   18,146               --              --
           Initial dividend of tax benefits to former parent
               due to deconsolidation                                          --          230,161              --
           Adjustment to initial dividend of tax benefits to
               former parent due to deconsolidation                       (15,519)              --              --
           Reclassification of Litigation Tracking
               Warrants owned by the Bank                                  (1,987)              --              --
           Adjustment to contribution receivable from
               GSB Investments and Hunter's Glen in respect
               of their proportionate ownership of the
               California Federal Goodwill Litigation Asset               (24,081)              --              --
           Impact of restricted common stock                                  477               --              --
           Adjustment to Golden State Acquisition
               purchase price                                             (12,380)              --              --
           Preferred stock dividends reinvested                                --              107           2,227

</TABLE>

(8)    Securities Available for Sale
       -----------------------------
       At December  31,  1999 and 1998,  securities  available  for sale and the
related unrealized gain or loss consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                                             December 31, 1999
                                                     -----------------------------------------------------------------
                                                                     Gross         Gross          Net
                                                     Amortized    Unrealized    Unrealized    Unrealized     Carrying
                                                       Cost          Gains        Losses      Gain (Loss)      Value
                                                       ----          -----        ------      -----------      -----
      <S>                                           <C>              <C>        <C>             <C>         <C>
      Marketable equity securities                  $      375       $811       $     (7)       $    804    $    1,179
      U.S. government and agency obligations         1,143,665         47        (69,125)        (69,078)    1,074,587
                                                    ----------       ----       --------        --------    ----------
               Total                                $1,144,040       $858       $(69,132)        (68,274)   $1,075,766
                                                    ==========       ====       ========                    ==========
      Estimated tax effect                                                                        28,777
                                                                                                --------
          Net unrealized holding loss in
               stockholders' equity                                                             $(39,497)
                                                                                                ========
</TABLE>

                                      F-23

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                             December 31, 1998
                                                     -----------------------------------------------------------------
                                                                     Gross         Gross          Net
                                                     Amortized    Unrealized    Unrealized    Unrealized     Carrying
                                                       Cost          Gains        Losses         Gain          Value
                                                       ----          -----        ------         ----          -----
      <S>                                             <C>           <C>          <C>           <C>           <C>
      Marketable equity securities                    $     --      $2,142       $  --         $  2,142      $  2,142
      U.S. government and agency obligations           767,558       1,226        (179)           1,047       768,605
                                                     ---------     -------       -----         --------      --------
               Total                                  $767,558      $3,368       $(179)           3,189      $770,747
                                                      ========      ======       =====                       ========
      Estimated tax effect                                                                       (1,222)
                                                                                               --------
          Net unrealized holding gain in
               stockholders' equity                                                            $  1,967
                                                                                               ========
</TABLE>

       The weighted  average stated  interest rates on securities  available for
sale were 6.24% and 6.15% at December 31, 1999 and 1998, respectively.

       The following  represents a summary of the amortized cost, estimated fair
value (carrying  value) and weighted  average yield of securities  available for
sale with related maturities (dollars in thousands):
<TABLE>
<CAPTION>
                                                                             December 31, 1999
                                                                --------------------------------------------
                                                                                 Estimated         Weighted
                                                                 Amortized          Fair            Average
                                                                   Cost            Value             Yield
                                                                   ----            -----             -----
      <S>                                                       <C>             <C>                  <C>
      Marketable equity securities                              $      376      $    1,179           1.60%
      U.S. government and agency obligations:
         Maturing within 1 year                                     24,157          24,150           5.78
         Maturing after 1 year but within 5 years                  575,712         556,785           6.21
         Maturing after 5 years through 10 years                    45,937          43,658           6.16
         Maturing after 10 years                                   497,859         449,994           6.40
                                                                ----------      ----------
            Total                                               $1,144,041      $1,075,766           6.28%
                                                                ==========      ==========
</TABLE>

       At December 31, 1999, U.S.  government and agency  obligations  available
for sale of $109.4 million were pledged as collateral  for various  obligations.
See notes 19, 20 and 33.

(9)    Securities Held to Maturity
       ---------------------------
       At December 31, 1999 and 1998,  securities held to maturity  consisted of
the following (in thousands):
<TABLE>
<CAPTION>
                                                              December 31, 1999
                                          ------------------------------------------------------
                                          Amortized      Unrealized    Unrealized     Estimated
                                            Cost           Gains         Losses       Fair Value
                                            ----           -----         ------       ----------
      <S>                                 <C>              <C>          <C>           <C>
      Municipal securities                $  84,727        $415         $(5,323)      $ 79,819
      Commercial paper                      100,630          --                       100,630
                                          ---------        ----         -------       --------
          Total                            $185,357        $415         $(5,323)      $180,449
                                           ========        ====         =======       ========
</TABLE>

<TABLE>
<CAPTION>
                                                              December 31, 1998
                                          ------------------------------------------------------
                                          Amortized      Unrealized    Unrealized     Estimated
                                            Cost           Gains         Losses       Fair Value
                                            ----           -----         ------       ----------
      <S>                                  <C>             <C>            <C>          <C>
      Municipal securities                 $ 84,428        $533           $(8)         $ 84,953
      Commercial paper                      166,536          --            --           166,536
                                           --------        ----           ---          --------
          Total                            $250,964        $533           $(8)         $251,489
                                           ========        ====           ===          ========
</TABLE>

                                      F-24

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The weighted average stated interest rates on securities held to maturity
were 4.89% and 4.77% at December 1999 and 1998, respectively.

       The  following  represents  a summary  of the  amortized  cost  (carrying
value),  estimated fair value,  and weighted average yield of securities held to
maturity with related maturities (dollars in thousands):
<TABLE>
<CAPTION>
                                                        December 31, 1999
                                            -----------------------------------------
                                                            Estimated       Weighted
                                            Amortized         Fair          Average
                                              Cost            Value          Yield
                                              ----            -----          -----
      <S>                                   <C>             <C>                <C>
      Municipal securities
          Maturing after 5 years
             through 10 years               $  2,469        $  2,358           4.71%
          Maturing after 10 years             82,258          77,461           5.00
      Commercial paper
          Maturing within 1 year             100,630         100,630           4.81
                                            --------        --------
             Total                          $185,357        $180,449           4.89%
                                            ========        ========
</TABLE>

(10)   Mortgage-backed Securities Available for Sale
       ---------------------------------------------
       At December 31, 1999 and 1998,  mortgage-backed  securities available for
sale and the related  unrealized  gain or loss  consisted of the  following  (in
thousands):
<TABLE>
<CAPTION>
                                                                          December 31, 1999
                                               -----------------------------------------------------------------------
                                                                 Gross         Gross            Net
                                                Amortized      Unrealized    Unrealized      Unrealized      Carrying
                                                  Cost           Gains         Losses           Loss          Value
                                                  ----           -----         ------           ----          -----
       <S>                                    <C>               <C>           <C>            <C>           <C>
       GNMA                                   $   645,299       $   402       $ (12,897)     $ (12,495)    $   632,804
       FNMA                                     2,554,242         5,087         (56,767)       (51,680)      2,502,562
       FHLMC                                      910,543         4,958          (8,553)        (3,595)        906,948
       Other mortgage-backed securities           499,117         6,845         (10,018)        (3,173)        495,944
       Collateralized mortgage obligations      9,562,817         1,778        (338,288)      (336,510)      9,226,307
                                              ------------      -------       ---------      ---------     -----------
             Total                            $14,172,018       $19,070       $(426,523)      (407,453)    $13,764,565
                                              ===========       =======       =========        171,741     ===========
       Estimated tax effect                                                                  ---------
          Net unrealized holding loss in
             stockholders' equity                                                            $(235,712)
                                                                                             =========
</TABLE>

<TABLE>
<CAPTION>
                                                                          December 31, 1998
                                               -----------------------------------------------------------------------
                                                                  Gross        Gross           Net
                                                Amortized      Unrealized    Unrealized     Unrealized      Carrying
                                                  Cost            Gains        Losses       Gain (Loss)      Value
                                                  ----            -----        ------       -----------      -----
       <S>                                    <C>                <C>          <C>             <C>         <C>
       GNMA                                   $   761,515        $ 1,366      $ (5,324)       $(3,958)    $   757,557
       FNMA                                     2,896,972         11,829       (13,394)        (1,565)      2,895,407
       FHLMC                                    1,354,254          7,415        (5,239)         2,176       1,356,430
       Other mortgage-backed securities           705,459          3,372        (4,467)        (1,095)        704,364
       Collateralized mortgage obligations      7,222,559         26,155       (14,480)        11,675       7,234,234
                                              -----------        -------      --------        -------     -----------
             Total                            $12,940,759        $50,137      $(42,904)         7,233     $12,947,992
                                              ===========        =======      ========                    ===========
       Estimated tax effect
                                                                                               (3,049)
          Net unrealized holding gain in
             stockholders' equity                                                             $ 4,184
                                                                                              =======
</TABLE>

                                      F-25

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The following  represents a summary of the amortized cost, estimated fair
value (carrying value) and weighted average yield of mortgage-backed  securities
available for sale (dollars in thousands):
<TABLE>
<CAPTION>
                                                                       December 31, 1999
                                                      ---------------------------------------------------
                                                                           Estimated            Weighted
                                                        Amortized             Fair              Average
                                                          Cost               Value               Yield
                                                          ----               -----               -----
      <S>                                            <C>                 <C>                      <C>
      GNMA                                           $     645,299       $     632,804            6.47%
      FNMA                                               2,554,242           2,502,562            6.55
      FHLMC                                                910,543             906,948            6.73
      Other mortgage-backed securities                     499,117             495,944            6.67
      Collateralized mortgage obligations                9,562,817           9,226,307            6.60
                                                      ------------       -------------
             Total                                     $14,172,018         $13,764,565            6.58%
                                                       ===========         ===========
</TABLE>

       The weighted average stated interest rates on mortgage-backed  securities
available  for  sale  were  6.62%  and  6.74% at  December  31,  1999 and  1998,
respectively.   At  December  31,  1999  and  1998,  mortgage-backed  securities
available for sale included securities  totalling $0.9 billion and $1.1 billion,
respectively,  which  resulted  from the  securitization  of certain  qualifying
mortgage loans from the Bank's loan portfolio.

       At December 31, 1999 and 1998,  mortgage-backed  securities available for
sale  included  $4.3 billion and $5.6 billion,  respectively,  of  variable-rate
securities.

       At December 31, 1999,  mortgage-backed  securities  available for sale of
$9.9 billion were pledged as collateral  for FHLB advances and  securities  sold
under  agreements  to  repurchase  as further  discussed in notes 19, 20 and 33.
Further,  at December 31, 1999,  mortgage-backed  securities  available for sale
with a  carrying  value  of  $755.0  million  were  pledged  for  various  other
obligations and includes $42.9 million in securities  pledged to FNMA associated
with the sales of certain securitized multi-family loans as further discussed in
note 33.

(11)   Mortgage-backed Securities Held to Maturity
       -------------------------------------------
       At  December  31,  1999  and  1998,  mortgage-backed  securities  held to
maturity consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                        December 31, 1999
                                                   --------------------------------------------------------------
                                                   Amortized         Unrealized       Unrealized       Estimated
                                                     Cost               Gains           Losses         Fair Value
                                                     ----               -----           ------         ----------
       <S>                                        <C>                  <C>             <C>            <C>
       FHLMC                                      $  161,129           $ 3,801         $     --       $  164,930
       FNMA                                        1,987,428            16,687          (20,170)       1,983,945
       Other mortgage-backed securities                1,139                --               --            1,139
                                                  ----------           -------         --------       ----------
           Total                                  $2,149,696           $20,488         $(20,170)      $2,150,014
                                                  ==========           =======         ========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                        December 31, 1998
                                                   --------------------------------------------------------------
                                                   Amortized         Unrealized       Unrealized       Estimated
                                                     Cost               Gains           Losses         Fair Value
                                                     ----               -----           ------         ----------
       <S>                                        <C>                  <C>               <C>           <C>
       FHLMC                                      $  223,378           $ 4,553           $ --          $  227,931
       FNMA                                        2,545,967            49,766             (5)          2,595,728
       Other Mortgage-backed Securities                1,568                --             --               1,568
                                                  ----------           -------            ---          ----------
           Total                                  $2,770,913           $54,319           $ (5)         $2,825,227
                                                  ==========           =======           ====          ==========
</TABLE>

                                      F-26

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The  following  represents  a summary  of the  amortized  cost  (carrying
value),  estimated  fair value and  weighted  average  yield of  mortgage-backed
securities held to maturity (dollars in thousands):
<TABLE>
<CAPTION>
                                                                   December 31, 1999
                                                     ---------------------------------------------
                                                                        Estimated         Weighted
                                                      Amortized            Fair           Average
                                                        Cost               Value           Yield
                                                        ----               -----           -----
       <S>                                           <C>               <C>                 <C>
       FHLMC                                         $  161,129        $  164,930           7.28%
       FNMA                                           1,987,428         1,983,945           7.03
       Other mortgage-backed securities                   1,139             1,139          14.15
                                                     ----------        ----------
           Total                                     $2,149,696        $2,150,014           7.05%
                                                     ==========        ==========
</TABLE>

       The weighted average stated interest rates on mortgage-backed  securities
held  to  maturity  were  6.92%  and  7.22%  at  December  31,  1999  and  1998,
respectively.  At December 31, 1999 and 1998, mortgage-backed securities held to
maturity  included  variable-rate  securities  totalling  $2.1  billion and $2.7
billion,  respectively,  which  resulted from the  securitization  with FNMA and
FHLMC of certain  qualifying  mortgage loans from the Bank's loan portfolio with
full recourse to the Bank.

       At December 31, 1999, mortgage-backed securities held to maturity of $1.9
billion were pledged as collateral for various  obligations as further discussed
in  notes  19,  20 and  33.  Further,  at  December  31,  1999,  mortgage-backed
securities  held to maturity with a carrying value of $50.1 million were pledged
for various other obligations. See note 33.

(12)   Loans Receivable, Net
       ---------------------
       At December  31,  1999 and 1998,  loans  receivable,  net,  included  the
following (in thousands):
<TABLE>
<CAPTION>
                                                                          1999                 1998
                                                                       -----------          -----------
       <S>                                                             <C>                  <C>
       Real estate loans:
          1-4 unit residential                                         $26,965,684          $23,493,221
          5+ unit residential                                            2,881,462            2,640,635
          Commercial                                                     2,564,644            2,940,129
          Construction                                                      10,179               32,066
          Land                                                              32,421               33,002
                                                                       -----------          -----------
                                                                        32,454,390           29,139,053
          Undisbursed loan funds                                            (2,375)              (9,933)
                                                                       -----------          -----------
             Total real estate loans                                    32,452,015           29,129,120
                                                                       -----------          -----------
       Equity-line loans                                                   433,366              385,118
       Other consumer loans                                                237,090              241,884
       Purchased auto loans, net                                           697,667              486,571
       Business banking loans                                              498,318              528,665
       Commercial loans                                                      8,764               12,683
                                                                       -----------          -----------
             Total consumer and other loans                              1,875,205            1,654,921
                                                                       -----------          -----------
             Total loans receivable                                     34,327,220           30,784,041
       Deferred loan fees, costs, discounts and premiums, net              173,719               81,728
       Allowance for loan losses                                          (554,893)            (588,533)
       Purchase accounting discounts, net                                    7,415                3,708
                                                                       -----------          -----------
             Total loans receivable, net                               $33,953,461          $30,280,944
                                                                       ===========          ===========
</TABLE>

       At December 31, 1999, $23.9 billion in residential  loans were pledged as
collateral for FHLB advances as further discussed in notes 20 and 33.

                                      F-27

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       As a  result  of the  Golden  State  and Cal Fed  Acquisitions,  the Bank
assumed  obligations  for  certain  loans sold with  recourse.  The  outstanding
balances of loans sold with recourse at December 31, 1999 totalled $3.0 billion.
No loans were sold with recourse  during the years ended December 31, 1999, 1998
and 1997. The Bank evaluates the credit risk of loans sold with recourse and, if
necessary,  records a liability  (included in other  liabilities)  for estimated
losses  related to these  potential  obligations.  At December  31,  1999,  such
liability totalled $70.9 million.

       Auto loans purchased at a discount related to credit quality are included
in the balance sheet amount of loans receivable as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                           -------------------------------
                                                                               1999                 1998
                                                                           ----------             --------
       <S>                                                                 <C>                    <C>
       Auto loans:  contractual payments receivable                        $1,024,612             $696,050
       Accretable Yield                                                      (123,944)             (88,145)
       Nonaccretable Contractual Cash Flows                                  (203,001)            (121,334)
                                                                           ----------             --------
       Loans purchased at a discount relating to credit quality, net       $  697,667             $486,571
                                                                           ==========             ========
</TABLE>

       Nonaccretable Contractual Cash Flows represents contractual principal and
interest cash flows that the Company determined, at acquisition, it was probable
the Company would be unable to collect. The increase in Accretable Yield in 1998
includes a $2.0 million  reclassification  from  Nonaccretable  Contractual Cash
Flows for cash flows  expected  to be  collected  in excess of those  previously
expected. The increase in Nonaccretable  Contractual Cash Flows in 1999 includes
$7.3 million  representing an allocation from the allowance for loan losses. The
actual cash flows for one of the purchased pools plus the expected cash payments
were determined to be less than the expected cash flows estimated at the time of
purchase. Accordingly, an allocation from the allowance for loan losses was made
in the amount by which the carrying  value of this  purchased  pool exceeded the
present value of the expected cash flows from such pool.
<TABLE>
<CAPTION>
                                                                                    Nonaccretable
                                                              Accretable             Contractual
                                                                Yield                Cash Flows
                                                                -----                ----------
                                                                        (in thousands)
      <S>                                                      <C>                    <C>
      Balance at December 31, 1997                             $ (35,198)             $ (47,220)
          Addition - Glen Fed Merger                              (6,934)                (7,324)
          Addition - GSAC Acquisition                            (38,359)               (30,845)
          Addition - other purchases                             (53,599)               (97,985)
          Accretion                                               47,929                     --
          Reclassifications                                       (1,984)                 1,984
          Eliminations                                                --                 60,056
                                                               ---------              ---------
      Balance at December 31, 1998                               (88,145)              (121,334)
          Addition - purchases                                  (114,640)              (163,816)
          Accretion                                               80,432                     --
          Allocation from allowance for loan losses                   --                 (7,339)
          Eliminations                                            (1,591)                89,488
                                                                  ------              ---------
         Balance at December 31, 1999                          $(123,944)             $(203,001)
                                                               =========              =========
</TABLE>

       During the years ended December 31, 1999 and 1998,  the Company  incurred
losses of $7.3 million and zero, respectively,  on loans purchased at a discount
by increasing  the allocated  allowance for loan losses  relative to such loans.
Further,  loss allowances  totalling $5.1 million were acquired from predecessor
institutions in connection with the Glen Fed Merger and the GSAC Acquisition. No
loss accruals were reversed in 1999 or 1998.

                                      F-28

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The following  table  presents loans which have been placed on nonaccrual
status as of the dates indicated (in thousands):

                                                         At December 31,
                                                 -------------------------------
                                                    1999                  1998
                                                    ----                  ----
        Nonaccrual loans:
          Real estate loans:
             1-4 unit residential                $125,238               $189,193
             5+ unit residential                    5,820                 16,045
             Commercial and other                   8,279                 10,362
             Construction                             150                  1,208
                                                 --------               --------
                Total real estate                 139,487                216,808
          Non-real estate                          11,267                  9,380
                                                 --------               --------
                Total nonaccrual loans           $150,754               $226,188
                                                 ========               ========

       The following table presents performing loans classified as troubled debt
restructuring, as of December 31, 1999 and 1998 (in thousands):

                                                              At December 31,
                                                         -----------------------
                                                          1999            1998
                                                          ----            ----
      1-4 unit residential                               $ 1,944         $ 3,468
      5+ unit residential                                  4,834           8,805
      Commercial and other real estate                    18,052          19,211
                                                         -------         -------
          Total restructured loans                       $24,830         $31,484
                                                         =======         =======

       At December 31, 1999,  $27.0  billion,  or 83.3%,  of the Company's  loan
portfolio consisted of real estate loans collateralized by properties located in
California.  The  financial  condition  of the  Company  is  subject  to general
economic  conditions  such as the  volatility of interest  rates and real estate
market   conditions  and,  in  particular,   to  conditions  in  the  California
residential real estate market.  Any downturn in the economy  generally,  and in
California in particular,  could reduce real estate  values.  An increase in the
general  level of  interest  rates may  adversely  affect the ability of certain
borrowers  to  pay  the  interest  on  and   principal  of  their   obligations.
Accordingly,  in the event  interest  rates rise or real  estate  market  values
decline,  particularly  in  California,  the  Company  and the  Bank may find it
difficult to maintain its asset  quality and may require  additional  allowances
for loss above the amounts currently estimated by management.

       For   nonaccrual   loans   and  loans   classified   as   troubled   debt
restructurings,  the following table  summarizes the interest income  recognized
("Recognized") and total interest income that would have been recognized had the
borrowers  performed under the original terms of the loans  ("Contractual")  for
the years ended December 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                           1999                            1998
                                 -------------------------       -------------------------
                                 Recognized    Contractual       Recognized    Contractual
                                 ----------    -----------       ----------    -----------
      <S>                          <C>           <C>               <C>           <C>
      Restructured loans           $2,434        $ 2,396           $ 2,988       $ 2,960
      Nonaccrual loans              7,111         10,937             9,680        18,219
                                   ------        -------           -------       -------
          Total                    $9,545        $13,333           $12,668       $21,179
                                   ======        =======           =======       =======
</TABLE>

                                      F-29

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Activity in the  allowance  for loan losses for the years ended  December
31, 1999, 1998 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                  1999               1998              1997
                                                                --------           --------          --------
      <S>                                                       <C>                <C>               <C>
      Balance - beginning of year                               $588,533           $418,674          $246,556
      Purchases, net                                                  --            170,014           143,819
      Provision for loan losses                                   10,000             40,000            79,800
      Charge-offs                                                (40,312)           (46,126)          (56,124)
      Recoveries                                                   4,681              5,971             4,623
      Reclassifications                                             (670)                --                --
      Allocation to Nonaccretable Contractual
          Cash Flows of purchased auto loan portfolio             (7,339)                --                --
                                                                --------           --------          --------
      Balance - end of year                                     $554,893           $588,533          $418,674
                                                                ========           ========          ========
</TABLE>

(13)   Impaired Loans
       --------------
       At December 31, 1999 and 1998,  the balance of loans that are  considered
to be impaired totalled $123.6 million and $135.2 million respectively (of which
$18.9 million and $32.5 million,  respectively,  were on nonaccrual status). The
average  recorded  investment in impaired  loans during the years ended December
31, 1999, 1998 and 1997 was  approximately  $139.3  million,  $137.1 million and
$112.9  million,  respectively.  For the years ended December 31, 1999, 1998 and
1997,  the Company  recognized  interest  income on those impaired loans of $9.5
million,  $9.0 million and $10.5  million,  respectively,  which  included  $2.7
million,  $1.2 million and $0.6 million of interest income  recognized using the
cash basis method of income recognition.

       Generally, allowances for loan losses relative to impaired loans have not
been  allocated  from the general  allowance  because the carrying value of such
loans,  net of  purchase  accounting  adjustments,  exceeds  the loans'  related
collateral values less estimated selling costs.

(14)   Investment in FHLB
       ------------------
       The  Company's  investment  in FHLB stock is  carried  at cost.  The FHLB
provides a central credit facility for member  institutions.  As a member of the
FHLB system,  the Bank is required to own capital stock in the FHLB in an amount
equal to the greater of (a) 1% of the aggregate  outstanding principal amount of
its residential  mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar  year,  (b) .3% of total assets,  or (c) 5% of
its  advances  (borrowings)  from  the  FHLB of San  Francisco.  The Bank was in
compliance  with this  requirement  at  December  31,  1999,  1998 and 1997.  At
December 31, 1999, the Bank's investment in FHLB stock was pledged as collateral
for FHLB advances as further discussed in note 20.

(15)   Premises and Equipment, Net
       ---------------------------
       Premises and equipment,  net, at December 31, 1999 and 1998 is summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                                Estimated
                                                                                            Depreciable Lives at
                                                               1999           1998           December 31, 1999
                                                             --------       --------        --------------------
       <S>                                                   <C>            <C>                   <C>
       Land                                                  $ 47,266       $ 49,812                  --
       Buildings and leasehold improvements                   144,787        146,108              1 - 39
       Furniture and equipment                                215,577        154,393              1 - 10
       Construction in progress                                 4,496         43,483                  --
                                                             --------       --------
                                                              412,126        393,796
       Accumulated depreciation and amortization              (87,544)       (56,922)
                                                             --------       --------
          Total premises and equipment, net                  $324,582       $336,874
                                                             ========       ========
</TABLE>

                                      F-30

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Depreciation and  amortization  expense related to premises and equipment
for the years ended  December 31, 1999,  1998 and 1997 totalled  $40.9  million,
$26.7 million and $16.8 million, respectively.

       The  Company  rents  certain  premises  and  equipment  under  long-term,
noncancellable operating leases expiring at various dates through the year 2034.
Rental expenses under such operating leases, included in occupancy and equipment
expense,  for the years ended  December 31, 1999,  1998 and 1997 totalled  $41.5
million,  $36.0  million and $29.6  million,  respectively.  Rental  income from
sublease  agreements  for the  years  ended  December  31,  1999,  1998 and 1997
totalled $5.6 million, $3.0 million and $2.0 million,  respectively. At December
31, 1999, the projected minimum rental commitments,  net of sublease agreements,
under terms of the leases were as follows (in thousands):

                                      Cash                 Effect on
                                   Commitment              Net Income
                                   ----------              ----------
       Year Ending
       -----------
       2000                         $ 54,976                $ 46,733
       2001                           45,167                  39,080
       2002                           37,823                  33,151
       2003                           32,259                  28,767
       2004                           26,848                  24,225
       Thereafter                     94,054                  85,723
                                    --------                --------
          Total                     $291,127                $257,679
                                    ========                ========

       The effect of lease  commitments on net income is different from the cash
commitment  primarily as a result of lease  commitments  assumed in acquisitions
with  related  purchase  accounting  adjustments  and accrued  facilities  costs
recorded in connection with branch consolidations. See note 21.

       On November  15,  1999,  the Bank sold a complex  consisting  of a retail
branch, a parking lot and administrative offices totalling approximately 139,608
square feet. As part of the sale agreement, the Bank agreed to lease back 16,253
square feet under two separate lease  agreements.  The lease covering the branch
and parking lot is cancellable with six months' notice with a final  termination
date of  November,  2009.  The lease  covering  the  administrative  offices  is
non-cancellable  with a  termination  date of November,  2004.  It is the Bank's
intent to occupy these facilities until the lease termination.

         At December 31, 1999, the projected  minimum rental  commitments  under
the terms of the leases were as follows (in thousands):

                          Branch and       Administrative
                         Parking Lot           Offices           Total
                         ------------      --------------      --------

    Year Ending
    -----------
    2000                  $  115              $  219            $  334
    2001                     116                 205               321
    2002                     116                 205               321
    2003                     116                 204               320
    2004                     116                 187               303
    Thereafter               568                  --               568
                          ------              ------            ------
          Total           $1,147              $1,020            $2,167
                          ======              ======            ======

       The  sale   discussed   above   resulted  in  a  gain  of  $5.3  million.
Approximately  $1.8  million of this gain was  deferred  and will be  recognized
using the interest method over the life of the respective leases.

                                      F-31

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(16)   Accrued Interest Receivable
       ---------------------------
       Accrued  interest  receivable at December 31, 1999 and 1998 is summarized
as follows (in thousands):

                                                     1999               1998
                                                   --------          --------

Cash and cash equivalents and securities           $ 65,443           $ 46,321
Mortgage-backed securities                           43,492             57,051
Loans receivable and loans held for sale            212,661            214,083
                                                   --------           --------
   Total accrued interest receivable               $321,596           $317,455
                                                   ========           ========


(17)   Mortgage Servicing Rights
       -------------------------
       The  following  is a summary of activity for  mortgage  servicing  rights
("MSRs")  and the hedge  against the change in value of the  mortgage  servicing
rights ("MSR  Hedge") for the years ended  December 31, 1999,  1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
                                                                                       MSR
                                                                     MSR              Hedge            Total
                                                                  ----------         ---------       ----------
      <S>                                                         <C>                <C>             <C>
      Balance at December 31, 1996                                $  420,458          $  3,234       $  423,692
           Additions from Cal Fed Acquisition                         44,497                --           44,497
           Additions from Weyerhaeuser Purchase                       41,949                --           41,949
           Originated servicing                                      120,465                --          120,465
           Additions - other purchases                                27,939                --           27,939
           Sales - Servicing Sale                                    (16,792)               --          (16,792)
           Sales - other                                                  (4)               --               (4)
           Premiums paid for interest rate floor contracts                --             7,088            7,088
           Payments received from counterparties, net                 (1,849)               --           (1,849)
           Amortization                                             (106,972)           (3,310)        (110,282)
                                                                    --------          --------         --------
      Balance at December 31, 1997                                   529,691             7,012          536,703
           Additions from Glen Fed Merger                            212,933                --          212,933
           Originated servicing                                      169,972                --          169,972
           Additions - other purchases                               160,619                --          160,619
           Sales                                                      (1,057)               --           (1,057)
           Gain on termination                                       (16,089)               --          (16,089)
           Interest rate floor sales                                 (43,924)          (16,141)         (60,065)
           Premium paid                                                   --           107,412          107,412
           Payments received from counterparties, net                 (8,684)               --           (8,684)
           Amortization                                             (147,734)          (10,429)        (158,163)
                                                                  ----------          --------       ----------
      Balance at December 31, 1998                                   855,727            87,854          943,581
           Additions - purchases                                     334,842                --          334,842
           Originated servicing                                      193,855                --          193,855
           Sales                                                     (18,604)               --          (18,604)
           Swaption sales                                             28,727           (58,553)         (29,826)
           Interest rate floor sales                                  21,208           (38,242)         (17,034)
           Premium paid                                                   --            67,698           67,698
           Payments made to counterparties, net                       10,191                --           10,191
           Amortization                                             (193,710)          (18,600)        (212,310)
                                                                  ----------          --------       ----------
      Balance at December 31, 1999                                $1,232,236          $ 40,157       $1,272,393
                                                                  ==========          ========       ==========
</TABLE>

                                      F-32

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       At December 31, 1999, 1998 and 1997, the outstanding  balance of 1-4 unit
residential  loan   participations,   whole  loans  and  mortgage   pass-through
securities  serviced  for  other  investors  (not  including  the  Bank) by FNMC
totalled  $72.9  billion,  $65.4  billion and $44.9  billion,  respectively.  In
addition,  FNMC had $10.4  billion,  $10.4  billion  and $6.2  billion of master
servicing at December 31, 1999, 1998 and 1997, respectively.

       The  percentage of principal  outstanding  in the Company's  portfolio of
loans serviced for others,  secured by properties located in California,  Texas,
and Florida was 53%, 7% and 7%,  respectively,  at December 31, 1999 and 54%, 8%
and 8%, respectively, at December 31, 1998.

       The estimated  fair value of the MSRs was $1.5 billion and $989.7 million
at December  31, 1999 and 1998,  respectively.  The  estimated  market  value of
interest rate floor contracts,  principal only swaps and swaptions designated as
hedges against MSRs at December 31, 1999 were $10.4 million, $(15.8) million and
$24.3 million,  respectively.  The estimated  market value of prepayment  linked
swaps,  interest  rate  floor  contracts,  principal  only  swaps and  swaptions
designated as hedges against MSRs at December 31, 1998 were $1.3 million,  $32.2
million, $18.8 million and $89.3 million, respectively. At December 31, 1999 and
1998, no allowance for impairment of the MSRs was necessary.

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

       At December 31, 1999,  the Company,  through FNMC, was a party to several
interest rate floor contracts maturing in 2004. The Company paid  counterparties
a premium in exchange for cash  payments in the event that the 10-year  Constant
Maturity  Swaps rate fell below the strike  prices.  At December 31,  1999,  the
notional  amount of the  interest  rate  floors was $950  million and the strike
prices were between  5.70% and 6.04%.  In addition,  the Company,  through FNMC,
held principal only swap  agreements  with a notional  amount of $202.3 million.
Further,  at December  31,  1999,  the  Company,  through  FNMC,  was a party to
swaption contracts in which the Company paid to the  counterparties  premiums in
exchange for the right,  but not the  obligation,  to purchase an interest  rate
swap. At December 31, 1999, the notional amount of the underlying  interest swap
agreement was $834 million. See note 36 for further discussion.

       Servicing  advances  and other  receivables  (included  in other  assets)
related to 1-4 unit residential loan servicing,  net of valuation  allowances of
$20.1 million and $30.7 million in 1999 and 1998, respectively, consisted of the
following (in thousands):

                                                         December 31,
                                                ------------------------------
                                                  1999                1998
                                                --------            --------

  Servicing advances                            $138,071            $168,944
  Checks in process of collection                  1,123                 924
  Other                                            8,393               7,897
                                                --------            --------
                                                $147,587            $177,765
                                                ========            ========

                                      F-33

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(18)   Deposits
       --------
       A summary of the carrying value of deposits at December 31, 1999 and 1998
follows (in thousands):

                                                1999                1998
                                             -----------         -----------

      Passbook accounts                      $ 3,666,206         $ 3,371,976
      Demand deposits:
           Interest-bearing                    1,974,119           1,865,151
           Noninterest-bearing                 2,197,691           3,001,959
      Money market deposit accounts            3,144,084           3,254,690
      Term accounts                           11,989,664          13,079,920
                                             -----------         -----------
                                              22,971,764          24,573,696
      Accrued interest payable                    61,313              39,438
      Purchase accounting adjustments
                                                   2,680               6,932
                                             -----------         -----------
           Total deposits                    $23,035,757         $24,620,066
                                             ===========         ===========

       The aggregate  amount of jumbo  certificates  of deposit (term  deposits)
with a minimum  denomination of $100,000 was approximately $2.5 billion and $2.9
billion at December 31, 1999 and 1998,  respectively.  Brokered  certificates of
deposit  totalling  $390 million and $369  million were  included in deposits at
December 31, 1999 and 1998,  respectively.  Total  deposits at December 31, 1999
and 1998 include  escrow  balances for loans serviced for others of $814 million
and $1.5 billion, respectively.

       A summary of interest expense by deposit category follows (in thousands):

                                       1999           1998            1997
                                     --------       --------        --------

Passbook accounts                    $124,618       $ 96,942        $ 68,408
Interest-bearing demand deposits       17,772         13,770          12,331
Money market deposit accounts         124,368         65,234          50,152
Term accounts                         621,528        615,166         616,094
                                     --------       --------        --------
    Total                            $888,286       $791,112        $746,985
                                     ========       ========        ========

       At December 31, 1999,  term accounts had scheduled  maturities as follows
(in thousands):

           Year Ending
           -----------

           2000                      $ 8,715,591
           2001                        2,862,720
           2002                          262,637
           2003                           78,558
           2004                           64,901
           Thereafter                      5,257
                                     -----------
           Total                     $11,989,664
                                     ===========

                                      F-34

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(19)   Securities Sold Under Agreements to Repurchase
       ----------------------------------------------
       A summary of information  regarding  securities sold under  agreements to
repurchase follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                   December 31, 1999
                                               ---------------------------------------------------------
                                                 Underlying  Collateral           Repurchase Liability
                                               ------------------------         ------------------------
                                               Recorded         Market                          Interest
                                               Value (a)        Value             Amount          Rate
                                               ---------        ------            ------        --------
      <S>                                     <C>             <C>               <C>               <C>
      Maturing within 30 days                 $   33,564      $   34,044        $       --          --%
      Maturing in 30 to 90 days                2,731,295       2,709,851         2,573,574        5.35
      Maturing after 90 days to 1 year         2,796,083       2,781,442         2,633,514        5.61
      Maturing over 1 year                       167,214         165,972           150,000        6.13
                                              ----------      ----------        ----------
          Total (b)                            5,728,156       5,691,309         5,357,088
      Accrued interest payable                                                     124,659
                                              ----------      ----------        ----------
                                                      --              --
                                              $5,728,156      $5,691,309        $5,481,747
                                              ==========      ==========        ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31, 1998
                                              ----------------------------------------------------------
                                                Underlying  Collateral            Repurchase Liability
                                              --------------------------        ------------------------
                                              Recorded          Market                          Interest
                                              Value (a)         Value             Amount          Rate
                                              ---------         ------            ------        --------
      <S>                                    <C>              <C>               <C>               <C>
      Maturing in 30 to 90 days              $2,895,807       $2,908,071        $2,984,964        5.13%
      Maturing after 90 days to 1 year        1,287,385        1,285,310         1,237,094        4.86
                                             ----------       ----------        ----------
          Total (b)                           4,183,192        4,193,381         4,222,058
      Accrued interest payable                       --               --            16,337
                                             ----------       ----------        ----------
                                             $4,183,192       $4,193,381        $4,238,395
                                             ==========       ==========        ==========
</TABLE>

--------------
(a)    Recorded value includes  accrued  interest at December 31, 1999 and 1998.
       In addition,  the  recorded  values at December 31, 1999 and 1998 include
       adjustments for the unrealized gain or loss on mortgage-backed securities
       available for sale.

(b)    Total mortgage-backed securities collateral at December 31, 1999 and 1998
       includes  $2.1 billion and $2.0  billion,  respectively,  in  outstanding
       balances of loans  securitized with full recourse to the Bank. The market
       value of such  collateral  was $2.1  billion and $2.0 billion at December
       31, 1999 and 1998, respectively.

       At December 31, 1999 and 1998,  these  agreements  had  weighted  average
stated  interest  rates  of  5.50%  and  5.05%,  respectively.   The  underlying
securities  were  delivered  to, and are being held under the control of,  third
party securities dealers.  These dealers may have loaned the securities to other
parties in the normal course of their operations, but all agreements require the
dealers  to  resell  to  California  Federal  the  identical  securities  at the
maturities of the agreements. The average daily balance of securities sold under
agreements to repurchase was $5.1 billion and $2.8 billion during 1999 and 1998,
respectively,  the  weighted  average  rate was 5.18% and 5.40%  during 1999 and
1998,  respectively,  and the maximum amount outstanding at any month-end during
these periods was $6.2 billion and $4.3 billion, respectively.

       At December 31, 1999, securities sold under agreements to repurchase were
collateralized  with $3.8 billion of  mortgage-backed  securities  available for
sale,  $1.9  billion of  mortgage-backed  securities  held to maturity and $37.4
million of investment securities.

                                      F-35

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(20)   Borrowings
       ----------
       Borrowings are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                       December 31,
                                                     -------------------------------------------------
                                                              1999                       1998
                                                     -----------------------    ----------------------
                                                      Carrying       Average     Carrying      Average
                                                       Value          Rate         Value        Rate
                                                     -----------     -------     --------      -------
      <S>                                            <C>               <C>      <C>              <C>
      Fixed-rate borrowings from FHLB                $19,977,878       5.61%    $15,427,033      5.38%
      Variable-rate borrowings from FHLB               3,365,000       6.04       4,570,743      5.53
      10% Subordinated Debentures due 2006                92,100      10.00          92,100     10.00
      11.20% Senior Notes due 2004                            --         --           6,000     11.20
      FN Holdings 12 1/4% Senior Notes due 2001               --         --             225     12.25
      FN Holdings 10 5/8% Senior Subordinate
        Notes due 2003                                       250      10.63             250     10.63
      6 1/2% Convertible  Subordinated
        Debentures due 2001                                2,635       6.50           2,635      6.50
      10% Subordinated Debentures due 2003                 4,299      10.00           4,299     10.00
      Floating Rate Notes due 2003                       250,000       7.21         250,000      6.75
      6 3/4% Senior Notes due 2001                       350,000       6.75         350,000      6.75
      7% Senior Notes due 2003                           600,000       7.00         600,000      7.00
      7 1/8% Senior Notes due 2005                       800,000       7.13         800,000      7.13
      Federal funds purchased                             55,000       5.50         138,000      5.00
      Other borrowings                                       209       6.69           4,083      8.78
                                                     -----------                -----------
           Total borrowings                           25,497,371       5.79      22,245,368      5.57
      Discount on borrowings                             (11,481)                    (5,643)
      Purchase accounting adjustments, net                21,742                     38,989
                                                     -----------                -----------
           Subtotal                                   25,507,632       5.79%     22,278,714      5.54%
      Accrued interest payable                           160,994                     96,843
                                                     -----------                -----------
                                                     $25,668,626                $22,375,557
                                                     ===========                ===========
</TABLE>

       Maturities and weighted  average  stated  interest rates of borrowings at
December 31, 1999, not including discounts, accrued interest payable or purchase
accounting adjustments, are as follows (dollars in thousands):

                                                                     Weighted
                                      Balances   Maturing          Average Rates
 Maturities during the Years      ---------------------------     --------------
   Ending December 31,                FHLB         Other          FHLB     Other
 ---------------------------      -----------    ----------       ----     -----
   2000                           $11,270,000    $   55,028       5.84%    5.50%
   2001                             1,210,833       352,635       5.56     6.75
   2002                             3,660,000            54       5.44     8.57
   2003                             4,850,000       854,549       5.40     7.08
   2004                             2,350,000            --       5.84       --
   Thereafter                           2,045       892,227       7.83     7.42
                                  -----------    ----------
      Total                       $23,342,878    $2,154,493       5.67%    7.13%
                                  ===========    ==========

                                      F-36

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Interest  expense on  borrowings  for the years ended  December 31, 1999,
1998 and 1997 is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                                ---------------------------------------
                                                                   1999           1998           1997
                                                                ----------      --------       --------
      <S>                                                       <C>             <C>            <C>
      FHLB advances                                             $1,165,010      $706,299       $443,966
      Interest rate swap agreements                                  5,940        (2,536)       (10,743)
      12 1/2% Parent Holdings Notes due 2003                            --        45,420         57,613
      10% Subordinated Debentures due 2006                           9,210         9,209          9,210
      11.20% Senior Notes due 2004                                     651           672            672
      FN Holdings 12 1/4% Senior Notes due 2001                         --        18,093         24,500
      FN Holdings 9 1/8% Senior Subordinated Notes                      --         9,337         12,775
           due 2003
      FN Holdings 10 5/8% Senior Subordinated Notes                     26        44,353         60,648
           due 2003
      10.668% Subordinated Notes due 1998                               --         5,203          5,291
      6 1/2% Convertible Subordinated Debentures due 2001              172           171            172
      10% Subordinated Debentures due 2003                             430           430            418
      Floating Rate Notes due 2003                                  15,931         5,006             --
      6 3/4% Senior Notes due 2001                                  23,625         7,031             --
      7% Senior Notes due 2003                                      42,000        12,441             --
      7 1/8% Senior Notes due 2005                                  57,000        16,882             --
      Federal funds purchased                                        2,750         3,987          5,300
      Other borrowings                                                  25           271            434
      Discount accretion                                             1,031            --             --
      Purchase accounting adjustments                              (11,172)       (7,533)           629
                                                                ----------      --------       --------
           Total                                                $1,312,629      $874,736       $610,885
                                                                ==========      ========       ========
</TABLE>

       The  following  is a summary of the carrying  value of assets  pledged as
collateral for FHLB advances (in thousands):

                                                          December 31, 1999
                                                          -----------------
      Real estate loans (primarily residential)              $23,853,514
      Mortgage-backed securities available for sale            6,060,974
      Mortgage-backed securities held to maturity                  2,783
      Investment securities                                       71,967
      FHLB stock                                               1,167,144
                                                             -----------
           Total                                             $31,156,382
                                                             ===========

       12 1/2% Senior Notes Due 2003

       On April 17,  1996,  Parent  Holdings  issued $445  million of its Parent
Holdings  Notes.  During 1998, all of the Parent Holdings Notes were redeemed in
connection  with the Parent  Holdings  Defeasance  for an  aggregate  redemption
price, including accrued interest payable, of $553.7 million.

       10% Subordinated Debentures Due 2006

       As part of its 1994  acquisition  of First  Nationwide  Bank ("FNB") ("FN
Acquisition"),  California  Federal  assumed $92.1 million  principal  amount of
subordinated  debentures,  which  bear  interest  at 10% per annum and mature on
October 1, 2006 (the "10% Subordinated Debentures Due 2006").

                                      F-37

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Events of Default  under the  indenture  governing  the 10%  Subordinated
Debentures Due 2006 (the "Old FNB Indenture") include, among other things: (a) a
default in the payment of interest  when due and such default  continues  for 30
days, (b) a default in the payment of any principal when due, (c) the failure to
comply with  covenants in the Old FNB  Indenture,  provided  that the trustee or
holders of at least 25% in principal  amount of the outstanding 10% Subordinated
Debentures  Due 2006  notify the Bank of the  Default and the Bank does not cure
the default  within 60 days after receipt of such notice,  (d) certain events of
bankruptcy,  insolvency or  reorganization  of the Bank,  (e) the FSLIC/RF (or a
comparable entity) is appointed to act as conservator,  liquidator,  receiver or
other legal custodian for the Bank and (f) a default under other indebtedness of
the Bank in excess of $10 million  resulting in such  indebtedness  becoming due
and payable, and such default or acceleration has not been rescinded or annulled
within 60 days after the date on which  written  notice of such failure has been
given by the  trustee  to the Bank or by  holders  of at least 25% in  principal
amount of the outstanding 10%  Subordinated  Debentures Due 2006 to the Bank and
the trustee.

       11.20% Senior Notes Due 2004

       As  part of its  1996  acquisition  of San  Francisco  Federal  ("SFFed")
("SFFed  Acquisition"),  California Federal assumed $50 million principal amount
of SFFed 11.20% Senior Notes due September 1, 2004 (the "11.20% Senior  Notes").
On December 20, 1999,  the Bank  repurchased  all of the remaining  $6.0 million
outstanding  principal amount of the 11.20% Senior Notes at a price of 113.9% of
the principal amount,  plus the accrued interest  thereon.  The Bank recorded an
extraordinary  loss,  net of tax,  of  $0.2  million  in  connection  with  this
repurchase.

       FN Holdings 12 1/4% Senior Notes Due 2001

       In connection  with the FN  Acquisition,  the Company issued $200 million
principal  amount of 12 1/4% Senior Notes due 2001 ("FN  Holdings 12 1/4% Senior
Notes"),  including $5.5 million  principal amount of FN Holdings 12 1/4% Senior
Notes to certain directorS and officers of the Bank.

       During 1998, a total of $199.8 million aggregate  principal amount of the
FN Holdings  12 1/4% Senior  Notes were  redeemed  in  connection  with the Debt
Tender Offers for an aggregate  redemption  price,  including  accrued  interest
payable,  of $228.3 million. On May 15, 1999, GS Holdings redeemed the remaining
$225 thousand aggregate principal amount of the FN Holdings 12 1/4% Senior Notes
for AN aggregate redemption price, including accrued interest payable, of $252.6
thousand.

       FN Holdings 9 1/8% Senior Subordinated Notes Due 2003

       On January 31, 1996, FN Holdings issued $140 million  principal amount of
the 9 1/8%  Senior  Sub Notes  due 2003  (the "FN  Holdings  9 1/8%  Senior  Sub
Notes").

       During 1998, all of the FN Holdings 9 1/8% Senior Sub Notes were redeemed
in  connection  with the Debt Tender  Offers for an  aggregate  purchase  price,
including accrued interest payable, of $159.9 million.

       FN Holdings 10 5/8% Senior Subordinated Notes Due 2003

       In connection with the Cal Fed Acquisition,  GS Holdings acquired the net
proceeds  from the issuance of $575 million  principal  amount of FN Escrow's 10
5/8% Senior Sub Notes due 2003 (the "FN  Holdings 10 5/8% Notes") and assumed FN
Escrow's  obligations under the FN Holdings 10 5/8% Notes and indenture.  During
1998, a total of $574.8 million aggregate principal amount of the FN Holdings 10
5/8%  Notes were  redeemed  in  connection  with the Debt  Tender  Offers for an
aggregate purchase price, including accrued interest payable, of $692.7 million.
At December  31,  1999,  $0.3  million of the FN  Holdings 10 5/8% Notes  remain
outstanding.

       The FN  Holdings  10  5/8%  Notes  are  redeemable  at the  option  of GS
Holdings,  in whole or in part, during the twelve-month period beginning January
1, 2001, at a redemption  price of 105.313% plus accrued and unpaid  interest to
the date of redemption, during the twelve-month period beginning January 1, 2002
at a redemption  price of 102.656% plus accrued and unpaid  interest to the date
of redemption,  and  thereafter at 100% plus accrued and unpaid  interest to the
date of redemption.

                                      F-38

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The FN Holdings 10 5/8% Notes are  subordinate in right of payment to all
existing and future subordinated debt, if any is issued, of GS Holdings.  The FN
Holdings 10 5/8% Notes are subordinated to all existing and future  liabilities,
including deposits,  indebtedness and trade payables,  of the subsidiaries of GS
Holdings,  including  California  Federal and all preferred  stock issued by the
Bank, including the Bank Preferred Stock (as defined herein).

       As a  result  of the Cal Fed  Acquisition,  the  Bank is  obligated  with
respect to the following three outstanding securities of Old California Federal.

       10.668% Subordinated Notes Due 1998

       California  Federal  assumed  $50  million  of 10.668%  unsecured  senior
subordinated  notes which  matured and were repaid in full on December  22, 1998
(the "10.668% Subordinated Notes").

       6 1/2% Convertible Subordinated Debentures Due 2001

       In 1986, Cal Fed Inc., Old California  Federal's  former parent  company,
issued $125 million of 6.5% convertible subordinated debentures due February 20,
2001  (the "6 1/2%  Convertible  Subordinated  Debentures").  As a  result  of a
corporate  restructuring IN December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance  Corporation ("XCF"), a subsidiary of Old California Federal. The
6 1/2% Convertible  Subordinated  Debentures are redeemable at the option of the
holders on February  20, 2000,  at 123% of their  principAL  amount.  Due to the
purchase of all of the Cal Fed Stock by FN  Holdings in the Cal Fed  Acquisition
on January 3, 1997, the common stock conversion feature has been eliminated.

       Events of Default  under the indenture  governing the 6 1/2%  Convertible
Subordinated Debentures include, among other things: (A) any failure to make any
payment of interest  when due and such  payment is not made within 30 days after
the date such payment was due; (b) failure to make any payment of principal when
due; (c) default in the performance,  or breach,  of any covenant or warranty in
the indenture,  provided that such default or breach  continues for more than 60
days after notice is delivered to the Bank; or (d) certain events of bankruptcy,
insolvency, or reorganization of the Bank or its subsidiaries.

       10% Subordinated Debentures Due 2003

       On December 16, 1992,  Old  California  Federal  issued $13.6  million of
10.0%  unsecured  subordinated   debentures  due  2003  (the  "10%  Subordinated
Debentures").

       Events of Default  under the  indenture  governing  the 10%  Subordinated
Debentures  include,  among  other  things:  (a)  failure to make any payment of
principal when due; (b) any failure to make any payment of interest when due and
such payment is not made within 30 days after the date such payment was due; (c)
failure to comply with certain covenants in the indenture; (d) failure to comply
with certain covenants in the indenture provided that such failure continues for
more than 60 days after notice is delivered to the Bank;  (e) certain  events of
bankruptcy,  insolvency or reorganization of the Bank; or (f) the default or any
event  which,  with the  giving  of  notice  or  lapse  of time or  both,  would
constitute  a  default  under  any  indebtedness  of the  Bank  and  cause  such
indebtedness  with an  aggregate  principal  amount  exceeding  $15  million  to
accelerate.

       GS Holdings Notes

       On August 6, 1998, GS Escrow, which subsequently merged into GS Holdings,
issued $2  billion  principal  amount  of fixed  and  floating  rate  notes,  as
described  below.  The  GS  Holdings  Notes  are  unsecured  and  unsubordinated
obligations  of GS  Holdings  and  rank in  right  of  payment  with  all  other
unsubordinated  and  unsecured  indebtedness  of  GS  Holdings.  The  terms  and
conditions of the notes indentures impose restrictions that affect,  among other
things,  the  ability  of GS  Holdings  to incur  debt,  pay  dividends  or make
distributions,  engage in a business  other than holding the common stock of the
Bank and similar banking  institutions,  make  acquisitions,  create liens, sell
assets and make certain investments.

                                      F-39

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Floating Rate Notes Due 2003
       ----------------------------
       On August 6, 1998,  GS Escrow,  an affiliate of GS Holdings,  issued $250
million  principal  amount of the Floating  Rate Notes Due 2003.  The notes will
mature on August 1, 2003 with interest  payable  quarterly on February 1, May 1,
August  1 and  November  1.  Interest  on the  Floating  Rate  Notes is equal to
three-month LIBOR plus 100 basis points per annum,  except that the initial rate
was 6 3/4%,  based on six-month  LIBOR until the first interest  payment date on
February 1, 1999.  At December 31, 1999,  the interest rate ON the Floating Rate
Notes Due 2003 was 6.33%.  Deferred  costs  associated  with the issuance of the
Floating Rate Notes totalling $3.1 million were recorded in other assets and are
being amortized over the term of the Floating Rate Notes.

       The Floating Rate Notes are  redeemable at the option of GS Holdings,  in
whole or in part,  after August 1, 2000 at a price of 101.5% of the  outstanding
principal amount during the  twelve-month  period beginning August 1, 2000; at a
price of 101% of the outstanding principal amount during the twelve-month period
beginning August 1, 2001; and at a price of 100.5% of the outstanding  principal
amount  during the  twelve-month  period  beginning  August 1,  2002;  including
accrued and unpaid interest, if any, to the date of redemption.  In the event of
a change in control,  the  Floating  Rate Notes are  redeemable  in whole at the
option of GS Holdings.  The redemption price includes principal plus accrued and
unpaid interest, if any, to the date of redemption,  plus the excess, if any, of
(a) the sum of the present value of the  redemption  price for the Floating Rate
Notes and the remaining  scheduled  interest  payments over (b) the  outstanding
principal amount of the Floating Rate Notes to be redeemed.

       Fixed Rate Notes
       ----------------
       On August 6, 1998,  GS Escrow,  an affiliate of GS Holdings,  issued $350
million principal amount of the 2001 Notes, $600 million principal amount of the
2003 Notes and $800 million  principal  amount of the 2005 Notes. The Fixed Rate
Notes  will  mature on August 1 of the  respective  year with  interest  payable
semiannually  on February 1 and August 1.  Deferred  costs  associated  with the
issuance of the Fixed Rate Notes totalling $3.5 million, $12.5 million and $19.5
million  for the 2001 Notes,  the 2003 Notes and the 2005  Notes,  respectively,
were  recorded  in other  assets and are being  amortized  over the terms of the
notes.

       The Fixed Rate Notes are  redeemable  at the  option of GS  Holdings,  in
whole or in part,  at a  redemption  price equal to  principal  plus accrued and
unpaid interest, if any, to the date of redemption,  plus the excess, if any, of
(a) the sum of the present value of the  redemption  price for the notes and the
remaining scheduled interest payments over (b) the outstanding  principal amount
of the notes to be redeemed.

                                      F-40

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(21)   Accrued Termination and Facilities Costs
       ----------------------------------------
       In connection  with the Golden State  Acquisition,  the Company  recorded
liabilities   resulting  from  (a)  branch   consolidations   due  to  duplicate
facilities,  (b) employee  severance and  termination  benefits due to a planned
reduction in force; and (c) expenses incurred under  contractual  obligations to
terminate services provided by outside service providers  (principally  relating
to data processing  expenses).  The merger and integration  plan relative to the
Golden State  Acquisition  was in place on September 11, 1998.  Certain of these
costs  were  included  in the  allocation  of  purchase  price and  others  were
recognized in net income.  The table below reflects a summary of the activity in
the liability for the costs related to such plan (in thousands):
<TABLE>
<CAPTION>
                                                              Severance and
                                                 Branch        Termination    Contract
                                            Consolidations       Benefits    Terminations      Total
                                            --------------    -------------  ------------     -------
<S>                                            <C>              <C>             <C>           <C>
Balance at December 31, 1997                   $    --          $    --         $    --       $    --
       Initial liabilities recorded             29,870           48,303          14,455        92,628
       Charges to liability account                 --          (14,823)         (2,640)      (17,463)
                                               -------          -------         -------       -------
Balance at December 31, 1998                    29,870           33,480          11,815        75,165
       Additional liabilities recorded           9,401               71              --         9,472
       Charges to liability account            (15,220)          (4,140)         (9,523)      (28,883)
       Reversal of accrual                          --          (16,641)         (2,267)      (18,908)
                                               -------          -------         -------       -------
Balance at December 31, 1999                   $24,051          $12,770         $    25       $36,846
                                               =======          =======         =======       =======
</TABLE>

       The Bank has  identified  certain of its retail banking  facilities  that
will be closed and marketed for sale, with the related  operations  consolidated
into other retail banking  facilities  acquired in the Golden State Acquisition.
Accordingly,  the liabilities  established represent the estimated present value
of  occupancy  expenses,  offset  by  estimates  of  sub-lease  income  over the
applicable  remaining  lease  terms.  The first group of branches  was closed in
November 1998.  Closures are scheduled to continue through the second quarter of
2000.

       In connection with the Golden State  Acquisition,  management  identified
approximately  1,100  full-time  equivalent  positions to be eliminated.  During
1999,  this estimate was increased to 1,141.  These positions span all areas and
business units of the Bank. Through December 31, 1999, 1,137 positions have been
eliminated.  The  elimination  of the remaining four positions is expected to be
completed  during 2000.  The balance  remaining  at December 31, 1999  primarily
represents  a liability  for annuity  benefits  contractually  payable to former
senior officers of Golden State.

       The  Bank  has  also  established  additional  liabilities  for  contract
termination  costs  with  outside  service  providers.  The  termination  of one
remaining contract is expected to be finalized during the first quarter of 2000.

       The table  below  provides  detail of the initial  liability  recorded in
1998, the additional  liability recorded in 1999 and the subsequent  reversal of
the excess liability in 1999 (see note 3) (in thousands):
<TABLE>
<CAPTION>
                                                          Merger Costs         Expenses
                                                           Included in       Recognized in
                                                          Allocation of       Net Income
                                                         Purchase Price        (Pre-tax)         Total
                                                         --------------      -------------      -------
<S>                                                        <C>                  <C>             <C>
Branch Consolidation                                       $ 22,304             $ 7,566         $29,870
Severance and termination benefits                           42,211               6,092          48,303
Contract termination                                         14,455                  --          14,455
                                                           --------             --------        -------
   Total  liability  initially  established in 1998          78,970              13,658          92,628
Additional liability recorded in 1999                           500               8,972           9,472
Excess liability reversed in 1999                           (16,641)             (2,267)        (18,908)
                                                           --------             --------        -------
   Net liability recorded from
       Golden State Acquisition                            $ 62,829             $20,363         $83,192
                                                           ========             =======         =======
</TABLE>

                                      F-41

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(22)   Segment Reporting
       -----------------
       The Company  has two  reportable  segments,  the  community  bank and the
mortgage bank. The community bank operates retail deposit branches in California
and Nevada.  The  community  bank  segment  provides  retail  consumer and small
businesses  with: (a) deposit  products such as demand,  transaction and savings
accounts,  (b)  investment  and  insurance  products  such as  mutual  funds and
annuities  and (c) lending  products,  such as consumer  and  commercial  loans.
Further,  the community bank segment  invests in  residential  real estate loans
purchased  from FNMC and from others,  and also invests in  mortgage-backed  and
other securities. The mortgage banking segment, conducted by FNMC, operates loan
production  facilities  throughout the United States and originates or purchases
fixed-rate  1-4 unit  residential  loans for sale to  various  investors  in the
secondary  market and  services  loans for itself and for others.  The  mortgage
banking  segment also  originates  adjustable-rate  loans for the community bank
segment.

       The accounting  policies of the segments are the same as those  described
in note 2. The Company evaluates  performance  based on net income,  noninterest
income,  and  noninterest  expense.  The  total  of  these  three  items  is the
reportable segment's net contribution.

       The Company's reportable segments are strategic business units that offer
different  services in different  geographic areas. They are managed  separately
because each segment  appeals to different  markets and,  accordingly,  requires
different technology and marketing strategies.

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

                                 Community         Mortgage
                                  Banking          Banking          Total
                                -----------       ----------      ----------
                                                (in thousands)
Net interest income: (1)
1999                             $1,357,271       $ (61,785)      $1,295,486
1998                                919,512         (52,830)         866,682
1997                                741,200         (45,788)         695,412

Noninterest income: (2)
1999                                244,964         220,509          465,473
1998                                284,142         191,706          475,848
1997                                174,671         187,536          362,207

Noninterest expense: (3)
1999                                752,190         177,907          930,097
1998                                594,440         174,203          768,643
1997                                501,285         153,924          655,209

Segment assets:  (4)
1999                             56,784,582       3,459,880       60,244,462
1998                             54,574,640       4,847,633       59,422,273
1997                             31,175,543       3,072,219       34,247,762

(1)  Includes  $109.6  million,  $101.4 million and $66.3 million for 1999, 1998
     and 1997,  respectively,  in earnings  credit provided to FNMC by the Bank,
     primarily  for  custodial  bank account  balances  generated by FNMC.  Also
     includes $235.6  million,  $198.9 million and $124.1 million for 1999, 1998
     and 1997,  respectively,  in interest  income and  expense on  intercompany
     loans.

                                              (Footnotes continued on next page)

                                      F-42

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(2)  Includes $46.6 million,  $34.9 million and $22.5 million for 1999, 1998 and
     1997, respectively, in intercompany servicing fees.

(3)  Includes $4.6 million for 1999, 1998 and 1997, respectively,in intercompany
     noninterest expense.

(4)  Includes  $3.2  billion,  $4.5 billion and $2.9 billion for 1999,  1998 and
     1997,  respectively,  in intercompany  borrowings and $30.2 million,  $29.2
     million  and $20.2  million  for  1999,  1998 and  1997,  respectively,  in
     intercompany deposits maintained with the Bank.

       The  following  reconciles  the above table to the  amounts  shown on the
consolidated financial statements as of and for the years ended December 31, (in
thousands):
<TABLE>
<CAPTION>
                                                            1999               1998             1997
                                                         -----------       -----------       -----------
<S>                                                      <C>               <C>               <C>
Net interest income:
Total net interest income for reportable segments        $ 1,295,486       $   866,682       $   695,412
Elimination of intersegment net interest income             (109,599)         (101,372)          (66,339)
                                                         -----------       -----------       -----------
   Total                                                 $ 1,185,887       $   765,310       $   629,073
                                                         ===========       ===========       ===========

Noninterest income:
Total noninterest income for reportable segments             465,473       $   475,848       $   362,207
Elimination of intersegment servicing fees                   (46,631)          (34,891)          (22,513)
                                                         -----------       -----------       -----------
   Total                                                 $   418,842       $   440,957       $   339,694
                                                         ===========       ===========       ===========

Noninterest expense:
Total noninterest expense for reportable segments            930,097       $   768,643       $   655,209
Elimination of intersegment expense                           (4,640)           (4,640)           (4,640)
                                                         -----------       -----------       -----------
   Total                                                 $   925,457       $   764,003       $   650,569
                                                         ===========       ===========       ===========

Total assets:
Total assets for reportable segments                     $60,244,462       $59,422,273       $34,247,762
Elimination of intersegment deposits                         (30,222)          (29,217)          (20,218)
Elimination of intersegment borrowings                    (3,195,180)       (4,524,072)       (2,865,388)
                                                         -----------       -----------       -----------
   Total                                                 $57,019,060       $54,868,984       $31,362,156
                                                         ===========       ===========       ===========
</TABLE>

       The Company  typically reviews the results of operations for the mortgage
banking  segment based on that segment's  contribution  as opposed to its income
before  income  taxes,  extraordinary  item  and  minority  interest.  The  main
difference  between the two measures of profitability  is that  contribution for
the mortgage  banking segment includes  custodial  earnings that are reported in
the community  banking  segment when computing net income and that  intercompany
interest  expense is computed  using an internal cost of funds rate instead of a
market rate. The mortgage  banking  segment's  contribution  for the years ended
December  31, 1999,  1998 and 1997 was $90.4  million,  $66.0  million and $35.9
million, respectively.

                                      F-43

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(23)   Comprehensive Income
       --------------------
       The Company adopted SFAS No. 130, Reporting  Comprehensive  Income, as of
October  1,  1997.  Accounting  principles  generally  require  that  recognized
revenue, expenses, gains, and losses be included in net income. Although certain
changes  in assets  and  liabilities,  such as  unrealized  gains and  losses on
available-for-sale  securities,  are  reported  as a separate  component  of the
equity  section  of the  balance  sheet,  such  items  along with net income are
components of comprehensive  income.  The adoption of SFAS No. 130 had no effect
on the Company's net income or stockholders' equity.

       The tax effect  associated  with unrealized gain (loss) on securities for
the years ended  December 31, 1999,  1998 and 1997 is  summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                           Before-tax      Tax benefit      Net-of-tax
                                                                             Amount         (Expense)         Amount
                                                                           ----------      -----------      ----------
      <S>                                                                  <C>               <C>            <C>
      1999
      ----
      Unrealized (loss) gain on securities:
         Unrealized holding (loss) gain arising during the period          $(484,866)        $204,248       $(280,618)
         Less: reclassification adjustments for gains in net income           (1,283)             541            (742)
                                                                           ---------         --------       ---------
              Other comprehensive (loss) income                            $(486,149)        $204,789       $(281,360)
                                                                           =========         ========       =========

      1998
      ----
      Unrealized (loss) gain on securities:
         Unrealized holding (loss) gain arising during the period          $ (28,761)        $    594       $ (28,167)
         Less: reclassification adjustments for gains in net income           (1,131)             287            (844)
                                                                           ---------         --------       ---------
              Other comprehensive (loss) income                            $ (29,892)        $    881       $ (29,011)
                                                                           =========         ========       =========

      1997
      ----
      Unrealized gain (loss) on securities:
         Unrealized holding gain (loss) arising during the period          $  14,142         $  (3,235)     $  10,907
         Less: reclassification adjustments for gains in net income          (25,182)            3,218        (21,964)
                                                                           ---------         ---------      ---------
              Other comprehensive (loss) income                            $ (11,040)        $     (17)     $ (11,057)
                                                                           =========         =========      =========
</TABLE>

       Unrealized  gain  (loss) on  securities  is the only  component  of other
comprehensive  income and accumulated other  comprehensive  income for the years
ended December 31, 1999, 1998 and 1997.

(24)   Minority Interest
       -----------------
       Prior to the Golden State Merger, minority interest included that portion
of stockholder's equity of FN Holdings attributable to its class B common stock,
which was owned by Hunter's Glen, a limited partnership controlled by the Bank's
Chairman of the Board and Chief Executive Officer. In connection with the Golden
State  Merger,  Hunter's  Glen  received  shares of Golden State Common Stock in
consideration  for its  interest in FN Holdings  as  described  in note 25. As a
result,  the Hunter's  Glen minority  interest in FN Holdings was  extinguished.
Accordingly,  the net income, minority interest and stockholders' equity amounts
related  to periods  prior to the  merger  have been  restated  to reflect  this
change.

       Auto One Common Stock

       In connection  with the GSAC  Acquisition,  Auto One issued 250 shares of
its common stock par value $1.00 per share,  representing a 20% interest in Auto
One. The carrying value of Auto One's common  stockholders'  equity attributable
to the minority  stockholders at December 31, 1999 has been reduced to zero as a
result of realized operating losses of Auto One.

                                      F-44

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       11 1/2% Preferred Stock

       In  connection  with  the  FN  Acquisition,   California  Federal  issued
3,007,300  shares of its 11 1/2%  noncumulative  perpetual  preferrED stock ("11
1/2% Preferred Stock") with a par value of $.01 per share,  having a liquidation
preference of $300.7 million.  This stock hAS a stated liquidation value of $100
per share.  Costs related to the 11 1/2% Preferred  Stock issuance were deducted
from additionAL paid-in capital.

       In connection  with the Bank  Preferred  Stock Tender  Offers,  2,688,959
Shares of The 11 1/2% Preferred  Stock were purchased by GS Holdings  during the
year ended  December 31, 1998 for a total  redemption  price of $301.3  million.
These transactions  reduced minority interest by $268.9 million on the Company's
consolidated balance sheet and resulted in a charge of $32.4 million to minority
interest expense.

       On September 1, 1999, the remaining 318,341 outstanding shares of 11 1/2%
Preferred Stock were redeemed at $105.75 per share, for a total redemption price
of $33.7 million. This transaction reduced minority interest by $31.8 million on
the  Company's  consolidated  balance  sheet  and  resulted  in a charge of $1.8
million to minority interest expense. See note 5.

       Dividends  are  payable  quarterly  at an annual rate of 11.50% per share
when declared by the Bank's Board of  Directors.  Dividends  paid on the 11 1/2%
Preferred  Stock for each year ended  December 31, 1999,  1998 and 1997 totalled
$34.6  million,  of which $1.8  million,  $26.8  million  and $34.6  million was
included in minority interest expense in 1999, 1998 and 1997, respectively.

       10 5/8% Preferred Stock

       In connection with the Cal Fed  Acquisition,  California  Federal assumed
Old California Federal's 10 5/8% noncumulative perpetual preferred stock, with a
liquidation  value of $172.5 million (the "105/8% Preferred Stock" and, together
with the 111/2% Preferred Stock, the "Bank Preferred Stock").

       In connection  with the Bank  Preferred  Stock Tender  Offers,  1,117,701
shares of the 10 5/8% Preferred  Stock were purchased by GS Holdings  during the
year ended  December 31, 1998 for a total  redemption  price of $121.7  million.
These transactions  reduced minority interest by $111.8 million on the Company's
consolidated  balance sheet and resulted in a charge of $9.9 million to minority
interest expense.

       On April 1, 1999, the remaining 607,299  outstanding shares were redeemed
at $105.313  per share,  for a total  redemption  price of $63.9  million.  This
transaction  reduced  minority  interest  by  $60.7  million  on  the  Company's
consolidated  balance sheet and resulted in a charge of $3.2 million to minority
interest expense. See note 5.

       Cash dividends on the 10 5/8% Preferred Stock are  noncumulative  and are
payable at an annual rate of 10 5/8% per share if, when,  and as declared by the
Board of Directors of the Bank.  Dividends paid on the 10 5/8%  Preferred  Stock
for each year ended December 31, 1999, 1998 and 1997 totalled $18.3 million,  of
which zero,  $15.3 million and $18.3  million was included in minority  interest
expense in 1999, 1998 and 1997, respectively.

       Reit Preferred Stock

       In November 1996, the Bank formed  California  Federal  Preferred Capital
Corporation  ("Preferred  Capital Corp.") for the purpose of acquiring,  holding
and managing real estate mortgage assets.  Preferred Capital Corp. is a Maryland
corporation  and  qualifies  as a real estate  investment  trust  ("REIT"),  for
federal income tax purposes.  All of Preferred  Capital  Corp.'s common stock is
owned  by the  Bank.  Pursuant  to a  subservicing  agreement  with  the  Bank's
wholly-owned mortgage banking subsidiary,  First Nationwide Mortgage Corporation
("FNMC"), FNMC services Preferred Capital Corp.'s mortgage assets.

       On January 31, 1997,  Preferred  Capital Corp.  issued to the public $500
million  of  its  9  1/8%  Noncumulative  Exchangeable  Preferred  Stock  ("REIT
Preferred  Stock"),  which is reflected in the  Company's  consolidated  balance
sheet as minority interest.  Preferred Capital Corp. used the proceeds from such
offering to acquire  mortgage assets from the Bank. The REIT Preferred Stock has
a stated liquidation value of $25 per share, plus declared and unpaid

                                      F-45

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

dividends,  if any. The annual cash dividends on the  20,000,000  shares of REIT
Preferred Stock,  assuming such dividends are declared by the Board of Directors
of Preferred  Capital Corp., are expected to approximate $45.6 million per year.
As long as Preferred  Capital Corp.  qualifies as a REIT, a distribution  on the
REIT Preferred  Stock will be a  dividends-paid  deduction by Preferred  Capital
Corp. for tax purposes.  Dividends paid on the REIT Preferred Stock during 1999,
1998 and 1997 were $26.4 million, $33.1 million and $36.6 million, respectively,
net of the income tax benefit.

       The REIT  Preferred  Stock ranks prior to the common  stock of  Preferred
Capital  Corp.  and to  all  other  classes  and  series  of  equity  securities
subsequently  issued,  other than any class or series  expressly  designated  as
being on a parity with or senior to the REIT Preferred Stock as to dividends and
liquidating distributions.

       Holders  of the REIT  Preferred  Stock have no voting  rights,  except as
required by law or certain limited circumstances.

       Except in the event of a change of control or upon  certain  tax  events,
the REIT Preferred  Stock is not redeemable  prior to January 31, 2002. The REIT
Preferred Stock is redeemable solely at the option of Preferred Capital Corp. or
its  successor or any  acquiring  or resulting  entity with respect to Preferred
Capital Corp. (including by any parent or subsidiary of Preferred Capital Corp.,
any such successor or any such acquiring or resulting entity), as applicable, at
any time on and after  January 31, 2002 in whole or in part, at $26.14 per share
on or after  January  31,  2002 and prior to  January  31,  2003,  and at prices
decreasing pro rata annually  thereafter to the stated  liquidation value of $25
per share on or after January 31, 2007, plus declared and unpaid  dividends,  if
any,  without  interest.  Upon change of control,  the REIT  Preferred  Stock is
redeemable  on or prior to January 31, 2002 at the option of  Preferred  Capital
Corp. or its successor or any acquiring or resulting  entity with respect to the
Bank (including by any parent or subsidiary of Preferred Capital Corp., any such
successor or any such acquiring or resulting entity),  as applicable,  in whole,
but not in part,  at a price per share  equal  to:  (a) $25,  plus (b) an amount
equal  to  declared  and  unpaid  dividends,  if  any,  to the  date  fixed  for
redemption; without interest and without duplication, an additional amount equal
to the amount of dividends that would be payable on the REIT Preferred  Stock in
respect of the  period  from the first day of the  dividend  period in which the
date fixed for redemption occurs to the date fixed for redemption  (assuming all
such dividends were to be declared), plus (c) a specified make whole premium.

       Each share of REIT Preferred  Stock will be exchanged  automatically  for
one newly issued share of preferred stock of the Bank having  substantially  the
same terms as the REIT  Preferred  Stock (the "9 1/8%  Preferred  Stock") if the
appropriate  federal  regulatory agency directs in writing such exchange because
(a)  the  Bank  becomes   "undercapitalized"   under  prompt  corrective  action
regulations,  (b) the Bank is placed into conservatorship or receivership or (c)
the appropriate  federal regulatory agency, in its sole discretion,  anticipates
the bank becoming  "undercapitalized"  in the near term.  If issued,  the 9 1/8%
Preferred Stock will rank on a parity with the Bank Preferred Stock.

       FN Holdings Preferred Stock

       On September  19, 1996,  FN Holdings  issued  10,000  shares of preferred
stock ("FN Holdings  Preferred  Stock") with a liquidation value of $150 million
to a corporation  owned by the Chairman of the Board of the Bank. Cash dividends
on the FN Holdings  Preferred Stock were cumulative and payable:  (a) in cash at
an annual rate of the cost of funds to an  affiliate  of FN Holdings  under such
affiliate's  bank credit  facility  (the "Cost of Funds  Rate") and (b) in newly
issued shares of another series of cumulative  perpetual  preferred  stock of FN
Holdings  ("Additional FN Holdings  Preferred Stock") at an annual rate of 2% of
the stated  liquidation value of the FN Holdings  Preferred Stock, if, when, and
as  declared  by  the  Board  of  Directors  of FN  Holdings.  Dividends  on the
Additional  FN Holdings  Preferred  Stock were  cumulative  and accrued and were
payable in shares of  Additional FN Holdings  Preferred  Stock at an annual rate
equal to the Cost of Funds Rate plus 2% of the stated  liquidation  value of the
Additional FN Holdings Preferred Stock if, when, and as declared by the Board of
Directors  of  FN  Holdings.   Additional  FN  Holdings   Preferred   Stock  had
substantially the same relative rights, terms and preferences as the FN Holdings
Preferred  Stock  except as set forth  above  with  respect  to the  payment  of
dividends.  Dividends on the FN Holdings  Preferred Stock were payable quarterly
each year, commencing January 1, 1997, out of funds legally available therefor.

                                      F-46

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       In March 1998,  FN Holdings  redeemed all remaining  1,666.7  outstanding
shares of the FN Holdings Preferred Stock. The redemption price was equal to the
liquidation  value of $15,000  per share.  Upon  redemption  of the FN  Holdings
Preferred  Stock,  all  remaining  52.5  shares of the  Additional  FN  Holdings
Preferred Stock totalling $.8 million  liquidation value were contributed to the
capital of FN Holdings  without any payment  therefor.  Such shares were retired
and cancelled.

       Dividends  on the FN Holdings  Preferred  Stock  totalled $.6 million and
$12.8  million  during 1998 and 1997,  respectively,  including  the issuance of
Additional FN Holdings Preferred Stock of $0.1 million and $2.2 million.

       Pre-merger Tax Benefits

       During 1999,  minority  interest  expense of $122.7  million was recorded
based  upon  changes  to  estimated  pre-merger  tax  benefits  retained  by GSB
Investments  and  Hunter's  Glen.  This amount was fully offset by an income tax
benefit to Golden State in the same period. See note 29.

(25)   Stockholders' Equity
       --------------------
       Series A Preferred Stock

       In connection with the Golden State  Acquisition,  the Company  converted
4,181,061  shares of Series A  Preferred  Stock  into  10,051,200  shares of the
Company's  common stock and an equal number of LTWTMs (as defined  herein).  The
Series A Preferred  Stock,  with par value of $1.00 per share and a  liquidation
preference of $25 per share, provided for noncumulative dividends,  when, as and
if declared,  at an annual rate of 8.75% of its  liquidation  preference and was
convertible,  at the option of the holders  thereof,  into  common  stock and an
equal  number of LTWTMs at any time at a  conversion  ratio of 2.404 per  share,
subject to adjustment in certain events. On October 1, 1998, the remaining 2,538
shares of Series A Preferred  Stock were  redeemed at a price of  $26.09375  per
share plus an amount equal to any  dividends  declared but unpaid as of the date
of redemption.

       Common Stock

       The Company has 250 million shares of common stock  authorized with a par
value of $1.00 per share.  Pursuant to the Golden State Merger agreement,  First
Gibraltar  and  Hunter's  Glen  received  56,722,988  shares of the Golden State
Common Stock,  which  represented  47.9% of the common stock  outstanding  as of
September 11, 1998, and provided for existing  Golden State  shareholders to own
61,880,950 shares of the Golden State Common Stock. GSB Investments subsequently
became the owner of the shares received by First Gibraltar.

       During  September  1998,  an  additional  10,051,200  shares  were issued
resulting from  conversions of the Series A Preferred  Stock.  Holders of Golden
State Common Stock are entitled to receive dividends when, as and if declared by
the Board of  Directors of the  Company,  subject to the superior  rights of the
holders of any series of preferred stock that may be issued.

       At December 31, 1999, there were  122,242,588  shares of the Golden State
Common Stock issued and  outstanding  (net of treasury  stock),  which  included
56,908  shares of restricted  stock.  The effect of these  restricted  shares is
included in the calculation of diluted earnings per share. See notes 30 and 37.

       At December 31, 1999, GSB Investments and Hunter's Glen owned  62,263,307
shares of Golden  State  Common  Stock,  representing  50.9% of the total shares
outstanding.

       Issuable Shares

       During 1998, net tax benefits  totalling  $102.7 million were realized by
California Federal with respect to its gain from the Florida Branch Sale and the
receipt of a federal income tax refund in excess of the amount  reflected on the
Company's  consolidated  balance sheet.  Consistent with the terms of the Golden
State  Merger  agreement,  a total of  5,687,996  shares of Golden  State Common
Stock, valued at $102.7 million, became issuable to GSB Investments and Hunter's
Glen as a result of these  benefits.  On January 21,  1999, a total of 5,540,319
shares  of Golden  State

                                      F-47

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

Common  Stock,  valued at $100  million,  were issued  (4,432,255  shares to GSB
Investments and 1,108,064 shares to Hunter's Glen). The remaining 147,677 common
shares,  valued in 1998 at $2.7  million,  are expected to be issued at a future
date.  The value of the remaining  shares was  reflected in  additional  paid-in
capital prior to its  reclassification in 1999 to issuable shares. Such issuable
shares are included, as appropriate, in the basic and diluted earnings per share
calculations. See note 37.

       Based upon the Company's  reported net income,  an  additional  9,609,054
shares, valued at $197.6 million, became issuable during the year ended December
31, 1999 to GSB  Investments  and Hunter's  Glen  (although the actual number of
shares to be issued will be based upon taxable  income as filed in the Company's
federal  income tax  returns).  The number of shares is  estimated  based on the
anticipated  use of pre-merger  net operating  losses and other net deferred tax
assets,  and is subject to change  based upon  actual  earnings  and the average
share  price  during the year.  Prior to the fourth  quarter of 1999,  the value
associated with these shares was reflected in other  liabilities.  Such issuable
shares are included,  as  appropriate,  in the  calculation of basic and diluted
earnings per share. See note 37.

       During the fourth quarter of 1999,  the Company  recorded $4.5 million in
issuable  shares related to interest  receivable on a Federal tax refund related
to Old California Federal for periods prior to the Golden State Acquisition.  In
accordance with the Golden State Merger agreement, this amount is payable to GSB
Investments and Hunter's Glen as issuable shares.  This transaction was recorded
as a charge to minority interest expense.

       Additional Paid-in Capital

       During 1999, the Company  recorded an adjustment to the purchase price in
the Golden State Acquisition of $12.4 million. See note 3.

       Retained Earnings

       During 1999,  the Company  recorded a $15.5 million  increase in retained
earnings  representing  an  adjustment  to reduce the  initial  dividend  of tax
benefits to GSB Investments and Hunter's Glen upon the Company's deconsolidation
from its tax reporting group on September 11, 1998. See note 29.

       At September 11, 1998, in connection  with the Golden State  Acquisition,
certain assets were recorded representing the fair value of each of the Goodwill
Litigation Assets (as defined herein) that each of the former shareholder groups
(pre-merger   Golden  State  and  GSB   Investments   and  Hunter's  Glen)  were
contributing to the merged entity. The Golden State Merger agreement contained a
mechanism for proportionately allocating these values between the two groups. At
September 11, 1998, the fair value of the Glendale Federal  Goodwill  Litigation
Asset (as defined  herein)  contributed by the former Golden State  shareholders
was  $56.9  million,  and the fair  value  of the  California  Federal  Goodwill
Litigation  equalization  adjustment due from GSB  Investments and Hunter's Glen
was $41.2 million.  The $41.2 million, as a contribution  receivable,  increased
retained  earnings  during the year ended  December 31,  1998.  Since the market
value of the LTWs,  which the  Company  uses to  estimate  the fair value of the
ultimate goodwill litigation award,  declined to $.875 per share at December 31,
1999, the inherent value of the amount to be contributed by GSB  Investments and
Hunter's  Glen also  declined,  to $17.1  million,  resulting  in a reduction in
retained earnings of $24.1 million.

       Treasury Stock

       At December 31,  1999,  the Company had  12,478,097  shares of its common
stock in treasury at an aggregate cost of $20.06 per share.

       During the fourth  quarter of 1998, the board of directors of the Company
authorized a $150 million  common stock  repurchase  program.  During the second
quarter of 1999, this  authorization  was further expanded to include up to $250
million of all publicly traded  securities  issued by the Company and any of its
subsidiaries.

                                      F-48

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       During the fourth  quarter of 1999, the board of directors of the Company
authorized a new share repurchase  program for 2000. The new program  authorizes
the repurchase of up to $250 million of all publicly traded securities issued by
the Company and any of its subsidiaries beginning December 14, 1999.

       During  the  year  ended  December  31,  1999,  the  Company  repurchased
12,463,800  shares of  common  stock,  at an  aggregate  purchase  price of $250
million,  or an average of $20.08 per share. In connection with the Golden State
Acquisition on September 11, 1998, the Company acquired 108,574 shares of Golden
State Common  Stock held in treasury  with an  aggregate  cost of $2.0  million.
During the year ended December 31, 1999 and 1998,  shares  totalling  75,697 and
18,580,  respectively,  were issued out of treasury in  connection  with options
exercised  by holders  related to an earlier  acquisition  by the former  Golden
State prior to the Golden State Acquisition.

       During  1999,   the  Company   recorded  a  $2.0  million   reduction  in
stockholders'  equity  representing a  reclassification  of the value associated
with 708,767  LTW(TM)s that have been  withdrawn by holders,  net of tax,  which
were previously recorded in other assets.

       Payment of Dividends

       The terms of the GS  Escrow  Notes  indenture  generally  will  permit GS
Holdings to make  distributions  of up to 75% of the Consolidated Net Income (as
defined  therein) of GS Holdings  since July 1, 1998 if after  giving  effect to
such  distribution,  (a) the Bank is "well  capitalized"  under  applicable  OTS
regulations and (b) the  Consolidated  Common  Stockholder's  Equity (as defined
therein) of the Bank is at least equal to the Minimum  Common  Equity Amount (as
defined  therein).  The  Federal  thrift laws and  regulations  of the Office of
Thrift  Supervision (the "OTS") limit the Bank's ability to pay dividends on its
preferred or common stock. The Bank generally may not pay dividends  without the
consent  of the OTS if,  after the  payment  of the  dividends,  it would not be
deemed "adequately  capitalized" under the prompt corrective action standards of
the Federal Deposit Insurance Corporation Improvement Act of 1991.

       As of December 31, 1999,  the Bank could pay dividends of $102.8  million
without the consent of the OTS and it could pay dividends of $461.5  million and
still be  "well-capitalized."  As of December  31, 1999,  GS Holdings  could pay
dividends,  in  addition  to those  already  paid,  of  $222.4  million  without
violating the most restrictive terms of the GS Escrow Notes indenture.

       There were no  dividends  on the common stock of Golden State during 1999
and 1998.

       Warrants

       The  Company  had  common  stock  purchase   warrants   outstanding  (the
"Warrants") that were issued by Golden State in March 1993 in connection with an
exchange of preferred stock for outstanding  subordinated debentures and capital
notes. Each Warrant entitled the registered  holders thereof to receive from the
Company one share of common  stock and one  LTW(TM) (as defined  herein) for ten
Warrants for no additional consideration at any time until the expiration of the
Warrants on March 10, 1999.  During 1999,  11,730  warrants  were  exercised and
1,046 expired.

       The Company has also issued  transferable  Standby Warrants (the "Standby
Warrants"),  of which  10,768,153  were  outstanding at December 31, 1999.  Each
Standby  Warrant  entitles  the holder  thereof to purchase  one share of common
stock and one LTW(TM) for the  purchase  price of $12.00 per share.  The Standby
Warrants are exercisable at any time through August 21, 2000. During 1999, 1,510
Standby  Warrants  were  exercised.  The  Standby  Warrants  trade on the NASDAQ
national market system under the ticker symbol "GSBNW."

(26)   Litigation Tracking Warrants
       ----------------------------
       In  connection  with  the  Glendale  Goodwill  Litigation,  Golden  State
distributed  Litigation  Tracking  Warrants(TM)  ("LTW(TM)s")  to  its  security
holders representing the right to receive, upon exercise of the LTW(TM)s, Golden
State Common Stock equal in value to 85% of the net after-tax proceeds,  if any,
from the Glendale Goodwill  Litigation.  The LTW(TM)s would be exercisable after
notification by Golden State of its receipt of proceeds from a final judgment in
or settlement of the  litigation.  The LTW(TM)s  would expire 60 days after such
notice is given.

                                      F-49

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Golden  State  distributed  LTW(TM)s on May 29, 1998 to holders of Golden
State  Common  Stock of record on May 7, 1998,  on the basis of one  LTW(TM) for
each share held as of the close of business on that date. The Board of Directors
also  reserved  additional  LTW(TM)S  for future  issuance  in  connection  with
conversions or exercises of the Company's  outstanding Series A Preferred Stock,
its two outstanding classes of common stock purchase warrants and employee stock
options.  The total  number of  LTW(TM)s  issued to holders OF common  stock and
reserved for such future issuances is  approximately 85 million.  As of December
31, 1999, 72,584,387 LTW(TM)s were issued.

       The LTW(TM)s trade on the NASDAQ  national market system under the ticker
symbol "GSBNZ."

(27)   Regulatory Capital of the Bank
       ------------------------------
       The  Bank  is  subject  to  various   regulatory   capital   requirements
administered  by the Federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material  effect  on  the  Company's  and  the  Bank's  consolidated   financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts and  classifications  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

       Quantitative   measures  established  by  regulation  to  insure  capital
adequacy  require the Bank to maintain  minimum amounts and ratios (set forth in
the table below) of tangible and leverage capital to adjusted total assets,  and
of Tier 1 and total  risk-based  capital  to  risk-weighted  assets.  Management
believes,  as of December  31,  1999,  that the Bank meets all capital  adequacy
requirements to which it is subject.

       As of December 31, 1999 and 1998, the most recent  notification  from the
OTS categorized the Bank as well capitalized under the regulatory  framework for
prompt corrective  action. To be categorized as well capitalized,  the Bank must
maintain minimum leverage,  Tier 1 risk-based and total risk-based ratios as set
forth in the table  below.  There  are no  conditions  or events  since the most
recent  notification  that  management  believes have changed the  institution's
category.

                                      F-50

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The Bank's actual capital  amounts and ratios as of December 31, 1999 and
1998 are presented in the following table (dollars in thousands):
<TABLE>
<CAPTION>
                                                                       To be Adequately
                                                Actual                    Capitalized           To be Well Capitalized
                                        -----------------------       -------------------       ----------------------
                                                      As a % of                 As a % of                    As a % of
             1999                         Amount       Assets         Amount      Assets         Amount       Assets
------------------------------------      ------      ---------       ------    ---------        ------       ------
<S>                                    <C>               <C>         <C>           <C>          <C>             <C>
Stockholder's equity of the Bank
    per financial statements           $3,555,851
Minority interest                         500,000
Net unrealized holding loss               275,625
                                       ----------
                                        4,331,476
Adjustments for tangible and
    leverage capital:
    Goodwill litigation assets           (158,713)
    Intangible assets                    (819,561)
    Non-includable subsidiaries           (59,579)
                                       ----------
Total tangible capital                 $3,293,623        5.81%       $  849,649    1.50%
                                       ==========                    ==========
                                                                                                       N/A        N/A
Total leverage capital                 $3,293,623        5.81%       $2,265,731    4.00%        $2,832,163      5.00%
                                       ==========                    ==========                 ==========
Tier 1 risk-based capital              $3,293,623       11.36%              N/A      N/A        $1,734,619      6.00%
                                       ==========                                               ==========

Adjustments for risk-based
    capital:
    Qualifying subordinated
       debt                                92,602
    General loan loss allowance           363,328
    Qualifying portion of
       unrealized holding gains                37
    Low level recourse                    (10,619)
    Assets required to be
       deducted                           (13,559)
                                       ----------
    Total risk-based capital           $3,725,412       12.89%       $2,312,825    8.00%        $2,891,031       10.00%
                                       ==========                    ==========                 ==========
</TABLE>

                                      F-51

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                       To be Adequately
                                               Actual                     Capitalized          To be Well Capitalized
                                       -------------------------     --------------------      ----------------------
                                                     As a % of                  As a % of                  As a % of
                      1998               Amount        Assets         Amount      Assets        Amount       Assets
---------------------------------        ------      ---------        ------    ---------       ------       ------
<S>                                    <C>              <C>          <C>           <C>         <C>            <C>
Stockholder's equity of the Bank
    per financial statements           $3,678,712
Minority interest                         498,348
Net unrealized holding gains
                                           (4,884)
                                        4,172,176
Adjustments for tangible and
    leverage capital:
    Goodwill litigation assets           (160,341)
    Intangible assets                    (923,598)
    Non-qualifying MSRs                   (94,358)
    Non-includable subsidiaries           (57,999)
    Excess Deferred Tax Asset            (118,659)
                                       ----------
Total tangible capital                 $2,817,221       5.29%        $  799,271     1.50%                       N/A
                                       ==========                    ==========
                                                                                                      N/A
Total leverage capital                 $2,817,221       5.29%        $2,131,388     4.00%      $2,664,235      5.00%
                                       ==========                    ==========                ==========
Tier 1 risk-based capital              $2,817,221      10.27%               N/A       N/A      $1,645,485      6.00%
                                       ==========                                              ==========

Adjustments for risk-based
    capital:
    Qualifying subordinated
       debt                                93,210
    General loan loss allowance           345,583
    Qualifying portion of
       unrealized holding gains                73
    Low level recourse                    (11,759)
    Assets required to be
       deducted                           (38,234)
                                       ----------
    Total risk-based capital           $3,206,094      11.69%        $2,193,980     8.00%      $2,742,475     10.00%
                                       ==========                    ==========                ==========
</TABLE>

(28)   Other Noninterest Expense
       -------------------------
       Other noninterest expense amounts are summarized as follows for the years
ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
                                                                                     1999       1998          1997
                                                                                  --------    --------      --------
       <S>                                                                        <C>         <C>           <C>
       Other noninterest expense:
          Telephone                                                               $ 26,088    $ 19,640      $ 15,932
          Marketing                                                                 31,994      19,597        20,186
          Data processing                                                           23,443      15,708        12,402
          Savings Association Insurance Fund deposit insurance premium              14,230      11,055        10,680
          Insurance and surety bonds                                                 7,412       6,027         5,642
          Postage                                                                   13,021      10,023         8,070
          Printing, copying and office supplies                                     12,968      11,179         9,230
          Employee travel                                                           13,855      10,386         8,745
          Clerical and other losses                                                 18,703      10,534        11,410
          Other expense                                                             63,960      45,158        54,853
                                                                                 ---------   ---------     ---------
                                                                                  $225,674    $159,307      $157,150
                                                                                  ========    ========      ========
</TABLE>

                                      F-52

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(29)   Income Taxes
       ------------
       Total income tax expense (benefit) for the years ended December 31, 1999,
1998 and 1997 was allocated as follows (in thousands):

<TABLE>
<CAPTION>

                                                                   1999            1998           1997
                                                                 --------       ---------       --------
      <S>                                                        <C>            <C>              <C>
      Income before income taxes, extraordinary items
           and minority interest                                 $186,483       $(106,351)       $41,315
      Extraordinary items                                           1,801        (103,823)            --
      Net unrealized holding (loss) gain on securities
           available for sale                                    (204,789)           (881)            17
      Provision in lieu of income taxes -
           minority interest                                      122,684              --             --
                                                                 --------       ---------        -------
                                                                 $106,179       $(211,055)       $41,332
                                                                 ========       =========        =======
</TABLE>

       Income tax expense (benefit)  attributable to income before income taxes,
extraordinary items and minority interest consisted of (in thousands):

                                           1999         1998           1997
                                          -------     ---------      --------
Federal
    Current                              $ 31,013     $  51,443       $ 4,687
    Deferred                               74,722      (214,131)           --
                                         --------     ---------       -------
                                          105,735      (162,688)        4,687

State and local
    Current                                60,690        49,137        27,187
    Deferred                               20,058         7,200         9,441
                                         --------     ---------       -------
                                           80,748        56,337        36,628
                                         --------     ---------       -------
Income tax expense (benefit) before
   provision in lieu of income taxes      186,483      (106,351)       41,315
Provision in lieu of income taxes -
   minority interest                      122,684            --            --
                                         --------     ---------       -------
Total income tax expense (benefit)       $309,167     $(106,351)      $41,315
                                         ========     =========       =======

                                      F-53

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The  consolidated  income  tax  expense  (benefit)  for the  years  ended
December 31, 1999,  1998 and 1997 differs from the amounts  computed by applying
the  statutory  federal  corporate  tax rate of 35% for  1999,  1998 and 1997 to
income before income taxes, extraordinary items and minority interest as follows
(in thousands):

<TABLE>
<CAPTION>

                                                                       1999         1998           1997
                                                                     --------     --------       --------
      <S>                                                            <C>          <C>            <C>
      Computed "expected" income tax expense                         $234,245     $ 140,792      $  83,439
      Increase (decrease) in taxes resulting from:
          State income taxes, net of federal income
                tax benefit                                            52,486        36,619         23,808
          Tax exempt income                                            (1,010)           --             (5)
          Amortization of excess cost over fair
                value of net assets acquired                           22,355        17,613         16,959
          Unrealized holding (loss) gain on securities
                available for sale recognized for tax purposes             --            --        (12,234)
          Other                                                         1,091           109          2,762
          Adjustments to deferred tax asset fully offset by
                valuation allowance:
                 Temporary differences from acquisitions                   --            --       (107,416)
                 Adjustment to deferred tax asset                     (18,602)       64,527        (17,130)
                 REIT Preferred Stock dividends                            --        (6,700)       (14,682)
          Change in the beginning-of-the-year balance of
              the valuation allowance for deferred tax assets
              allocated to income tax expense                          18,602      (359,311)        65,814
                                                                     --------     ---------      ---------
                                                                     $309,167     $(106,351)     $  41,315
                                                                     ========     =========      =========
</TABLE>

       The  significant  components  of deferred  income tax  (benefit)  expense
attributable  to income before income  taxes,  extraordinary  items and minority
interest are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                     1999        1998          1997
                                                                    -------    ---------      -------
      <S>                                                           <C>        <C>           <C>
      Deferred tax expense (exclusive of the effects
          of other components listed below)                         $74,722    $  87,353     $  73,414
      Adjustment to deferred tax asset fully offset by
          valuation allowance                                       (18,602)      57,827      (139,228)
      Increase (decrease) in beginning-of-the-year balance
          of the valuation allowance for deferred tax assets         18,602     (359,311)       65,814
                                                                    -------    ---------     ---------
                                                                    $74,722    $(214,131)    $      --
                                                                    =======    =========     =========
</TABLE>

                                      F-54

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The tax effects of temporary  differences  that give rise to  significant
portions of the deferred tax assets and deferred tax  liabilities  are presented
below (in thousands):

                                                         1999           1998
                                                       ----------     ---------

Deferred tax assets:
    Net operating loss carryforwards                    $ 280,241     $ 392,182
    Foreclosed real estate                                    906         2,182
    Deferred interest                                       2,287         8,509
    Loans receivable                                      140,999        77,523
    Miscellaneous accruals                                 68,333       161,540
    Accrued liabilities                                    38,639        31,364
    State taxes                                            63,361        29,147
    Purchased mortgage servicing rights                   105,241       221,743
    Alternative minimum tax credit and investment tax
        credit carryforwards                               70,150        15,347
    Unrealized losses on securities available for sale    200,518            --
    Other                                                  11,559        16,749
                                                        ---------     ---------
         Total gross deferred tax assets                  982,234       956,286
         Less valuation allowance                        (251,234)     (232,632)
                                                        ---------     ---------
         Net deferred tax assets                          731,000       723,654
                                                        ---------     ---------

Deferred tax liabilities:
    Mortgage servicing rights                             182,466       238,938
    Purchase accounting adjustments                         5,288         2,071
    FHLB stock                                            126,904       101,595
    Unrealized gains on securities available for sale          --         4,271
    Goodwill litigation                                    41,356       111,746
    Other                                                 173,451       155,024
                                                        ---------     ---------
         Net deferred tax liabilities                     529,465       613,645
                                                        ---------     ---------
         Net deferred tax assets and liabilities        $ 201,535     $ 110,009
                                                        =========     =========

       The net  change  in the  total  valuation  allowance  for the year  ended
December  31, 1999 was an increase of $18.6  million  which is  attributable  to
income before income taxes and minority interest.

       Based on resolutions of federal tax audits and favorable  future earnings
expectations,  management  changed its judgment about the  realizability  of the
Company's  net deferred tax assets and reduced the  valuation  allowance by $250
million in the second quarter of 1998.  Management believes that the realization
of the  resulting  deferred  tax asset is more likely  than not,  based upon the
expectation  that the Company  will  generate  the  necessary  amount of taxable
income in future periods.

       In connection  with the Golden State Merger,  the Company  deconsolidated
from the Mafco Group. As a result,  only the amount of the net operating  losses
("NOLs") of the Company  not  utilized by the Mafco Group on or before  December
31, 1998 are available to offset  taxable income of the Company  thereafter.  At
September 11, 1998,  had the Company  filed a  consolidated  federal  income tax
return on behalf of itself and its  subsidiaries for each of the years since the
formation  of the  Company,  it would have had  regular  NOL  carryforwards  for
federal income tax purposes of approximately $1.8 billion. Upon deconsolidation,
the NOLs  available  to offset  taxable  income  of the  Company  was  initially
estimated to be reduced by $900  million.  This  reduction of NOLs and other tax
attributes  (the  "Deconsolidation  Adjustment")  resulted  in a $230.2  million
reduction in retained earnings during 1998.

       Based upon the  actual  filing of the Mafco  Group and Golden  State 1998
consolidated  federal  income tax returns  during the third quarter of 1999, tax
benefits of $122.7 million were  recognized.  The tax benefit is fully offset by
an increase in minority  interest  expense,  since under the Golden State Merger
agreement,  the tax benefits  from any NOLs and other tax  attributes  of Parent
Holdings and its subsidiaries are retained by GSB Investments and Hunter's Glen.

                                      F-55

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       In  addition,  the Company  recorded an  adjustment  of $15.5  million to
reduce the initial dividend of tax benefits to GSB Investments and Hunter's Glen
due to its  deconsolidation  from the  Mafco  Group,  which was  recorded  as an
increase to retained earnings during 1999.

       At December  31,  1999,  the Company  had regular NOL  carryforwards  for
federal income tax purposes of approximately $801 million which are available to
offset future federal taxable  income,  if any,  through 2009. In addition,  the
Company had alternative  minimum tax credit  carryforwards of approximately  $68
million which are available to offset future federal  regular  income taxes,  if
any,  over an  indefinite  period.  The IRS is  examining  the 1991 through 1995
federal income tax returns of the Company and any NOL  carryforwards are subject
to review and disallowance, in whole or in part, by the IRS.

       In accordance with SFAS No. 109,  Accounting for Income Taxes, a deferred
tax  liability has not been  recognized  for the base year reserves of the Bank.
The base year  reserves are generally the balance of the tax bad debt reserve as
of December 31, 1987 reduced  proportionately  for reductions in the Bank's loan
portfolio  since that date. At December 31, 1999,  the amount of those  reserves
was $305  million.  The amount of the  unrecognized  deferred  tax  liability at
December 31, 1999 was $107 million.  Pursuant to the Act, circumstances that may
require an accrual of this  unrecorded  tax  liability are a failure to meet the
definition  of a "bank" for federal  income tax purposes,  dividend  payments in
excess  of tax  earnings  and  profits,  and other  distributions,  dissolution,
liquidation or redemption of stock,  excluding  preferred  stock meeting certain
conditions.

(30)   Employee Benefit Plans
       ----------------------
       Postretirement Health Care and Defined Benefit Plans

       The Bank  provides  certain  postretirement  medical  benefits to certain
eligible  employees  and their  dependents  through  age 64. In  general,  early
retirement  is age 55 with 10 years of service.  Retirees  participating  in the
plans generally pay  Consolidated  Omnibus Budget Reduction Act premiums for the
period of time they participate.  The estimated cost for  postretirement  health
care benefits has been accrued on an actuarial net present value basis.

       In connection with the Cal Fed Acquisition,  the Bank assumed sponsorship
of the Old California  Federal defined benefit plan,  which was frozen effective
May 31, 1993, at which time all accrued  benefits became 100% vested.  Effective
April  30,  1997,  the  SFFed  benefit  plan  was  merged  with and into the Old
California  Federal  benefit plan. The fair value of the assets  transferred was
$23.6 million.

       In  connection  with the  Glen Fed  Merger,  the  Bank  assumed  Glendale
Federal's defined benefit pension plan (the "Glendale Federal  Retirement Plan")
and the Redlands Federal Bank defined benefit plan,  (collectively "the Glen Fed
Pension Plan"),  which covered  substantially all employees of Glendale Federal.
The Glen Fed Pension Plan was frozen upon the merger on  September  11, 1998 and
no additional benefits accrued after such time.  Effective October 15, 1998, the
Glen Fed  Pension  Plan was  merged  with  and into the Old  California  Federal
defined  benefit  plan.  The fair  value of the  assets  transferred  was $102.0
million.  The Old  California  Federal  defined  benefit plan also  includes the
former SFFed benefit plan.

                                      F-56

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The  following  table  sets  forth  the  changes  in the  plan's  benefit
obligations  and fair  value of plan  assets,  as well as the  funded  status at
December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                        Non-Qualified Plans          Qualified Plan
                                             Postretirement Benefits     Pension Benefits           Pension Benefits
                                             -----------------------    -------------------         ----------------
                                                1999        1998          1999        1998          1999        1998
                                                ----        ----          ----        ----          ----        ----
<S>                                           <C>         <C>           <C>         <C>           <C>          <C>
Change in Benefit Obligation
Benefit obligation at beginning of year       $ 8,166     $ 4,125       $ 15,481    $  9,206      $136,818     $ 35,795
Service Cost                                      612         309             --          --            --           --
Interest cost                                     539         317          1,000         723         8,059        4,157
Amendments                                         --          --             --          --            --           --
Actuarial (gain) loss                            (717)        182            868       1,634       (23,792)       9,218
Glen Fed Merger                                    --       3,446             --       5,025            --       95,900
Acquisitions                                       --          --             --          --            --           --
Settlements                                        --          --             --          --            --           --
Benefits paid                                    (352)       (213)        (1,994)     (1,107)       (9,162)      (8,252)
                                              -------     -------       --------    --------      --------     --------
Benefit obligation at end of year             $ 8,248     $ 8,166       $ 15,355    $ 15,481      $111,923     $136,818
                                              =======     =======       ========    ========      ========     ========

Change in Plan Assets
Fair value at beginning of year               $    --     $    --       $     --    $     --      $139,390     $ 29,754
Actual return on plan assets                       --          --             --          --        15,548          388
Glen Fed Merger                                    --          --             --          --            --      117,500
Employer contribution                              --          --          1,994       1,107            --           --
Benefits paid                                      --          --         (1,994)     (1,107)       (9,161)      (8,252)
                                              -------     -------       --------    --------      --------     --------
Fair value at end of year                     $    --     $    --       $     --    $     --      $145,777     $139,390
                                              =======     =======       ========    ========      ========     ========

Funded Status                                 $(8,248)    $(8,166)      $(15,355)   $(15,481)     $ 33,854     $  2,572
Unrecognized actuarial loss                        --          --             --          --       (10,660)      16,656
                                              -------     -------       --------    --------      --------     --------
Prepaid (accrued) benefit cost
   recognized in the consolidated
   balance sheet                              $(8,248)    $(8,166)      $(15,355)   $(15,481)     $ 23,194     $ 19,228
                                              =======     =======       ========    ========      ========     ========
</TABLE>

       Assumptions used in computing the funded status were:

<TABLE>
<CAPTION>
                                                                    Non-Qualified Plans       Qualified Plan
                                          Postretirement Benefits    Pension Benefits        Pension Benefits
Weighted Average Assumptions as of        -----------------------   -------------------      ----------------
        December 31,                         1999        1998          1999      1998         1999       1998
----------------------------------           ----        ----          ----      ----         ----       ----
<S>                                          <C>         <C>           <C>       <C>          <C>        <C>
Discount rate                                6.75%       6.75%         7.25%     6.00%        7.25%      6.00%
Expected return on plan assets                N/A         N/A          9.00      9.00         9.00       9.00
Rate of compensation increase                0.00        0.00          0.00      0.00         0.00       0.00
</TABLE>

       The initial  health care cost trend rate for medical  benefits in 2000 is
assumed to be 8%, the average trend rate is assumed to be 6.53% and the ultimate
trend rate is assumed to be 5.25%, which will be reached in seven years.

       At  December  31,  1999,  an increase of 1% in the health care cost trend
rate would cause the accumulated  postretirement  benefit obligation to increase
by $0.9 million, and the service and interest cost to increase by less than $0.2
million.  At December  31,  1999, a decrease of 1% in the health care cost trend
rate would cause the accumulated  postretirement  benefit obligation to decrease
by $0.8 million, and the service and interest costs to decrease by $0.1 million.

                                      F-57

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The net periodic benefit cost for the years ended December 31, 1999, 1998
and 1997 included the following components (in thousands):

<TABLE>
<CAPTION>
                                                                                 Qualified and
                                                                                 Non-Qualified
                                              Postretirement Benefits           Pension Benefits
                                              -----------------------     ----------------------------
                                              1999     1998     1997         1999      1998      1997
                                              ----     ----     ----         ----      ----      ----
      <S>                                     <C>     <C>     <C>         <C>         <C>       <C>
      Service Cost                            $612    $309    $   364     $     --    $    --   $    --
      Interest cost                            539     317        498        9,059      4,880     3,453
      Expected return on plan assets            --      --         --      (12,320)    (5,648)   (3,306)
      Recognized net actuarial loss (gain)    (717)    182     (3,104)       1,164      2,293     1,611
      Settlement/curtailment gain               --      --         --           --         --      (404)
                                              ----    ----    -------     --------    -------   -------
         Net periodic cost (income)           $434    $808    $(2,242)    $ (2,097)   $ 1,525   $ 1,354
                                              ====    ====    =======     ========    =======   =======
</TABLE>

       Defined contribution plan

       The Bank  offers a  defined  contribution  plan,  which is  available  to
substantially  all employees  with at least six months of  employment.  Employee
contributions are voluntary.  The plan provides for the deferral of up to 12% of
eligible  compensation of plan participants not to exceed the maximum allowed by
the Internal Revenue Service. The Bank's matching  contribution was a maximum of
100% of up to the  first 3% of  employee  deferrals.  The  annual  discretionary
employer   profit  sharing   contribution   is  a  maximum  of  3%  of  eligible
compensation.  It can be  declared  at any  level  in the  range  from 0% to 3%.
Employees  vest  immediately  in their own  deferrals  and any  employer  profit
sharing  contributions  and vest in  employer  matching  contributions  based on
completed years of service. The Bank's contributions to such plan totalled $14.6
million,  $9.3 million and $3.8  million for the years ended  December 31, 1999,
1998 and 1997, respectively.

       In  the  Cal  Fed  Acquisition,  contributions  made  to  Old  California
Federal's  defined  contribution  plan (the  "Investment Plus Plan") became 100%
vested at the date of acquisition.  Effective  December 31, 1997, the Investment
Plus Plan was merged with and into the First  Nationwide  Employees'  Investment
Plan,  which was renamed in 1997 the California  Federal  Employees'  Investment
Plan. The fair value of assets transferred was $33.6 million.

       Effective January 1, 1999, the California Federal  Employees'  Investment
Plan  was  amended  to  provide  for  automatic  enrollment  into  the plan at a
contribution rate of 3% unless the employee opts, in writing,  to participate at
a different  deferral  rate,  or to opt out of the plan.  Effective  January 15,
1999,  the plan was amended to allow the use of certain  employer  and  employee
contributions   to  purchase   Golden  State  Common  Stock  at  market  prices.
Contributions  to the plan were used to purchase 341,024 shares for $6.9 million
in 1999. Sales by the plan of Golden State shares during 1999 were 52,126 shares
for $1.1 million.  Effective  March 1, 1999, the plan was also amended to reduce
the length of required  service to six months before an employee can  contribute
to the plan and to amend  the  enrollment  date to the  first of the  applicable
month.

       Effective January 1, 2000, the California Federal  Employees'  Investment
Plan was amended to take  advantage  of the safe harbor  match  provision of the
Internal Revenue Code which provides for employer matching contributions of 100%
of the  first  3% of  employee  deferrals  and 50% of the  next  2% of  employee
deferrals.  The safe harbor match provision also requires immediate 100% vesting
of all contributions to the plan, a change which was executed  effective January
1, 2000.

       In connection with the Glen Fed Merger,  the Bank assumed  sponsorship of
the Glendale  Federal's defined  contribution  plan. This plan was frozen at the
merger date,  therefore no contributions were made to the plan subsequent to the
merger date. The plan is being  maintained as a separate plan. It is anticipated
that Glendale  Federal's  plan will be merged with the Bank's plan in the second
quarter of 2000.

                                      F-58

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Stock Plans

       At December 31, 1999, the Bank is administering the following stock-based
compensation  plans:  pre-merger stock option plans and the Golden State Bancorp
Inc. Omnibus Stock Plan (the "Omnibus Stock Plan").

       In connection with the Glen Fed Merger,  the Bank is administering  stock
option  plans that  provided  for the granting of options of Golden State Common
Stock to employees and directors.  All pre-merger  stock option plans expired on
August 18, 1998 as to the making of additional grants.  Upon the consummation of
the merger on September 11, 1998,  substantially all options  outstanding became
exercisable.

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

       Non-qualified  options  granted under the stock plan  generally vest over
three years in one-third  increments on the  anniversary  of the grant date. The
options generally expire 10 years from the date of grant.

       The  following  is a summary of the  transactions  under all stock option
plans:

<TABLE>
<CAPTION>
                                                                         Weighted
                                     Number of    Range of Option     Average Exercise
                                      Shares          Prices               Price
                                     ---------     --------------     ----------------
<S>                                  <C>           <C>                    <C>
Outstanding at September 11, 1998    2,238,326    $ 9.00 - $35.00         $19.99
Canceled or expired                    193,334    $28.50 - $28.50         $28.50
Exercised                               51,205    $12.63 - $17.75         $14.80
                                     ---------
Outstanding at December 31, 1998     1,993,787    $ 9.00 - $35.00         $19.30
Granted                              1,352,000    $23.50 - $23.50         $23.50
Cancelled or expired                   276,000    $23.50 - $28.50         $28.10
Exercised                              508,705    $ 9.00 - $17.75         $13.44
                                     ---------
Outstanding At December 31, 1999     2,561,082    $ 9.00 - $35.00         $21.74
                                     =========
</TABLE>

       Information  about stock options  outstanding at December 31, 1999 was as
follows:

<TABLE>
<CAPTION>
                                               Options Outstanding                              Options Exercisable
                             -------------------------------------------------------     ---------------------------------
                                Options         Weighted Average        Weighted             Shares          Weighted
                               Outstanding    Remaining Contractual       Average          Exercisable        Average
Exercise Price Range         at End of Year      Life (in Years)      Exercise Price     at End of Year     Exercise Price
--------------------         --------------      ---------------      --------------     --------------     --------------
   <S>                        <C>                      <C>                <C>                <C>                <C>
   $ 9.00 - $12.63              337,000                4.6                $11.35             337,000            $11.35
   $14.50 - $17.75              432,082                6.4                $16.57             432,082            $16.57
   $23.50 - $23.50            1,330,000                9.5                $23.50                  --                --
   $28.50 - $35.00              462,000                7.7                $29.06             462,000            $29.06
</TABLE>

       No  compensation  cost was  recognized  by the Company for stock  options
granted  during  1999,  in  accordance  with  the  intrinsic  value   accounting
methodology prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock  Issued to  Employees,  whereby  compensation  expense to employees is
determined based upon the excess,  if any, of the market price of Golden State's
common stock at the measurement date over the exercise price of the award.

       If  compensation  cost during  1999 for the  Omnibus  Stock Plan had been
determined  based on the fair value of the awards at the grant dates, net income
would have been $313.5 million,  basic earnings per common share would have been
$2.40 and diluted  earnings  per common  share  would have been $2.24.  The fair
values of the options were

                                      F-59

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

estimated at the grant date using the Black-Scholes  option pricing model, which
includes the following  assumptions  used for the stock options  awarded  during
1999:  risk-free  interest  rate of  5.60%;  expected  option  life of 7  years;
expected  volatility of 41.3%; no expected  dividends;  and a forfeiture rate of
5%.  Since pro forma  compensation  cost  relates to all periods  over which the
awards  vest,  the impact on pro forma net income may not be  representative  of
compensation  cost in subsequent  years when the effect of the  amortization  of
multiple awards would be reflected.

       The grant date fair value of the options  granted  during 1999 was $12.45
per share.  The exercise  price of each option equals the market price of Golden
State's Common Stock on the date of the grant.

       On July 19, 1999, the Company awarded to certain of its employees  56,908
shares of restricted common stock. The market value on the date of the award was
$22.38 per share. These shares vest over two years in one-half increments on the
anniversary  of the grant date,  contingent  upon the  continued  service of the
employee.  The  compensation  expense  related to this award is  recognized on a
straight line basis over the vesting period for each tranche of the award with a
corresponding increase to additional paid-in capital.  During 1999, $0.5 million
in compensation  expense was recognized  related to such award. These restricted
shares have full voting rights and are included in common shares outstanding and
in the calculation of diluted earnings per share. See note 37.

(31)   Incentive Plan
       --------------
       On May 17, 1999,  the Golden State  Bancorp Inc.  Executive  Compensation
Plan ("ECP") was approved,  providing for performance-based  incentive awards to
senior executives of the Company.  Awards may be paid in cash; however up to 50%
may be payable in  restricted  common stock granted under the Omnibus Stock Plan
discussed in note 30.  Compensation  expense  totalling $9.1 million relating to
the ECP was recorded during the year ended December 31, 1999.

       In  addition,  effective  October 1, 1995,  FN  Holdings  entered  into a
management  incentive plan ("Incentive Plan") with certain executive officers of
the Bank ("Participants"). Awards under the Incentive Plan were made in the form
of performance units. Each performance unit entitled Incentive Plan Participants
to receive cash and/or stock options  ("Bonuses")  based upon the  Participants'
vested interest in a bonus pool. Generally,  the Incentive Plan provided for the
payment  of  Bonuses,  on a  quarterly  basis,  to  the  Participants  upon  the
occurrence of certain events.  Bonuses vested at 20% per year beginning  October
1, 1995 and were  subject to a cap of $50 million.  Bonuses  were  recorded by a
charge  to  compensation  and  employee   benefits  and  an  increase  to  other
liabilities. The Glen Fed Merger constituted a change of control pursuant to the
terms of the  Incentive  Plan  and,  as such,  cash  payments  were  made to the
Participants on September 11, 1998.

(32)   Extraordinary Items
       -------------------
       During the fourth  quarter of 1999,  the FHLB called and the Bank prepaid
$500  million  in FHLB  advances,  resulting  in an  extraordinary  gain of $2.7
million, net of income taxes, on the early extinguishment of such borrowings.

       On December 20, 1999,  the Bank  repurchased  all of the  remaining  $6.0
million  outstanding  principal amount of the 11.20% Senior Notes assumed in the
SFFed Acquisition,  resulting in an extraordinary  loss of $0.2 million,  net of
income taxes, on the early extinguishment of debt.

       In  connection  with the Debt  Tender  Offers  during  1998,  GS Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an aggregate purchase price, including accrued interest payable of $1.1 billion,
resulting in an extraordinary loss of $98.7 million, net of income taxes, on the
early extinguishment of such debt.

       In  connection  with the  Parent  Holdings  Defeasance  during  1998,  GS
Financial  redeemed  $455  million  aggregate  principal  amount  of the  Parent
Holdings Notes for an aggregate  redemption  price,  including  accrued interest
payable, of $553.7 million.  The after-tax redemption premiums and expenses paid
in connection with the Parent Holdings Defeasance totalled $51.6 million and are
reflected as extraordinary loss, net of taxes, on the consolidated  statement of
income for the year ended December 31, 1998.

                                      F-60

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(33)   Commitments and Contingencies
       -----------------------------
       In the  ordinary  course of  business,  the Company has  commitments  and
contingent  liabilities that are not reflected in the accompanying  consolidated
financial  statements.   The  Company,   through  FNMC,  enters  into  financial
instruments  with  off-balance  sheet risk through the  origination  and sale of
mortgage  loans  and the  management  of the  related  loss  exposure  caused by
fluctuations in interest rates. These financial  instruments include commitments
to extend credit and purchase  loans  (mortgage loan pipeline) and mandatory and
optional forward commitments to sell loans.

       The following is a summary of the Company's  pipeline of loans in process
and  mandatory  forward  commitments  to sell  loans at  December  31,  1999 (in
thousands):

                                                  December 31,
                                           ----------------------------
                                             1999               1998
                                           ----------        ----------

Commitments to originate loans:
    Fixed rate                             $  394,923        $1,362,727
    Variable rate                           1,078,909           780,759
Commitments to purchase loans               1,434,893         1,823,837
Mandatory commitments to sell loans           903,526         2,746,839

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

       Loans in process for which rates were committed to the borrower  totalled
approximately  $1.2 billion at December 31, 1999. On a daily basis,  the Company
determines  what  percentage of the portfolio of loans in process for which rate
commitments  have been  extended  to a borrower to hedge.  Both the  anticipated
percentage  of the  pipeline  that is  expected  to fund and the  inherent  risk
position of the portfolio are considered in making this determination.

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

       Realized  gains and losses on  mandatory  and  optional-delivery  forward
commitments  are  recognized in the period  settlement  occurs.  At December 31,
1999,  unrealized  gains  resulting from the use of forward  commitments to sell
loans  were  $3.3  million.   Unrealized  gains  and  losses  on  mandatory  and
optional-delivery  forward  commitments  are  included  in the  lower of cost or
market valuation adjustment to mortgage loans held for sale.

       The  Company is party to an  agreement  with FNMA  pursuant to which FNMA
provided  credit  enhancements  for certain  bond-financed  real estate projects
originated  by Old FNB. The agreement  requires that the Company  pledge to FNMA
collateral in the form of certain eligible  securities which are held by a third
party  trustee.  The collateral  requirement  varies based on the balance of the
bonds  outstanding,  losses  incurred  (if any),  as well as other  factors.  At
December  31, 1999,  the Company had pledged as  collateral  certain  investment
securities,  mortgage-backed  securities  available for sale and mortgage-backed
securities held to maturity with carrying values of $15.7 million, $18.0 million
and $18.9 million, respectively.

                                      F-61

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       At  December  31,  1999,  the  Bank had  pledged  as  collateral  certain
mortgage-backed securities available for sale and held to maturity with carrying
values of $197.9  million and $6.2 million,  respectively,  to guarantee  credit
enhancements on multi-family bond issues and loans securitized by FNMA and FHLMC
 .

       At  December  31,  1999,  the  Bank had  pledged  as  collateral  certain
mortgage-backed securities available for sale and held to maturity with carrying
values of $164.5 million and $11.9 million, respectively, to guarantee state and
local agency deposits, and certain deposits with the Federal Reserve Bank.

       At  December  31,  1999,  the  Bank had  pledged  as  collateral  certain
mortgage-backed  securities  available  for sale with a carrying  value of $25.8
million to cover the margin on interest rate swap agreements.

       In addition, the Bank retains principal and interest funds on securitized
loans with appropriate  collateral held and monitored by the trustee. The pledge
agreement requires the collateral to be 150% of the average  remittances for the
prior twelve months,  to be adjusted  quarterly.  At December 31, 1999, the Bank
had pledged as collateral certain mortgage-backed  securities available for sale
and held to maturity with carrying  values of $348.8  million and $13.1 million,
respectively.

       In addition, at December 31, 1999,  mortgage-backed  securities available
for sale and  mortgage-backed  securities  held to maturity of $9.9  billion and
$1.9 billion,  respectively,  were pledged as collateral for various obligations
as discussed  in notes 10, 11, 19 and 20. At December 31, 1998,  mortgage-backed
securities available for sale and mortgage-backed securities held to maturity of
$8.4 billion and $2.5  billion,  respectively,  were pledged as  collateral  for
various obligations.

       At December 31, 1999, $23.9 billion in residential  loans were pledged as
collateral for FHLB advances.

       At December 31, 1999 and 1998,  loans receivable  included  approximately
$6.4 billion and $7.8 billion,  respectively, of loans that had the potential to
experience negative amortization.

(34)   Legal Proceedings
       -----------------
       California Federal Goodwill Litigation

       The  Bank  is the  plaintiff  in a  lawsuit  against  the  United  States
Government (the "Government"),  California Federal Bank v. United States,  Civil
Action 92-138 (the "California Federal Goodwill Litigation").  In the California
Federal  Goodwill  Litigation,  the Bank alleged,  among other things,  that the
Government breached certain contractual commitments regarding the computation of
its regulatory  capital for which the Bank sought damages and  restitution.  The
Bank's claims arose from changes, mandated by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989  ("FIRREA"),  with respect to the rules for
computing Old California Federal's regulatory capital.

       In late 1997,  a United  States  Court of  Federal  Claims  (the  "Claims
Court") Judge ruled in favor of the Bank's motion for partial  summary  judgment
as to the  Government's  liability  to the Bank for  breach of  contract,  and a
formal order in that regard was subsequently issued. In late 1998, a second U.S.
Claims  Court Judge  ruled that  California  Federal  cannot meet its burden for
proving lost  profits  damages and ordered that the case proceed to trial on the
damage issue of  restitution  and reliance.  The trial began in January 1999 and
concluded in March 1999.

       On April 16, 1999,  this second Claims Court Judge issued his decision on
the damages claim  against the  Government in the  California  Federal  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$23.0 million.  The summary  judgment  liability  decision by the first Court of
Claims  Judge has been  appealed by the  Government  and the damage award by the
second Court of Claims Judge has been appealed by the Bank. All appellate briefs
have been filed and it is anticipated  that oral argument in the Federal Circuit
Court of Appeals will take place in conjunction  with the appellate  argument in
the Glendale Goodwill Litigation (as defined herein) in mid 2000.

                                      F-62

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Glendale Goodwill Litigation

       By virtue of the Glen Fed Merger, the Bank is also a plaintiff in a claim
against the United States in a second lawsuit,  Glendale  Federal Bank v. United
States,  No.90-772C  (the  "Glendale  Goodwill  Litigation").  In  the  Glendale
Goodwill  Litigation,  Glendale  Federal  sued the  Government  contending  that
FIRREA's  treatment  of  supervisory   goodwill  constituted  a  breach  by  the
Government of its 1981  contract with the Bank,  under which the Bank had merged
with a Florida  thrift and was permitted to include the goodwill  resulting from
the merger in its regulatory  capital.  In 1992, the Claims Court found in favor
of Glendale Federal's position,  ruling that the Government breached its express
contractual  commitment  to  permit  Glendale  Federal  to  include  supervisory
goodwill in its regulatory capital and that Glendale Federal is entitled to seek
financial compensation.

       The trial began in February  1997 and  concluded  in September  1998.  On
April 9, 1999,  the Claims Court  issued its  decision in the Glendale  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$908.9 million.  This decision has been appealed by the Government and the Bank.
All  appellate  briefs have been filed by both the  Government  and the Bank and
oral argument on the appeal will be scheduled in  conjunction  with the argument
in the California Federal Goodwill Litigation in mid 2000.

       Other Litigation

       In  addition  to the  California  Federal  Goodwill  Litigation  and  the
Glendale Goodwill Litigation,  Golden State and its subsidiaries are involved in
other  legal  proceedings  on claims  incidental  to the  normal  conduct of its
businesses.  Although it is impossible to predict the outcome of any outstanding
legal proceedings,  management  believes that such legal proceedings and claims,
individually,  or in the  aggregate,  will not have a material  effect on Golden
State, GS Holdings or the Bank.

(35)   Goodwill Litigation Assets
       --------------------------
       In connection with the Cal Fed Acquisition, the Bank recorded as an asset
part of the  estimated  after-tax  cash  recovery  from the  California  Federal
Goodwill  Litigation  that will  inure to the Bank,  net of  amounts  payable to
holders of the Litigation  Interests and the Secondary  Litigation  Interests in
any such recovery (the "Goodwill Litigation Asset"). In connection with the Glen
Fed Merger, the Bank recorded a second Goodwill  Litigation Asset related to the
estimated  after-tax cash recovery from the Glendale  Goodwill  Litigation  that
will  inure to the Bank,  net of amounts  payable  to holders of the  Litigation
Tracking  Warrants.  The Goodwill  Litigation  Asset  related to the  California
Federal  Goodwill  Litigation  was recorded at its estimated  fair value of $100
million,  net of estimated tax liabilities,  as of January 3, 1997. The Goodwill
Litigation Asset related to the Glendale Goodwill Litigation was recorded at its
estimated fair value of $56.9 million,  net of estimated tax liabilities,  as of
September 11, 1998. The California  Federal  Goodwill  Litigation  Asset of $100
million was  distributed on September 11, 1998 to GSB  Investments  and Hunter's
Glen in accordance with the Golden State Merger agreement. See note 25.

(36)   Off-Balance-Sheet Activities
       ----------------------------
       Credit Related Financial Instruments

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

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

                                      F-63

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Listed below are unfunded  financial  instruments  whose contract amounts
represent credit risk at December 31, 1999 and 1998 (in thousands):

                                                  Contract Amount
                                             ---------------------------
Commitments to extend credit                    1999              1998
----------------------------                 ----------         --------
Unutilized consumer lines of credit          $1,034,913         $905,907
Unutilized commercial lines of credit           159,744          169,536
Commercial and standby letters of credit          3,892            4,552

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

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

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

       Derivative Financial Instruments

       The    Company    utilizes    various    derivative    instruments    for
other-than-trading  purposes  such as  asset/liability  management.  The primary
focus of the  Company's  asset/liability  management  program is to measure  and
monitor the  sensitivity  of the Company's  net  portfolio  value and net income
under  varying  interest  rate  scenarios.  On a  quarterly  basis,  the Company
simulates  the net portfolio  value and net income  expected to be earned over a
twelve-month period following the date of simulation. The simulation is based on
a projection of market interest rates at varying levels and estimates the impact
of  such  market   rates  on   mortgage   prepayment   speeds,   the  levels  of
interest-earning assets and interest-bearing  liabilities during the measurement
period.  Based upon the  outcome of the  simulation  analysis,  the  Company may
consider the use of  derivatives  as a means of reducing the  volatility  of net
portfolio  value and  projected net income  within  certain  ranges of projected
changes in interest rates. The Company  evaluates the  effectiveness of entering
into  any  derivative  instrument  agreement  by  measuring  the cost of such an
agreement  in relation to the  reduction in net  portfolio  value and net income
volatility within an assumed range of interest rates.

       Derivative financial  instruments include swaps, futures,  forwards,  and
options  contracts,  all of which  derive their value from  underlying  interest
rates.  These  transactions  involve both credit and market  risk.  The notional
amounts  are  amounts  on which  calculations,  payments,  and the  value of the
derivative are based. Notional amounts do not represent direct credit exposures.
Direct credit  exposure is limited to the net difference  between the calculated
amounts to be received and paid, if any.

       The  Company  is  exposed  to  credit-related  losses  in  the  event  of
nonperformance by the  counterparties to those agreements.  The Company controls
the credit risk of its financial contracts through credit approvals,  limits and
monitoring  procedures,  but does not  expect any  counterparties  to fail their
obligations.  The Company  deals only with  primary  dealers and the FHLB of San
Francisco.

       Derivative  instruments are generally either negotiated  over-the-counter
("OTC") contracts or standardized  contracts executed on a recognized  exchange.
Negotiated  OTC  derivative  contracts  are  generally  entered into between two
counterparties that negotiate specific agreement terms, including the underlying
instrument, amount, exercise prices and maturity.

                                      F-64

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Interest Rate Swaps
       -------------------
       The Company utilizes interest rate swaps primarily as an  asset/liability
management  strategy  to hedge  against  the  interest  rate  risk  inherent  in
variable-rate  FHLB advances and securities sold under agreements to repurchase.
Interest rate swap agreements are contracts to make or receive payments, such as
making a series of floating  rate payments in exchange for receiving a series of
fixed rate payments. Payments related to swap contracts are made either monthly,
quarterly or semi-annually by one of the parties depending on the specific terms
of the related  contract.  The notional  amount of the  contracts,  on which the
payments are based,  are not exchanged.  The primary risks associated with swaps
are  the  exposure  to  movements  in  interest  rates  and the  ability  of the
counterparties to meet the terms of the contract.

       At December  31,  1999,  interest  rate swap  agreements  with a notional
amount of $2.6  billion  and a  weighted  average  maturity  of 5.2  years  were
outstanding.  These agreements provided for the Company to receive payments at a
variable rate  determined  by a specified  index (three month LIBOR) in exchange
for making payments at a fixed rate. At December 31, 1999, the weighted  average
pay rate was 6.60% and the weighted  average receive rate was 6.11%. No interest
rate swap agreements were terminated in 1999 prior to maturity.  At December 31,
1999,  unrealized  gains  relating to the use of interest  rate swaps were $51.9
million.  These gains will be  recognized  over the life of the FHLB advances or
securities sold under  agreements to repurchase,  as appropriate.  There were no
interest rate swap agreements outstanding at December 31, 1998.

       Principal Only Swaps
       --------------------
       The Company  utilizes  principal  only ("PO")  swap  agreements  to hedge
against prepayment risk in its mortgage servicing  portfolio caused by declining
interest  rates. PO swap  agreements  simulate the ownership of a PO strip,  the
value of which is affected directly by prepayment rates themselves in an inverse
manner as  servicing  rights,  which act in a manner  similar to  interest  only
("IO") strips.  Under the terms of the PO swap  agreements,  the counterparty to
the  transaction  purchases  a PO strip and places the PO strip in a trust.  The
contracts  entered  into prior to December  31, 1998 call for the Company to pay
floating  interest to the counterparty  based on: (a) an index tied to one month
LIBOR and (b) the  notional  balance  of the swap.  The  contract  calls for the
Company to receive cash from the  counterparty  based on the cash flows received
from the PO strip.  For all PO swap  agreements  entered into after December 31,
1998,  the  agreement  requires  the PO swap to be  marked to  market  value.  A
decrease in the market value of the PO swap requires the Company to increase the
amount paid to the counterparty and an increase in the market value requires the
counterparty  to increase  their payment to the Company.  Further,  the contract
calls for the Company to pay floating interest to the counterparty  based on (a)
one month  LIBOR plus an agreed  upon  spread  and (b) the  market  value of the
remaining  notional  balance  of  the  swap  at the  time  of  the  prior  month
settlement.  The amounts to be paid and to be received are then netted  together
each month. The structure of this instrument results in increased cash flows and
positive  changes  in the value of the swap  during a  declining  interest  rate
environment.  This positive change in the value of the swap is highly correlated
to  prepayment  activity.  PO swap  agreements  present  yield curve risk to the
extent that short term  interest  rates  (which  impact the cash amount that the
Company pays on the swap to the counterparty)  rise while long term rates (which
drive  prepayment  rates) stay the same. A third type of risk associated with PO
swaps is the ability of the counterparties to meet the terms of the contract.

       At December  31,  1999,  PO swap  agreements  with a notional  balance of
$202.3 million were  outstanding.  During 1999, the calculated amount to be paid
to and to be  received  from the PO swap  counterparties  was $29.6  million and
$19.2 million, respectively. No PO swap agreements were terminated in 1999 prior
to maturity. At December 31, 1998, PO swap agreements with a notional balance of
$164.7 million were  outstanding.  During 1998, the calculated amount to be paid
to and to be received from the PO swap counterparties was $6.2 million and $11.2
million, respectively. The Company received $16.1 million from counterparties to
terminate PO swap agreements in 1998.

                                      F-65

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Prepayment Linked Swaps
       -----------------------
       The Company utilizes  prepayment  linked swap agreements to hedge against
prepayment risk in its mortgage servicing portfolio caused by declining interest
rates.  Prepayment  linked swap  agreements are similar to interest rate floors,
discussed  below.  However,  interest  rate  floor  contracts  provide  for  the
counterparty  to make  immediate  payments to the Company if the  floating  rate
drops below a specified  strike rate.  Under the terms of the prepayment  linked
swap agreements,  the Company is to pay fixed interest to the counterparty based
on: (a) a fixed rate and (b) the  amortized  notional  balance of the swap.  The
Company is to receive cash from the counterparty  only after a sustained drop in
the 10-year  Constant  Maturity  Treasury  interest rate below a strike interest
rate. The amounts to be paid and to be received are netted  together each month.
The structure of this  instrument  results in increased  cash flows and positive
changes in the value of the swap during a sustained decline in the interest rate
environment.  This  positive  change in the value of the swap is  correlated  to
prepayment activity. Prepayment linked swap agreements have basis risk and yield
curve risk. A third type of risk associated with prepayment  linked swaps is the
ability of the counterparties to meet the terms of the contract.

       All outstanding  prepayment linked swaps matured during 1999 and none was
outstanding at December 31, 1999.  During 1999, the calculated amount to be paid
to and to be received from the prepayment  linked swap  counterparties  was $0.1
million and $0.4 million,  respectively. At December 31, 1998, prepayment linked
swap agreements with a notional balance of $1.9 billion were outstanding and the
calculated  amount to be paid and to be received from the prepayment linked swap
counterparties  was $0.2 million and $0.8 million,  respectively.  No prepayment
linked swap agreements were terminated in 1999 or 1998 prior to maturity.

       Interest Rate Floors
       --------------------
       The  Company  currently  uses  interest  rate  floors  to  hedge  against
prepayment risk in its mortgage servicing portfolio caused by declining interest
rates.  Interest  rate floors are  interest  rate  protection  instruments  that
involve payment from the seller to the buyer of an interest  differential.  this
differential  represents the difference between a long-term rate (e.g.,  10-year
Constant Maturity Swaps in 1999 and 1998,  10-year Constant Maturity Treasury in
1999 and 1997) and an agreed-upon  rate, the strike rate,  applied to a notional
principal  amount.  By  purchasing  a  floor,  the  Company  will  be  paid  the
differential  by a counterparty,  should the current  short-term rate fall below
the strike level of the agreement.  The Company generally  receives cash monthly
on  purchased  floors  (when the  current  interest  rate falls below the strike
rate.) The unamortized  premium,  if any, paid for interest rate purchased floor
agreements is included with the assets hedged.  Interest rate floors are subject
to basis risk because changes in the relationship  between  prepayment rates and
the  interest  rate may  occur,  as well as market  volatility  and swap  spread
movement.  In addition,  a credit risk associated  with purchased  interest rate
floor agreements is the ability of the  counterparties  to meet the terms of the
contract.

       At December 31, 1999 and 1998,  the Company was a party to interest  rate
floor  contracts  with a weighted  average  maturity of 4.9 years and 4.8 years,
respectively.  At  December  31,  1999,  the  notional  amount of the  remaining
interest rate floor contracts was $950 million, the weighted average strike rate
was 5.84% and the monthly  floating  rate was 6.44%.  During  1999,  the Company
received cash from the interest rate floor  counterparties in the amount of $0.1
million.  During 1999, the Company received proceeds of $17.0 million from sales
of interest rate floor contracts with unamortized  premiums of $38.2 million. At
December 31, 1998,  the notional  amount of the  remaining  interest  rate floor
contracts was $2.1 billion,  the weighted  average strike rate was 5.31% and the
monthly floating rate was 5.47%. During 1998, the Company received cash from the
interest rate floor  counterparties in the amount of $4.8 million.  During 1998,
the Company received proceeds of $60.1 million from sales of interest rate floor
contracts  with  unamortized  premiums  of  $16.1  million.  The  amount  of the
unamortized  premium on the  interest  rate floors at December 31, 1999 and 1998
was $13.7 million and $27.6  million,  respectively.  At December 31, 1999,  the
floating  rate  exceeded the strike rate by 0.60%.  At December  31,  1998,  the
floating rate exceeded the strike rate by 0.16%.

                                      F-66

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Swaptions
       ---------
       The Company also uses swaptions to hedge against the  prepayment  risk in
its mortgage servicing  portfolio caused by declining interest rates. A swaption
(a  combination  of an interest rate swap and an option) is an  over-the-counter
option that provides the right but not the  obligation to enter into an interest
rate swap  agreement  at  predetermined  terms at some time in the  future.  The
unamortized  premiums,  if any,  paid for swaptions are included with the assets
hedged.  Swaptions are subject to basis risk because changes in the relationship
between  prepayment  rates and the  interest  rate may occur,  as well as market
volatility and swap spread  movement.  In addition,  credit risk associated with
swaptions  is the  ability  of the  counterparties  to  meet  the  terms  of the
contract.

       At  December  31,  1999 and 1998,  the  Company  was a party to  swaption
contracts  with  a  weighted  average  maturity  of 2.7  years  and  2.8  years,
respectively,  in which the Company paid the counterparties premiums in exchange
for the  right  but  not the  obligation  to  purchase  an  interest  rate  swap
agreement.  Under the terms of the underlying interest rate swap agreement,  the
Company  would pay the variable rate tied to three month LIBOR and would receive
the fixed rate.  At December 31, 1999,  the  notional  amount of the  underlying
interest rate swap contract was $834 million,  the weighted  average strike rate
was 6.98% and the three month LIBOR rate was 6.00%.  At December 31,  1999,  the
strike rate exceeded the floating rate by 0.98%. The unamortized  premium on the
swaptions  at December  31, 1999 was $26.5  million.  During  1999,  the Company
received  proceeds of $29.8  million from the sales of swaption  contracts  with
unamortized premiums of $58.6 million. At December 31, 1998, the notional amount
of the  underlying  interest rate swap  contract was $2.3 billion,  the weighted
average strike rate was 5.57% and three month LIBOR rate was 5.06%.  At December
31, 1998, the strike rate exceeded the floating rate by 0.51%.  The  unamortized
premium on the  swaptions at December 31, 1998 was $60.2  million.  During 1998,
there were no swaption contracts that expired or that were sold.

       Information   pertaining  to  the  notional   amounts  of  the  Company's
derivative financial instruments is as follows (in thousands):

<TABLE>
<CAPTION>
                                  December 31, 1999               December 31, 1998
                           -----------------------------     ---------------------------
                            Notional                         Notional
                             Amount     Credit Risk (1)       Amount     Credit Risk (1)
                             -------    ---------------       ------     ---------------
<S>                        <C>              <C>             <C>             <C>
Interest rate swaps        $2,550,000       $51,882         $       --      $     --
Principal only swaps          202,316            --            164,672        18,770
Prepayment linked swaps            --            --          1,850,000         1,255
Interest rate floors          950,000        10,431          2,075,000        32,229
Interest rate swaptions       834,000        24,294          2,345,000        89,332
                           ----------      --------         ----------      --------
    Total                  $4,536,316       $86,607         $6,434,672      $141,586
                           ==========       =======         ==========      ========
</TABLE>
----------------
(1) Credit risk represents current  replacement cost after the effects of master
    netting agreements.

       The   maturity   of   derivative    financial    instruments   used   for
other-than-trading purposes at December 31, 1999 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                             Notional Amounts
                                ---------------------------------------------------------------------------
                                  2000      2001       2002      2003     2004      Thereafter     Total
                                  ----      ----       ----      ----     ----      ----------     -----
<S>                             <C>       <C>        <C>         <C>   <C>           <C>         <C>
Interest rate swaps             $    --   $     --   $     --    $--   $1,650,000    $900,000    $2,550,000
Principal only swaps             22,117    110,619     69,580     --           --          --       202,316
Prepayment linked swaps              --         --         --     --           --          --            --
Interest rate floors                 --         --         --     --      950,000          --       950,000
Interest rate swaptions              --         --    834,000     --           --          --       834,000
                                -------   --------   --------    ---   ----------    --------    ----------
              Total             $22,117   $110,619   $903,580    $--   $2,600,000    $900,000    $4,536,316
                                =======   ========   ========    ===   ==========    ========    ==========
</TABLE>

                                      F-67

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The year-end fair values of  derivative  financial  instruments  used for
other-than-trading purposes at December 31, 1999 and 1998 are listed below. Fair
value  amounts  consist  of  unrealized  gains and  (losses),  accrued  interest
receivable and payable, and premiums paid or received.

                                             1999              1998
                                           -------           --------
                                                 (in thousands)

      Interest rate swaps                  $51,882           $     --
      Principal only swaps                 (15,792)            18,770
      Prepayment linked swaps                   --              1,255
      Interest rate floors                  10,431             32,229
      Interest rate swaptions               24,294             89,332
                                           -------           --------
                  Total                    $70,815           $141,586
                                           =======           ========

(37)   Earnings Per Common Share
       -------------------------
       Net income  per share of common  stock is based on the  weighted  average
number of common and common  equivalent  shares  outstanding,  excluding  common
shares in treasury,  during the period presented.  Information used to calculate
basic and diluted earnings per share ("EPS") is as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>

                                                     1999                      1998                        1997
                                              ---------------------     ---------------------      --------------------
                                               Basic       Diluted       Basic       Diluted        Basic       Diluted
                                                EPS          EPS          EPS          EPS           EPS          EPS
                                              --------     --------     ---------    --------      -------      -------
<S>                                           <C>          <C>          <C>          <C>           <C>          <C>
Income before extraordinary items             $320,715     $320,715     $398,088     $398,088      $94,948      $94,948
Extraordinary items                              2,472        2,472     (150,333)    (150,333)          --           --
                                              --------     --------     --------     --------      -------      -------

   Net income                                 $323,187     $323,187     $247,755     $247,755      $94,948      $94,948
                                              ========     ========     ========     ========      =======      =======

Weighted average common
   shares outstanding (a)                      130,299      130,299       78,046       78,046       56,723       56,723
Issuable shares                                    482          482        1,511        1,511           --           --
                                              --------     --------     --------     --------      -------      -------


Total weighted average basic
   common shares outstanding (b)               130,781      130,781       79,557       79,557       56,723       56,723
Effects of dilutive securities:
   Options and warrants (c)                         --        5,249           --        1,595           --           --
   Issuable shares                                  --        4,143           --           --           --           --
   Restricted stock                                 --            5           --           --           --           --
   Convertible preferred stock                      --           --           --          389           --           --
                                              --------     --------     --------     --------      -------      -------

Total weighted average diluted
   common shares outstanding                   130,781      140,178       79,557       81,541       56,723       56,723
                                              ========     ========     ========     ========      =======      =======

Income before extraordinary items                $2.45        $2.29        $5.00        $4.88        $1.67        $1.67
Extraordinary items                               0.02         0.02        (1.89)       (1.84)          --           --
                                                 -----       ------        -----        -----        -----        -----
Earnings per common share                        $2.47        $2.31        $3.11        $3.04        $1.67        $1.67
                                                 =====        =====        =====        =====        =====        =====
</TABLE>

--------------------
(a)    1999 basic  weighted  average  shares  outstanding  exclude the effect of
       56,908 shares of  restricted  stock that were awarded to employees of the
       Company on July 19,  1999,  as these  shares are subject to vesting.  The
       impact of this award was included in diluted average shares  outstanding.
       See note 30.

(b)    1999 total basic weighted average shares  outstanding  include the effect
       of  5,540,319  shares  issued on  January  21,  1999 and  147,677  shares
       issuable  to GSB  Investments  and  Hunter's  Glen  for net tax  benefits
       realized by the Bank during 1998.

                                              (Footnotes continued on next page)

                                      F-68

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       1999 total basic and diluted weighted average shares outstanding  include
       the effect, as appropriate,  of an additional  9,609,054 shares estimated
       to be issuable to GSB  Investments  and Hunter's Glen based on the use of
       pre-merger tax benefits during 1999. See note 25.

       1998 total basic weighted average shares  outstanding  include the effect
       of 5,687,996  shares  issuable to GSB  Investments  and Hunter's  Glen as
       consideration for the net tax benefits realized by the Bank during 1998.

(c)    Golden  State's  diluted  shares  outstanding  are  not  affected  by the
       LTW(TM)s until they become exercisable because tHE amount of the proceeds
       from the Glendale Goodwill  Litigation and the number of shares of common
       stock to be  issued  cannot  be  determined  until  the  LTW(TM)s  become
       exercisable.

(38)   Fair Value of Financial Instruments
       -----------------------------------
       The following table presents the carrying  amounts and fair values of the
Company's financial instruments at December 31, 1999 and 1998 (in thousands):

<TABLE>
<CAPTION>

                                                                 1999                            1998
                                                      ---------------------------      --------------------------
                                                       Carrying          Fair           Carrying         Fair
                                                        Value            Value           Value           Value
                                                      ----------       ----------      ----------      ----------
<S>                                                   <C>              <C>             <C>             <C>
Financial Assets:
    Cash and cash equivalents                         $  593,025       $  593,025      $  967,950      $  967,950
    Securities available for sale                      1,075,766        1,075,766         770,747         770,747
    Securities held to maturity                          185,357          180,449         250,964         251,489
    Mortgage-backed securities
       available for sale                             13,764,565       13,764,565      12,947,992      12,947,992
    Mortgage-backed securities
       held to maturity                                2,149,696        2,150,014       2,770,913       2,825,227
    Loans held for sale                                  729,062          727,569       2,366,583       2,379,216
    Loans receivable, net                             33,953,461       33,125,997      30,280,944      30,561,022
    Investment in FHLB                                 1,167,144        1,167,144       1,000,147       1,000,147
    Accrued interest receivable                          321,596          321,596         317,455         317,455
    Mortgage servicing rights (a)                      1,272,393        1,451,451         943,581         989,683

Financial Liabilities:
    Deposits                                          23,035,757       22,929,377      24,620,066      24,601,797
    Securities sold under agreements
       to repurchase                                   5,481,747        5,476,485       4,238,395       4,238,395
    Borrowings                                        25,668,626       25,135,037      22,375,557      22,425,592

Off-balance sheet net unrealized gains (losses):
Forward Commitments:
    Commitments to originate loans                            --       $      834              --      $    9,102
    Commitments to sell loans                                 --            3,338              --          (5,412)
Derivatives:
    Interest rate swaps                                       --           51,882              --              --
    Principal only swaps                                      --          (15,792)             --          18,770
    Prepayment linked swaps                                   --               --              --           1,255
    Interest rate floors                                      --           10,431              --          32,229
    Interest rate swaptions                                   --           24,294              --          89,332
</TABLE>

-------------
(a) Fair value amounts presented exclude the fair values of interest rate floors
    and interest rate swaptions, which are reflected in the carrying value.

                                      F-69

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

     The following  summary  presents a  description  of the  methodologies  and
assumptions  used  to  estimate  the  fair  value  of  the  Company's  financial
instruments.  Much of the  information  used to  determine  fair value is highly
subjective.  When  applicable,  readily  available  market  information has been
utilized.  However,  for  a  significant  portion  of  the  Company's  financial
instruments,  active markets do not exist. Therefore,  considerable judgment was
required in estimating  fair value for certain  items.  The  subjective  factors
include, among other things, the estimated timing and amount of cash flows, risk
characteristics, and interest rates, all of which are subject to changes.

       Cash and cash equivalents:  Cash and cash equivalents are valued at their
carrying amounts included in the consolidated  statement of financial condition,
which are reasonable  estimates of fair value due to the relatively short period
to maturity of the instruments.

       Securities and mortgage-backed securities: Securities and mortgage-backed
securities are valued at quoted market prices where available.  If quoted market
prices  are not  available,  fair  values are based on quoted  market  prices of
comparable instruments.

       Loans  held for  sale:  Loans  held for sale are  valued  based on quoted
market prices for mortgage-backed securities backed by similar loans.

       Loans receivable, net: Fair values are estimated for loans in groups with
similar  financial  and  risk  characteristics.  Loans  are  segregated  by type
including  residential,  multi-family and commercial.  Each loan type is further
segmented  into fixed and variable  interest  rate terms and by  performing  and
non-performing categories in order to estimate fair values.

       For performing  residential  mortgage  loans,  fair value is estimated by
discounting  contractual  cash flows  adjusted for  prepayment  estimates  using
discount rates based on secondary  market sources.  The fair value of performing
commercial  and  multi-family  loans  is  calculated  by  discounting  scheduled
principal and interest cash flows through the estimated maturity using estimated
market discount rates that reflect the credit and interest rate risk inherent in
the respective loan type.

       Fair value for  non-performing  loans is based on  discounting  estimated
cash flows using a rate commensurate with the risk associated with the estimated
cash flows, or underlying collateral values, where appropriate.

       Investment in FHLB:  Since no secondary  market exists for FHLB stock and
the  stock is  bought  and sold at par by FHLB,  fair  value of these  financial
instruments approximates the carrying value.

       Accrued  interest:  The carrying amounts of accrued interest  approximate
their fair values.

       Mortgage servicing rights: The fair value of mortgage servicing rights is
based on  market  prices  for  comparable  mortgage  servicing  contracts,  when
available,  or alternatively a valuation model that calculates the present value
of future net  servicing  income.  In using the  valuation  model,  the  Company
incorporates assumptions that market participants would use in estimating future
net  servicing  income,  which include  estimates of the cost of servicing,  the
discount  rate,  mortgage  escrow  earnings rate, an inflation  rate,  ancillary
income, prepayment speeds and default rates and losses.

       Deposits:  The fair values of demand deposits,  passbook accounts,  money
market accounts,  and other deposits  immediately  withdrawable,  by definition,
approximate carrying values for the respective financial instruments.  For fixed
maturity  deposits,  the fair value was estimated by  discounting  expected cash
flows  by the  current  offering  rates  of  deposits  with  similar  terms  and
maturities.

       Securities  sold  under  agreements  to  repurchase:  The  fair  value of
securities  sold under  agreements to repurchase is estimated using a discounted
cash flow analysis based on interest rates currently  offered on such repurchase
agreements with similar maturities.

                                      F-70

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       Borrowings:  The fair value of borrowings,  other than FHLB advances,  is
estimated using discounted cash flow analyses based on current incremental rates
for  similar  borrowing  arrangements.  The fair  values  of FHLB  advances  are
estimated  using a  discounted  cash  flow  analysis  based  on  interest  rates
currently offered on advances with similar maturities.

       Off-balance sheet financial instruments:

       Forward Commitments

       Fair values of the Company's commitments to originate loans are estimated
using the fees currently charged to enter into similar  agreements,  taking into
account the remaining  terms of the agreements and the present  creditworthiness
of the counterparties. For fixed-rate commitments, fair value also considers the
difference  between  current levels of interest  rates and the committed  rates.
Fair values of forward  commitments to sell loans are  determined  using current
estimated replacement costs.

       Derivative Financial Instruments

       Derivative financial  instruments are recorded at fair value based on the
estimated  amounts  that the  Company  would  receive  or pay to  terminate  the
contracts at the reporting date (i.e.,  mark-to-market value). Dealer quotes are
available  for   substantially  all  of  the  Company's   derivative   financial
instruments.

                                      F-71

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

(39)  Selected Quarterly Financial Data (Unaudited)
      ---------------------------------------------
       The following table presents  selected  quarterly  financial data for the
years ended December 31, 1999 and 1998 (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                         Quarter Ended
                                          -------------------------------------------------------------------------
                                          December 31,   September 30,    June 30,        March 31,
                                             1999           1999            1999            1999         Total 1999
                                             ----           ----            ----            ----         ----------

<S>                                        <C>            <C>             <C>             <C>           <C>
Total interest income                      $ 937,544      $ 917,838       $ 904,004       $ 892,883     $ 3,652,269
Total interest expense                      (643,808)      (630,746)       (606,961)       (584,867)     (2,466,382)
                                           ---------      ---------       ---------       ---------     -----------
    Net interest income                      293,736        287,092         297,043         308,016       1,185,887
Provision for loan losses                        --              --          (5,000)         (5,000)        (10,000)
                                           ---------      ---------       ---------       ---------     -----------
    Net interest income after
       provision for loan losses             293,736        287,092         292,043         303,016       1,175,887
Total noninterest income                     103,848        102,474         107,352         105,168         418,842
Total noninterest expense                   (221,195)      (222,182)       (224,231)       (257,849)       (925,457)
                                           ---------      ---------       ---------       ---------     -----------
Income before income taxes,
    minority interest and
    extraordinary items                      176,389        167,384         175,164         150,335         669,272
Income tax (expense) benefit                 (80,724)        45,353         (80,820)        (70,292)       (186,483)
Minority interest: provision in
    lieu of income tax expense                    --       (122,684)             --              --        (122,684)
Minority interest: other                     (11,052)        (8,431)        (10,740)         (9,167)        (39,390)
                                           ---------      ---------       ---------       ---------     -----------
Income before extraordinary items             84,613         81,622          83,604          70,876         320,715
Extraordinary items                            2,472             --              --              --           2,472
                                           ---------      ---------              --              --           -----
    Net income available to
       common stockholders                 $  87,085      $  81,622       $  83,604       $  70,876     $   323,187
                                           =========      =========       =========       =========     ===========
Earnings per share:
Basic
    Before extraordinary items                 $0.68          $0.63           $0.62           $0.53           $2.45
    Extraordinary items                         0.02             --              --              --            0.02
                                               -----          -----           -----           -----           -----
    Net income                                 $0.70          $0.63           $0.62           $0.53           $2.47
                                               =====          =====           =====           =====           =====
Diluted
    Before extraordinary items                 $0.61          $0.58           $0.59           $0.50           $2.29
    Extraordinary items                         0.02             --              --              --            0.02
                                               -----          -----           -----           -----           -----
    Net income                                 $0.63          $0.58           $0.59           $0.50           $2.31
                                               =====          =====           =====           =====           =====
</TABLE>

                                      F-72

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>
                                                                           Quarter Ended
                                         -----------------------------------------------------------------------------
                                          December 31,    September 30,    June 30,         March 31,
                                             1998            1998            1998             1998         Total 1998
                                             ----            ----            ----             ----         ----------

<S>                                       <C>              <C>             <C>              <C>            <C>
Total interest income                     $ 867,094        $ 626,238       $ 551,094        $ 540,429      $ 2,584,855
Total interest expense                     (588,117)        (450,026)       (398,536)        (382,866)      (1,819,545)
                                          ---------        ---------       ---------        ---------      -----------
    Net interest income                     278,977          176,212         152,558          157,563          765,310
Provision for loan losses                   (10,000)         (10,000)        (10,000)         (10,000)         (40,000)
                                          ---------        ---------       ---------        ---------      -----------
    Net interest income after
       provision for loan losses            268,977          166,212         142,558          147,563          725,310
Total noninterest income                     80,318          190,467          87,401           82,771          440,957
Total noninterest expense                  (260,769)        (200,517)       (157,461)        (145,256)        (764,003)
                                          ---------        ---------       ---------        ---------      -----------
Income before income taxes,
    minority interest and
    extraordinary items                      88,526          156,162          72,498           85,078          402,264
Income tax (expense) benefit                (45,494)         (71,973)        237,708          (13,890)         106,351
Minority interest                           (27,929)         (36,406)        (22,662)         (23,530)        (110,527)
                                          ---------        ---------       ---------        ---------      -----------
Income before extraordinary items            15,103           47,783         287,544           47,658          398,088
Extraordinary items                         (70,326)         (80,007)             --               --         (150,333)
                                          ---------        ---------       ---------        ---------      -----------
    Net (loss) income available to
       common stockholders                $ (55,223)       $ (32,224)      $ 287,544        $  47,658      $   247,755
                                          =========        =========       =========        =========      ===========
Earnings per share:
Basic
    Before extraordinary items               $ 0.11           $ 0.68           $5.07            $0.84            $5.00
    Extraordinary items                       (0.52)           (1.14)             --               --            (1.89)
                                             ------           ------           -----            -----            -----
    Net (loss) income                        $(0.41)          $(0.46)          $5.07            $0.84            $3.11
                                             ======           ======           =====            =====            =====
Diluted
    Before extraordinary items               $ 0.11           $ 0.65           $5.07            $0.84            $4.88
    Extraordinary items                       (0.51)           (1.09)             --               --            (1.84)
                                             ------           ------           -----            -----            -----
    Net (loss) income                        $(0.40)          $(0.44)          $5.07            $0.84            $3.04
                                             ======           ======           =====            =====            =====
</TABLE>

(40)   Condensed Parent Company Financial Information
       ----------------------------------------------
       The following  represents condensed balance sheets of the Company (parent
company only) at December 31, 1999 and 1998 (in thousands):

                                                        1999             1998
                                                     ----------       ----------

Assets
  Cash                                               $    2,652       $   16,756
  Investments in subsidiaries                         1,696,933        1,809,306
  Other assets                                            2,959            3,149
                                                     ----------       ----------
    Total                                            $1,702,544       $1,829,211
                                                     ==========       ==========

Liabilities and Stockholders' Equity
  Other liabilities                                  $  140,761       $  247,433
                                                     ----------       ----------
    Total liabilities                                   140,761          247,433
  Total stockholders' equity                          1,561,783        1,581,778
                                                     ----------       ----------
    Total liabilities and stockholders' equity       $1,702,544       $1,829,211
                                                     ==========       ==========

                                      F-73

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

       The following  represents  parent  company only  condensed  statements of
income for the years ended December 31, 1999, 1998 and 1997 (in thousands):

<TABLE>
<CAPTION>
                                                                              1999          1998           1997
                                                                            --------      --------       --------

       <S>                                                                  <C>           <C>            <C>
       Interest income                                                      $     47      $     --       $     --
       Dividends received from subsidiary                                    230,500        38,200         56,876
                                                                            --------      --------       --------
          Total income                                                       230,547        38,200         56,876
       Interest expense                                                           --        39,354         57,613
       Noninterest expense                                                     4,082           377          1,850
                                                                            --------      --------       --------
          Total expense                                                        4,082        39,731         59,463
       Income before equity in undistributed
          net income of subsidiaries                                         226,465        (1,531)        (2,587)
       Equity in undistributed net income of subsidiaries                    102,562       243,523        104,493
                                                                            --------      --------       --------
       Income before income taxes and minority interest                      329,027       241,992        101,906
       Income tax (benefit) expense                                          (42,293)       (6,341)        (5,833)
                                                                            --------      --------       --------
       Income before minority interest                                       371,320       248,333        107,739
       Minority interest - FN Holdings Preferred Stock dividends                  --           578         12,791
       Minority interest - Provision in lieu of income taxes                  43,679            --             --
       Minority interest - Due to GSB Investments and Hunter's Glen            4,454            --             --
                                                                            --------      --------       --------
          Net income                                                        $323,187      $247,755       $ 94,948
                                                                            ========      ========       ========
</TABLE>

       The following represents parent company only statements of cash flows for
the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
                                                                          1999            1998            1997
                                                                       ---------      ----------      ---------
<S>                                                                    <C>            <C>              <C>
Cash flows from operating activities:
   Net income                                                          $ 323,187      $  247,755       $ 94,948
   Adjustments to reconcile net income to net cash
      provided by operating activities:
      Accretion of discount on Parent Holdings Notes                          --              --            744
      Amortization of deferred issuance costs                                 --              --          1,825
      (Increase) decrease in other assets                                (24,656)           (693)           876
      Decrease (increase) in other liabilities                            34,721          (2,890)         1,775
      Increase (decrease) in accrued interest payable                         --          33,167             (6)
      Minority interest - FN Holdings Preferred Stock dividends               --             578         12,791
      Minority interest - Provision in lieu of income taxes               43,679              --             --
      Minority interest - Due to GSB Investments and
          Hunter's Glen                                                    4,454              --             --
      Equity in undistributed net income of subsidiaries                (102,562)       (243,523)      (104,493)
                                                                       ---------      ----------       --------
          Net cash provided by operating activities                      278,823          34,394          8,460
                                                                       ---------      ----------       --------
Cash flows from investing activities:
   Capital contribution to subsidiaries                                  (52,500)             --             --
   Merger with Golden State Financial Corporation                            959              --             --
                                                                       ---------      ----------       --------
          Net cash used in investing activities                          (51,541)             --             --
                                                                       ---------      ----------       --------


                                                                                                           (continued)
</TABLE>

                                      F-74

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>
                                                                          1999            1998            1997
                                                                       ---------      ----------      ---------

<S>                                                                    <C>            <C>              <C>
Cash flows from financing activities:
   Purchase of treasury stock                                          $(250,245)     $       --       $      --
   Exercise of stock options                                               7,880             644              --
   Redemption of Series A Preferred Stock                                     --             (68)             --
   Sale of treasury stock                                                    979             218              --
   Capital contribution                                                       --       1,464,361              49
   Capital distribution                                                       --      (1,482,793)             --
   Dividends                                                                  --              --          (8,509)
                                                                       ---------      ----------       ---------

      Net cash used in financing activities                             (241,386)        (17,638)         (8,460)
                                                                       ---------      ----------       ---------

   Net change in cash and cash equivalents                               (14,104)         16,756              --
   Cash and cash equivalents at beginning of year                         16,756              --              --
                                                                       ---------      ----------       ---------

   Cash and cash equivalents at end of year                            $   2,652      $   16,756       $      --
                                                                       =========      ==========       =========
</TABLE>

   Supplemental Disclosure of Cash Flow Information:

<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                        ------------------------------------

                                                                            1999        1998         1997
                                                                            ----        ----         ----
                                                                                    (in thousands)
   <S>                                                                  <C>           <C>          <C>
   Cash paid for:
      Interest                                                          $     --      $ 28,438     $ 56,875
      Income taxes, net                                                  (54,710)      (48,895)     (10,814)

   Non-cash financing activities:
      Preferred stock dividends reinvested                                    --           107        2,227
      Dividend of tax benefits to former parent
         due to deconsolidation                                               --       230,161           --
      Adjustment to initial dividend of tax benefits to
         former parent due to deconsolidation                            (15,519)           --           --
</TABLE>

                                      F-75