<PAGE>

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

                                    ---------
                                    FORM 10-K
                                    ---------
(Mark One)

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

                   For the fiscal year ended December 31, 2001

            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 000-29654

                            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:
                        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. [ ]

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant as of the close of business on February 28, 2002: $2,221,243,045

     The number of shares outstanding of the registrant's $1.00 par value common
stock, as of the close of business on February 28, 2002: 135,910,784 shares of
common stock.

                      Documents Incorporated by Reference:
              Portions of the Proxy Statement for the May 20, 2002
                    Annual Meeting of Stockholders Part III

                                     Page 1
<PAGE>

                    GOLDEN STATE BANCORP INC.
                 2001 ANNUAL REPORT ON FORM 10-K
                        TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                             Page
                                                    PART I                                                   ----
<S>      <C>                                                                                                  <C>
ITEM 1.  Business..............................................................................................3
                 General.......................................................................................3
                 Business Strategy.............................................................................4
                 Factors That May Affect Future Results........................................................5
                 Employees.....................................................................................9
                 Competition...................................................................................9
                 Regulation and Supervision....................................................................9
ITEM 2.  Properties...........................................................................................13
ITEM 3.  Legal Proceedings....................................................................................14
ITEM 4.  Submission of Matters to a Vote of Security Holders..................................................15

                                                   PART II
ITEM 5.  Market for Registrant's Common Equity and Related Stockholder Matters................................16
ITEM 6.  Selected Financial Data..............................................................................17
ITEM 7.  Management's Discussion and Analysis
             of Financial Condition and Results of Operations.................................................21
                 Critical Accounting Policies.................................................................21
                 Results of Operations........................................................................21
                 Provision for Federal and State Income Taxes.................................................34
                 Balance Sheet Analysis.......................................................................36
                     Investment Activities....................................................................36
                     Sources of Funds.........................................................................38
                     Mortgage Banking Activities..............................................................43
                     Loan Portfolio...........................................................................45
                     Problem and Potential Problem Assets.....................................................52
                     Non-performing Assets....................................................................54
                     Allowance for Loan Losses................................................................56
                 Risk Management..............................................................................60
                     Asset and Liability Management...........................................................61
                     Mortgage Banking Risk Management.........................................................65
                     Recently Issued Accounting Pronouncements................................................66
                 Liquidity....................................................................................67
                 Other Activities.............................................................................70
                 Capital Management...........................................................................72
                 Impact of Inflation and Changing Prices......................................................74
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk...........................................75
ITEM 8.  Financial Statements and Supplementary Data..........................................................76
ITEM 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.................76

                                                   PART III
ITEM 10. Directors and Executive Officers of the Registrant...................................................77
ITEM 11. Executive Compensation...............................................................................79
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.......................................79
ITEM 13. Certain Relationships and Related Transactions.......................................................79

                                                   PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................................80

Glossary of Defined Terms.....................................................................................84

Signatures....................................................................................................89

Audited Financial Statements..................................................................................F-1
</TABLE>
                                     Page 2
<PAGE>

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

                 A glossary of defined terms appears on page 84.

                                     PART I

ITEM 1.   BUSINESS

GENERAL

     Golden State Bancorp Inc. is a holding company whose only significant asset
is all of the common stock of GS Holdings,  formerly FN Holdings, which owns all
of the common and preferred stock of the Bank.

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

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

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

     These activities are financed  principally with customer deposits,  secured
short-term and long-term  borrowings,  including  FHLB advances,  collections on
loans,  asset sales and  retained  earnings.  Refer to note 21 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 HOLA and is
principally  regulated by the OTS. The FDIC insures the deposit  accounts of the
Bank up to applicable  limits through the SAIF. The Bank is also a member of the
FHLB System. The Bank has three principal subsidiaries:

     (a)  FNMC, its mortgage banking subsidiary;

     (b)  Auto One, its indirect prime and sub-prime auto financing  subsidiary;
          and

     (c)  CFI, its securities and insurance brokerage subsidiary.

     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 Corporation. CFI receives commission revenue for acting as a
broker on behalf of its customers,  but does not maintain  customer  accounts or
take possession of customer securities.

                                     Page 3
<PAGE>

     The Company's revenues are derived from:

     (a)  interest earned on loans and securities;

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

     (c)  other customer service transactions.

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

     As of December  31, 2001,  the Company had total  assets of $56.5  billion,
deposits  of $25.1  billion  and 356 retail  branch  offices in  California  and
Nevada.

     OWNERSHIP STRUCTURE

     Prior to the Golden State  Acquisition,  Parent  Holdings  owned 80% of the
common stock of FN Holdings and 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,  a corporation  controlled by Ronald O.
Perelman,  a Director of the Company.  In the Golden State  Acquisition,  Parent
Holdings  was merged  into  Golden  State and FN  Holdings  was  merged  into GS
Holdings.  As  consideration,  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  aggregate,
constituted 47.9% of the common stock  outstanding  immediately after the Golden
State Acquisition.  Subsequent to the Golden State  Acquisition,  Mafco Holdings
transferred   the  41,067,270   shares  to  another  of  its  indirectly   owned
subsidiaries,  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."

     Through its ownership of all of the Bank's common and preferred  stock,  GS
Holdings has 97% of the voting power of all  outstanding  Bank  securities.  Two
classes of publicly traded Bank securities,  the CALGZs and the CALGLs,  have in
the  aggregate  the  remaining  3% of the voting  power.  All  outstanding  Bank
securities vote together as a single class.

BUSINESS STRATEGY

     Merger, acquisition, and divestiture activities have played a major role in
the  Company's  business  strategy  in  prior  years.  (Refer  to  note 3 of the
Company's Notes to Consolidated  Financial  Statements for specific  information
about these mergers, acquisitions, and divestitures.) More recently, the Company
has focused on:

     o  Increased profitability;

     o  Revenue diversity; and

     o  Growth while preserving credit quality.

     As a result of this strategic plan, during 2001 the Bank has grown earnings
by 17%, grown retail checking  deposits by 10% and increased  non-single  family
residential  loans to 25% of the portfolio,  while  improving the Bank's overall
credit quality.

                                     Page 4
<PAGE>

     The  Company's   current   strategic  plan  aims  at  continued   focus  on
profitability, revenue diversity and maintenance of credit quality. Key elements
of the business plan include:

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

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

     o    The Company  expects to continue to build  franchise value by focusing
          on  customer   service  and   cross-selling   opportunities,   further
          development  of  its  sales  force,  enhanced  product  offerings  and
          improved channel delivery. The Company intends to seek to maintain its
          mortgage  banking  efficiency while reducing the costs to service each
          account.  In  addition,  the Bank  intends to 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 real estate lending.

     o    California  Federal  may  make  opportunistic  acquisitions  of  other
          companies  or  business  lines  which  complement  the Bank and  where
          efficiencies  and  economies  of scale  could be  realized  to produce
          higher returns on investment.

FACTORS THAT MAY AFFECT FUTURE RESULTS

     A number of factors  could  cause the  Company's  actual  results to differ
materially from those in the forward-looking  statements made in this Form 10-K,
in other documents filed by the Company with the SEC or by the Company's  senior
management verbally to analysts,  investors, the media and others. Some of these
factors are described below.

     CONCENTRATION OF BUSINESS IN CALIFORNIA; EFFECT ON ASSET QUALITY

     The Bank's loan portfolio is concentrated in California.  As a result,  the
financial  condition of the Bank will be subject to general economic  conditions
in California  and, in particular,  to conditions in the California  real estate
market.  As of  December  31,  2001,  the Bank had  80.3% of its loan  portfolio
secured by real estate located in California.  The Bank may find it difficult to
originate a sufficient  volume of high-quality real estate loans or maintain its
asset quality,  either of which could negatively impact future  performance.  In
addition,  any  downturn  in  the  economy  generally,   and  in  California  in
particular,  could  further  reduce real  estate  values and the volume of loans
originated.  Real  estate  values  in  California  could  also  be  affected  by
earthquakes or other catastrophic events.

     SUB-PRIME LENDING

     Through Auto One,  the Bank is engaged  indirectly  in sub-prime  and prime
auto financing activities.  At December 31, 2001, the Bank's sub-prime auto loan
portfolio totalled $1.2 billion,  or 2.9% of the Bank's total loan portfolio.  A
loan may be  considered  sub-prime  primarily  for one, or both, of two reasons:
borrower credit and collateral considerations. Sub-prime borrowers are likely to
be  relatively  weak  credits.  A borrower may be  considered  sub-prime  due to
limited  income,  tarnished  credit  history (for example,  prior  bankruptcy or
history of delinquent  payments on other types of installment credit) or lack of
credit  history (for  example,  a relatively  young  individual  who has not yet
developed a credit history profile). Sub-prime loans may also have less valuable
collateral.  Collateral  considerations in the sub-prime market primarily result
from the financing, in many cases, of used vehicles.  Although depreciation also
affects new  automobiles,  the market  value of an  automobile  which is several
years old may be more difficult to ascertain than for a new vehicle,  since such
value will depend on mileage and general condition, which may vary substantially
for different  vehicles of a similar  model year. As a result of these  factors,
the performance of a sub-prime  portfolio may be more susceptible to performance
deterioration than a prime portfolio,  since sub-prime borrowers,  are likely to
be  disproportionately  affected by economic downturns and the collateral may be
more difficult to value correctly.

                                     Page 5
<PAGE>

     INTEREST RATE RISK

     It is expected that the Bank will continue to realize income primarily from
the  differential or "spread"  between the interest earned on loans,  securities
and other interest-earning assets, and interest paid on deposits, borrowings and
other  interest-bearing  liabilities.  Net interest  spreads are affected by the
difference   between   the   maturities   and   repricing   characteristics   of
interest-earning assets and interest-bearing liabilities. Loan volume and yields
are  affected  by market  interest  rates on loans,  and rising  interest  rates
generally  are  associated  with a lower  volume of loan  originations,  whereas
declining  interest rates  generally are associated with a higher volume of loan
originations.  Declining rates are also associated with increased  mortgage loan
prepayments. There can be no assurances that management will be able to reinvest
the cash from mortgage loan  prepayments in assets earning yields  comparable to
the yields on the prepaid mortgages.  It is expected that a substantial majority
of the Bank's assets will  continue to be indexed to changes in market  interest
rates and a substantial  majority of its  liabilities  will continue to be short
term. Although the Bank's management believes that this fact should mitigate the
negative  effect of a decline in yield on its assets,  there can be no assurance
that the Bank's interest rate risk will be minimized or eliminated. Golden State
Bancorp also  maintains a significant  portfolio of  mortgage-backed  securities
which tend to fluctuate in value in rapidly changing interest rate environments.
At December 31, 2001, the Bank had $35.3 billion in assets indexed to changes in
market rates and $40.0 billion in liabilities  maturing or repricing  within one
year. The lag in  implementing  repricing  terms on the Bank's  adjustable  rate
assets  may  result  in a  decline  in net  interest  income  in a  rising  rate
environment. In addition, 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,  changes  in  levels  of  market
interest rates could materially adversely affect the Bank's net interest spread,
asset quality, loan origination volume and overall results of operations.

     Mortgage Servicing Rights

     At December 31,  2001,  the Bank held MSRs on a 1-4 unit  residential  loan
portfolio with outstanding loan balances totalling  approximately $85.2 billion,
excluding loans owned by the Bank that are serviced by FNMC. The Bank's MSRs and
related  derivative  assets had a carrying value of $1.9 billion at December 31,
2001. A decline in long-term  mortgage  interest rates  generally  results in an
acceleration in mortgage loan repayments,  and higher than anticipated levels of
repayments  generally cause the  accelerated  amortization of MSRs and generally
will result in  reductions in the market value of the MSRs. In order to mitigate
some of the  potential  loss in value of the MSRs,  the Bank has  purchased,  or
entered into contracts for,  financial  derivatives that could hedge some of the
potential  loss in the MSRs and should  generally  increase in value as mortgage
interest  rates  decline.  There can be no assurances  that the rate of mortgage
loan prepayments will not exceed management's estimates, resulting in reductions
in net income from  accelerated  amortization  of MSRs and  possible  additional
impairment  of the carrying  value of the MSRs due to  reductions  in the market
value of the MSRs.  Furthermore,  there can be no assurances  that the financial
derivatives  purchased  as hedges to the MSRs will  perform as  anticipated  and
that, if mortgage interest rates decline, the derivatives will increase in value
in an amount  sufficient  to offset the  decline in the value of the MSRs or, if
long-term  mortgage  interest rates rise, that the  derivatives  will lose value
equal to or less than the increase in the value of the MSRs. A large  percentage
of the  instruments  used to hedge the MSRs  change in value based on changes in
LIBOR-based rates. While long-term mortgage interest rates and LIBOR-based rates
are highly  correlated,  a change in one may be  different  from a change in the
other  for any  given  period.  Therefore,  it is  possible  that  there  may be
impairment in the value of the MSRs even if long-term  mortgage  interest  rates
remain the same or increase from period to period.

     The  valuation  of MSRs  involves a number of  assumptions,  in addition to
changes in  prepayment  rates,  which may change  from  period to period.  These
assumptions  include discount rates,  custodial balance earnings rates,  funding
costs, late charges, other ancillary income, foreclosure costs, cost to service,
escrow balances,  remittance  balances,  remittance types and foreclosure rates,
among others. In analyzing future  prepayments,  consideration is given to rates
currently  offered to borrowers  versus rates required by the secondary  market,
the average  note rate of the  portfolio  and the Mortgage  Bankers  Association
Mortgage  Refinance  Index as well as other  available  information.  Changes in
these  assumptions  and changes in their  relationship  to each other will cause
volatility in the value of MSRs from period to period.  Further,  the market for
MSRs is generally  less liquid than markets for other fixed income  instruments,
and there is limited public information available describing  characteristics of
traded portfolios for use in comparing  values.  Since there may well be periods
of time during which no purchases or sales of MSRs with characteristics  similar
to those to be valued have occurred,  alternative  valuation  methods need to be

                                     Page 6
<PAGE>

employed.  These  methods  may  involve  surveying  firms  engaged in buying and
selling   mortgage-related   assets,   engaging  independent  firms  to  conduct
appraisals,  or  using  any  number  of  mathematical  models  which  have  been
developed. In the process of determining the valuation at any future period end,
the  Company  may  determine  that  alternate  methods  of  valuation  are  more
appropriate  as valuation  techniques  evolve.  These  methods may yield results
different from those obtained using prior measurement techniques,  and hence may
have the effect of lowering the carrying value of MSRs.

     COMPETITION

     Golden  State  faces   substantial   competition  for  loans  and  deposits
throughout its market areas. It competes on a daily basis with commercial banks,
other savings institutions,  thrift and loans, credit unions, finance companies,
retail  investment  brokerage  houses,  mortgage banks,  money market and mutual
funds and other  investment  alternatives  and other  financial  intermediaries.
Golden  State  faces   competition   throughout   its  market  area  from  local
institutions,  which have a large presence in its market areas,  as well as from
out-of-state financial institutions which have offices in its market areas. Many
of these other  institutions  offer  services which Golden State does not offer,
including  trust  services.  Furthermore,  banks with a larger  capital base and
financial firms not subject to the restrictions  imposed by banking  regulations
have  larger  lending  limits  and can  therefore  serve  the  needs  of  larger
customers.

     REGULATION

     The  financial  institutions  industry is subject to extensive  regulation,
which materially affects the business of Golden State and the Bank. Statutes and
regulations  to which  the Bank and its  parent  companies  are  subject  may be
changed at any time, and the interpretation of these regulations is also subject
to change.  There can be no assurance that future changes in such regulations or
in their  interpretation  will not adversely affect the business of Golden State
and the Bank.

     PROPOSED LEGISLATION

     From time to time,  Congress  considers  legislative  proposals  that could
substantially alter the regulation of Golden State and the Bank. These proposals
have included the merger of the two FDIC deposit  insurance funds and the merger
of the OTS  with the  Office  of the  Comptroller  of the  Currency.  We can not
determine  whether,  or in what form, such legislation may eventually be enacted
and the possible impact of such changes.

     TAX SHARING AGREEMENT; AVAILABILITY OF NET OPERATING LOSS CARRYOVERS

     For federal  income tax  purposes,  the Bank,  GS Holdings and Golden State
Bancorp are parties to a Tax Sharing Agreement, pursuant to which:

     (a)  the Bank pays to GS 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 Golden State Bancorp consolidated group,

     (b)  GS Holdings pays to the Company amounts equal to the income taxes that
          GS Holdings would be required to pay if it were to file a consolidated
          return on behalf of itself  and the Bank  separately  from the  Golden
          State Bancorp consolidated group, and

     (c)  in  connection  with the  Golden  State  Acquisition,  Mafco  Holdings
          continues to be bound for all obligations accruing for taxable periods
          on or prior to September 11, 1998.

     As a result of the  deconsolidation  of the Bank and GS  Holdings  from the
Mafco  Group  due to the  Golden  State  Acquisition,  only  the  amount  of net
operating  losses of the Bank and GS Holdings not utilized by the Mafco Group on
or before December 31, 1998 are available to offset taxable income of the Golden
State  Group.  Similarly,  if for any  reason the Bank and GS  Holdings  were to
deconsolidate  from the Golden State Group, only the amount of the net operating
loss  carryovers  of the Bank and GS Holdings  not  utilized by the Golden State
Group up to the end of the taxable year in which the deconsolidation  took place
would be  available  to offset the  taxable  income of the Bank and GS  Holdings
subsequent to the date of deconsolidation. It cannot be predicted to what extent
the Golden

                                     Page 7
<PAGE>

State Group will utilize the net operating loss carryovers of GS Holdings and/or
the  Bank  in  the  future  or  the  amount,  if  any,  of  net  operating  loss
carryforwards  that GS Holdings or the Bank may have upon  deconsolidation.  The
net operating loss carryovers are subject to review and potential  disallowance,
in whole or in part,  by the IRS. Any  disallowance  of the Bank's net operating
loss  carryovers may increase the amounts that the Bank would be required to pay
to GS Holdings  under the Tax Sharing  Agreement  and that GS Holdings  would be
required to pay to the Golden  State  Group,  and would  therefore  decrease the
earnings of the Bank available for distribution.

     Under federal tax law, the parties subject to the tax sharing  agreement in
effect prior to the Golden State  Acquisition  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 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.

     TAXATION OF THE BANK

     The Small  Business Job  Protection Act of 1996 provided that base year bad
debt  reserves are not  recaptured  into income  unless  certain  events  occur.
Circumstances that may require recognition of the base year reserves of the Bank
are (i)  dividend  payments in excess of the  greater of current or  accumulated
earnings and profits, or (ii) other distributions,  dissolution,  liquidation or
redemption of stock excluding  preferred stock meeting certain  conditions.  The
base year  reserves  are  generally  the balance of tax bad debt  reserves as of
December 31, 1987,  reduced  proportionately  for  reductions in the Bank's loan
portfolio  since that date.  In  accordance  with SFAS No.  109, a deferred  tax
liability  has not been  recognized  for the base year  reserves of the Bank. At
December 31, 2001, the amount of the base year reserves was  approximately  $305
million. The amount of unrecognized  deferred tax liability at December 31, 2001
was approximately $107 million.

     TAX EFFECTS OF DIVIDEND PAYMENTS BY THE BANK

     Certain dividend distributions  discussed above made to GS Holdings, as the
sole owner of the Bank's  common stock and its  preferred  stock,  may cause the
Bank to  recognize a portion of its base year  reserves as income.  Accordingly,
the Bank may be required to make  payments to GS Holdings  under the Tax Sharing
Agreement.  Likewise,  GS Holdings  may be  required to make  payments to Golden
State under the Tax Sharing  Agreement if GS Holdings has insufficient  expenses
and losses to offset such income.

     RESTRICTIONS ON ABILITY OF SUBSIDIARIES TO PAY DIVIDENDS

     Golden State is a holding company with no significant  business  operations
of its own. The Company's only  significant  asset is its indirect  ownership of
the  common  stock  of the  Bank.  The  Company's  only  sources  of cash to pay
dividends and make debt payments are dividends and other  distributions from the
Bank and in turn from GS Holdings.

     The federal  banking laws and OTS  regulations  limit the Bank's ability to
pay dividends.  The Bank  generally may not declare  dividends or make any other
capital   distribution   if,  after  the  payment  of  such  dividend  or  other
distribution,  it would fall within any of the three undercapitalized categories
under the prompt  corrective  action  regulation  of the  FDICIA of 1991.  Other
limitations  apply  to  California  Federal's  ability  to  pay  dividends,  the
magnitude  of which  depends  upon  current  earnings  and the  extent  to which
California Federal meets its regulatory capital requirements.  In addition,  the
HOLA requires every savings association subsidiary of an SLHC to give the OTS at
least 30 days' advance notice of any proposed dividends to be made on its stock.
Further,  the OTS may prohibit any Bank capital  distribution that it determines
would constitute an unsafe or unsound practice.

     The terms of the debt  instruments  under which certain of our subsidiaries
have issued debt also impose  restrictions that may inhibit the ability of those
subsidiaries to declare dividends.

                                     Page 8
<PAGE>

     SIGNIFICANT STOCKHOLDERS

     As of December 31, 2001, Ronald O. Perelman,  through GSB Investments,  had
beneficial  ownership of 42,949,525 shares or 31.64% of Golden State, and Gerald
J. Ford, the Chairman of the Board,  Chief  Executive  Officer and a Director of
Golden  State,  individually  and through  Hunter's  Glen/Ford,  Ltd., a limited
partnership  controlled by Mr. Ford,  beneficially  owned  19,961,408  shares or
14.68% of Golden State. As a result,  GSB  Investments,  through the election of
directors or otherwise, may be able to direct and control the policies of Golden
State and its  subsidiaries,  including  mergers,  sales of assets  and  similar
transactions.  See " Market  for the  Registrant's  Common  Equity  and  Related
Stockholder Matters."

EMPLOYEES

     At December 31, 2001, Golden State and its subsidiaries employed 8,219 FTE,
compared  with 7,834 at December  31,  2000.  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.  Commercial banks and other savings
associations  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  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, LTV ratios, loan fees and the
length of time for loan processing and funding. The Company's future performance
depends on its ability to originate a sufficient volume of mortgage loans and 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

     The OTS, an office of the U.S.  Department of the  Treasury,  regulates the
activities of California Federal, as a federal association, and Golden State and
GS Holdings as SLHCs. The FDIC, which insures the Bank's deposit accounts,  also
oversees  the Bank in a backup  role.  Golden State and the Bank are required to
comply with  comprehensive  federal  banking  laws and  regulations  intended to
protect the Bank's  depositors,  the  institution,  and the banking  system as a
whole. The following  summarizes some of the more important ways in which Golden
State and the Bank are governed by these laws and regulations.  As a summary, it
describes only a few of the rules that affect Golden State and the Bank.

     REGULATION OF GOLDEN STATE

     Golden  State is  registered  with the OTS as an SLHC.  As an SLHC,  Golden
State  must  file  periodic  reports  with  the OTS  and is  subject  to  annual
examinations.  Golden  State is a "unitary"  SLHC  because it controls  only one
savings institution. As a unitary SLHC that existed prior to May 4, 1999, Golden
State may generally engage in any financial or non-financial  business activity.
However,  an SLHC must obtain OTS approval before acquiring

                                     Page 9
<PAGE>

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 its
voting shares.  An SLHC must also obtain OTS approval before any party that owns
or controls more than 25% of its voting shares  acquires  control of any savings
association that is not a subsidiary of that SLHC.

     REGULATION OF THE BANK

     REGULATORY SYSTEM

     California   Federal  must  comply  with  many  federal  banking  laws  and
regulations governing its activities. The OTS oversees the Bank's operations and
regularly  examines  the  Bank to  insure  its  safe  and  sound  operation  and
compliance with applicable laws and regulations,  including consumer protections
and the CRA.  The Bank  files  periodic  reports  with  the OTS  concerning  its
activities  and  financial  condition.  Certain  actions,  like the payment of a
dividend,  require  prior OTS  notice or  approval.  While 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

     The OTS requires that California Federal maintain  sufficient  liquidity to
ensure its safe and sound  operation.  The Bank has maintained  liquid assets in
compliance with the regulations in effect throughout 2001, 2000 and 1999.

     REGULATORY CAPITAL REQUIREMENTS

     The OTS requires savings associations to meet each of the following minimum
capital standards:  8% risk-based capital, 4% leverage capital and 1.5% tangible
capital.  In  addition,  the OTS may require a savings  association  to maintain
capital above the minimum levels. The OTS may deem failing any these tests to be
an unsafe and  unsound  practice  and may subject  the  failing  institution  to
enforcement  or other  supervisory  actions.  The Bank  currently  satisfies all
applicable  regulatory capital requirements and has not been directed by the OTS
to maintain  capital  above the minimum  levels.  For further  information,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations--Capital Management."

     PROMPT CORRECTIVE ACTION

     Under the prompt corrective action regulations  mandated by the FDICIA, the
OTS must take certain  actions  against  savings  associations  that fall within
certain undercapitalized capital categories.

     The regulation establishes five categories of capital classification: "well
capitalized,"  "adequately  capitalized,"   "undercapitalized,"   "significantly
undercapitalized,"  and  "critically  undercapitalized."  Under the  regulation,
three ratios determine an association's capital classification:

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

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

     o    the leverage capital ratio.

     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 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, after 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  and are subject to  restrictions  on the interest
rates  that  may be paid on those  deposits.  Institutions  that are  considered
"undercapitalized,"      "severely     undercapitalized,"     or     "critically
undercapitalized" become subject to increasingly serious supervisory actions (as

                                    Page 10
<PAGE>

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  regulation  as of December 31, 2001 and is not subject to any capital
related enforcement action or other regulatory  proceeding.  Management believes
there have been no  conditions  or events  since  December  31,  2001 that would
change the Bank's  capital  classification.  See  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations--Capital Management."

     ENFORCEMENT POWERS

     The OTS and the FDIC are  authorized to bring various  enforcement  actions
against the  institution and affiliated  persons.  The Bank and Golden State are
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.

     A savings  institution  that is a subsidiary of an SLHC 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 its prior approval.  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 impact of the level of earnings  retention  on the Bank's  capital
          needs, projected growth and internal and external funding levels, 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)  exceed  100% of the net  income  to date for that  calendar  year plus
          retained net income for the  preceding  two years,  when combined with
          any other dividends  declared during the same calendar year (except as
          may be permitted by regulation in extraordinary circumstances).

     For further  information  regarding dividend payments,  refer to note 24 of
the Company's Notes to Consolidated Financial Statements.

                                    Page 11
<PAGE>

     TAX EFFECTS OF DIVIDEND PAYMENTS BY THE BANK

     Refer to "Tax  Effects of Dividend  Payments by the Bank" of "Factors  that
May Affect Future Results" for more information.

     QUALIFIED THRIFT LENDER TEST

     Unless a savings  association is a QTL, both it and its holding company are
subject  to  certain  restrictions  on their  activities.  In order to be a QTL,
either (a) at least 65% of the savings  association's  portfolio  assets must be
qualified thrift investments or (b) the savings  association must meet the asset
composition  test under the Internal  Revenue Code for a "domestic  building and
loan association."  Non-QTL savings  associations are subject to restrictions on
obtaining advances from the FHLB,  establishing branches and paying dividends. A
holding  company whose savings  association is not a QTL must register as a bank
holding  company and be subject to all of the  restrictions  of the Bank Holding
Company Act of 1956.

     The Bank's qualified thrift  investments  primarily  consist of residential
mortgage loans and mortgage securities, home equity loans, small business loans,
FHLB stock and accrued dividends. At December 31, 2001,  approximately 94.17% of
the Bank's portfolio assets were qualified thrift investments. At that date, the
Bank also met the asset  composition  test under the Internal Revenue Code for a
domestic building and loan association.

     FDIC ASSESSMENTS

     The SAIF of the FDIC  insures  the  deposits  of the Bank up to  applicable
limits,  and assesses deposit premiums.  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,
2001 was 0 basis points.

     Institutions  with BIF  deposits  are required to share the cost of funding
debt  obligations  issued by the FICO, a corporation  established by the federal
government in 1987 to finance the recapitalization of the FSLIC. The annual FICO
assessments added to deposit  insurance  premiums were 5.0 basis points for SAIF
deposits  during 1999.  Effective  January 1, 2000, the FICO  assessment rate is
equal for SAIF and BIF  deposits.  The Bank's SAIF plus FICO  assessment  during
2001 and 2000  was  approximately  1.90  and  2.04  basis  points,  respectively
(annualized).

     AFFILIATE RESTRICTIONS

     Sections  23A and 23B of the  Federal  Reserve  Act  restrict  transactions
between a savings  association  and its  "affiliates."  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
institution's subsidiaries.

     Sections  23A and 23B  generally  require that all  transactions  between a
savings  association  and its  affiliates  be on  terms  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:

     o    a loan or extension of credit to an affiliate;

     o    a purchase of investment securities issued by an affiliate;

     o    a purchase of assets from an affiliate (with certain exceptions);

     o    the acceptance of securities  issued by an affiliate as collateral for
          a loan or extension of credit to any party; or

     o    the issuance of a guarantee,  acceptance or letter of credit on behalf
          of an affiliate.

                                    Page 12
<PAGE>

     During 2001, 2000, and 1999, the Bank had no covered transactions.

     NON-INVESTMENT GRADE DEBT SECURITIES

     Savings  associations  are  prohibited  from  investing in a corporate debt
security  that,  when  acquired,  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 are responsible under the CRA to help meet the credit
needs of their communities, including low- and moderate-income neighborhoods. In
addition,  the Fair Lending Laws  prohibit  lenders from  discriminating  on the
basis of specified  characteristics.  The OTS and the  Department of Justice may
take enforcement actions against a savings association that fails to comply with
the Fair Lending  Laws.  The Bank received an  "Outstanding"  rating in its most
recent CRA examination completed in July 2001.

     PROPOSED REGULATORY LEGISLATION

     From time to time,  Congress  considers  legislative  proposals  that could
substantially alter the regulation of the Bank and Golden State. These proposals
have  included the merger of the BIF and SAIF and the merger of the OTS with the
Office of the Comptroller of the Currency. The Company cannot determine whether,
or in what form, such legislation  might be enacted and what impact such changes
might have on Golden State and the Bank.

ITEM 2.  PROPERTIES

     The  executive  offices of the Bank and 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 lease  expiring in 2006.  The
Bank maintains its Data Center in a portion of a 252,000 square foot facility in
West Sacramento, California under a lease expiring in 2006.

     The   Company  and  its   subsidiaries   occupied   additional   executive,
administrative and operational space at 24 sites in California,  Maryland, Texas
and Arizona as of December 31, 2001. These sites included  approximately 413,000
owned square feet (four  sites) and 351,000  leased  square feet (twenty  sites)
with lease expirations ranging from 2002 to 2008.

     At December 31, 2001,  the Bank operated 356 retail  branches in California
and  Nevada,  which  included  approximately  988,000  owned  square  feet  (125
branches) and 1,200,000 leased square feet (231 branches) with lease expirations
ranging  from 2002 to 2034.  Some of these  retail  branches  also  housed  loan
production and administrative space. FNMC operated eight loan production offices
in  California,  Montana and Nevada.  These offices were  independent  of branch
facilities   and  included   approximately   100,000  leased  square  feet  with
expirations ranging from 2002 to 2006.

     The Bank is responsible for various  facilities not occupied by the Company
or its  subsidiaries as a result of branch and operational  consolidations  from
the 1996 Acquisitions, the Cal Fed Acquisition, the merger with Glendale Federal
and  certain  branch  purchases.  During  2001,  leases on six  sites  totalling
approximately 84,000 square feet were terminated. As of December 31, 2001, there
were 33 branch sites not occupied by the Company or its  subsidiaries,  of which
29 sites  were  leased  or  subleased  generating  income,  leaving  four  sites
unoccupied.  In addition,  there was one administrative facility not occupied by
the Company or its subsidiaries. This facility was subleased, generating income.

                                    Page 13
<PAGE>

     The  following  table  presents a  state-by-state  breakdown  of all retail
branches,  administrative facilities and loan production offices operated by the
Bank at December 31, 2001:
<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       118        221        33          3        16         1         --          6        --
Maryland          --         --        --          1         1        --         --         --        --
Montana           --         --        --         --        --        --         --          1        --
Nevada             7         10        --         --        --        --         --          1        --
Texas             --         --        --         --         4        --         --          1        --
                 ---        ---        --         --        --        --         --         --        --
      Total      125        231        33          4        22         1         --          8        --
                 ===        ===        ==         ==        ==        ==         ==         ==        ==
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

CALIFORNIA FEDERAL GOODWILL LITIGATION

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

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

     On April 16,  1999,  the Claims  Court  issued its  decision on the damages
claim against the  Government in the  California  Federal  Goodwill  Litigation,
ruling that the Government must compensate the Bank in the sum of $23.4 million.
The summary  judgment  liability  decision by the first  Claims  Court Judge was
appealed by the  Government,  and the damage  award by the second  Claims  Court
Judge was appealed by the Bank.

     On April 3, 2001,  the Court of Appeals for the Federal  Circuit upheld the
summary judgment liability decision and ruled that California Federal be allowed
to present  evidence  regarding  damages incurred under the lost profits theory.
The case has been  remanded  back to the Claims Court for a damages  trial under
the lost profits theory. The Bank intends to vigorously pursue its claim against
the Government.

GLENDALE GOODWILL LITIGATION

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

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

                                    Page 14
<PAGE>

     On February 16, 2001, the Court of Appeals for the Federal  Circuit vacated
the trial court's award of damages and remanded the case back to the trial court
for determination of total reliance damages to which the Bank might be entitled.
Oral argument  before the trial court on that issue took place on June 26, 2001,
and the Bank is awaiting  the Claims  Court's  decision.  The Bank  continues to
vigorously pursue its case for damages against the Government.

BARTOLD V. GLENDALE FEDERAL BANK ET AL.

     On September  18,  1995,  four  plaintiffs  commenced an action in Superior
Court of California,  County of Orange,  alleging that the  defendants  Glendale
Federal, to which the Bank is a successor by merger, and Verdugo, a wholly owned
subsidiary  of the Bank,  failed  timely to record their release of the mortgage
interest  following payoffs of residential  mortgage loans and, in at least some
instances,  improperly  required  borrowers to pay fees for these releases.  The
plaintiffs'  complaint  seeks  relief  for  the  named  plaintiffs,  as  well as
purportedly for all others  similarly  situated in California and throughout the
United  States and the  general  public,  on causes of action for  violation  of

California Civil Code Section 2941 and California  Business and Professions Code
Section 17200, breach of contract,  fraud and unjust enrichment.  The plaintiffs
seek statutory damages of $300 for each supposed,  separate violation of Section
2941 by Glendale Federal and Verdugo, restitution,  punitive damages, injunctive
relief and attorney's fees, among other things.

     In  October  1997,  the  trial  court  granted  summary  judgment  for  the
defendants.  In September  2000, the California  Court of Appeals  reversed this
decision and remanded for further proceedings,  including further development of
class  certification  issues.  On March 2,  2001,  the trial  court  held that a
California class had been certified.  On June 7, 2001, the trial court dismissed
two of the  four  causes  of  action  against  the  Bank,  holding  that the OTS
pre-empted  the  California  courts from  regulating  the Bank's  procedures for
reconveying deeds. The Bank believes that it has additional meritorious defenses
to plaintiffs' claims and intends to continue to contest the remaining claims in
the lawsuit vigorously.

OTHER LITIGATION

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

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

     None.

                                    Page 15
<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 NYSE under the symbol "GSB"
and is also listed on the 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 of the LTW(TM)s:

                                         Common Stock             LTW(TM)s
                                       ----------------       ---------------
                                        High       Low         High      Low
                                        ----       ---         ----      ---
     Year Ended December 31, 2001
             First Quarter             $30.25    $25.80       $1.53     $1.16
             Second Quarter             31.83     27.60        1.35      1.24
             Third Quarter              35.33     27.27        1.36      1.20
             Fourth Quarter             29.39     24.07        1.32      1.18

     Year Ended December 31, 2000
             First Quarter             $16.56    $12.44       $1.44     $0.88
             Second Quarter             19.69     14.13        1.34      1.03
             Third Quarter              23.75     18.19        1.44      1.03
             Fourth Quarter             31.50     21.00        1.63      1.16

     At the close of business on February 28, 2002,  the Company's  common stock
and LTW(TM) prices were $30.48 and $1.21 per share, respectively.

     Ronald O. Perelman, a Director of the Company and GS Holdings, 35 East 62nd
Street, New York, New York 10021,  through GSB Investments  Corp.,  beneficially
owns 31.60% of the Golden State common  stock  outstanding  as of March 1, 2002.
Gerald J. Ford, Chairman of the Board, Chief Executive Officer and a Director of
the Company,  the Bank and GS Holdings,  200 Crescent Court, Suite 1350, Dallas,
Texas  75201,  individually  and  through a  limited  partnership  he  controls,
Hunter's  Glen/Ford,  Ltd.,  beneficially owns 14.76% of the Golden State common
stock at March 1,  2002.  The  balance of the  common  stock of Golden  State is
publicly held. In addition,  pursuant to the Golden State Merger agreement,  GSB
Investments  and  Hunter's  Glen are  entitled to receive  additional  shares of
Golden  State common stock under  certain  circumstances,  which could cause the
actual ownership percentages of GSB Investments and Hunter's Glen to change.

NUMBER OF HOLDERS OF COMMON STOCK

     At February  28,  2002,  135,910,784  shares of Company  common  stock were
outstanding  and held by 5,959  holders of record.  Also at February  28,  2002,
83,631,960 LTW(TM)s were outstanding and held by 5,891 holders of record.

DIVIDENDS

     Dividends on Golden  State's common stock of $0.10 per share in each of the
quarters  totalled $54.1 million for 2001.  $26.4 million in dividends were paid
in 2000  and no  dividends  were  paid  in  1999.  See  discussion  of  dividend
restrictions  in  note  24 of the  Company's  Notes  to  Consolidated  Financial
Statements.

                                    Page 16
<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, 2001.
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                   -------------------------------------------------------------
                                                                    2001 (1)     2000 (2)     1999 (3)     1998 (4)     1997 (5)
                                                                    ----         ----         ----         ----         ----
                                                                           (dollars in millions, except per share data)
<S>                                                                <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING DATA
Interest income                                                    $3,968       $4,106       $3,652       $2,585       $2,128
Interest expense                                                    2,607        2,959        2,466        1,820        1,499
Net interest income                                                 1,361        1,147        1,186          765          629
Provision for loan losses                                              --           --           10           40           80
Noninterest income                                                    351          440          400          418          331
Noninterest expense                                                   979          913          907          741          642
Income before income taxes, minority interest,
    extraordinary items and cumulative effect                         733          674          669          402          238
    of change in accounting principle
Income tax expense (benefit) (6)                                      292          137          186         (107)          41
Minority interest: provision in lieu of
    income tax expense (6)                                              3          162          123           --           --
Minority interest: other (7)                                           27           28           39          111          102
Income before extraordinary items and cumulative
    effect of change in accounting principle                          411          347          321          398           95
Extraordinary items - gain (loss) on early
    extinguishment of debt, net                                        --            3            2         (150)          --
Cumulative effect of change in accounting principle,
    net of tax                                                         (2)          --           --           --           --
Net income                                                            409          350          323          248           95


Earnings per common share:
    Basic:
       Income before extraordinary items and cumulative
          effect of change in accounting principle                 $ 2.88        $2.50        $2.45        $5.00        $1.67
       Net income                                                    2.87         2.52         2.47         3.11         1.67
    Diluted:
       Income before extraordinary items and cumulative
          effect of change in accounting principle                   2.86         2.44         2.29         4.88         1.67
       Net income                                                    2.85         2.46         2.31         3.04         1.67
Dividends per common share                                           0.40         0.20           --           --           --

Selected Performance Ratios
Return on average assets (8)                                         0.68%        0.59%        0.58%        0.63%        0.31%
Return on average common equity (9)                                 17.82        20.25        20.96        27.38        27.42
Return on tangible common equity (10)                               28.69        42.27        61.57       185.65       (41.42)
Average equity to average assets                                     3.84         2.91         2.75         2.30         1.13
Yield on interest-earning assets (11)                                7.08         7.28         6.97         7.21         7.51
Cost of interest-bearing liabilities (12)                            4.66         5.26         4.69         5.05         5.28
Net interest margin (13)                                             2.44         2.05         2.27         2.13         2.21
Efficiency ratio of the Bank (14)                                   48.35        47.85        47.38        49.38        50.76
Dividend payout ratio (15)                                          13.94         7.94           --           --           --


RATIO OF EARNINGS TO COMBINED FIXED
    CHARGES AND MINORITY INTEREST (16)
Excluding interest on deposits                                       1.39x        1.22x        1.29x        1.25x        1.16x
Including interest on deposits                                       1.27         1.15         1.19         1.15         1.08
</TABLE>

                                    Page 17
<PAGE>
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                      -----------------------------------------------------------------------
                                                        2001 (1)       2000 (2)       1999 (3)       1998 (4)        1997 (5)
                                                        ----           ----           ----           ----            ----
                                                                      (dollars in millions, except per share data)
<S>                                                      <C>            <C>             <C>           <C>            <C>
SELECTED FINANCIAL DATA
Securities available for sale                            $    116       $    641        $ 1,076       $    771       $    813
Securities held to maturity                                    31            588            185            251             58
Mortgage-backed securities available for sale               7,058          9,867         13,765         12,948          5,077
Mortgage-backed securities held
    to maturity                                             1,385          2,887          2,150          2,771          1,338
Loans receivable, net                                      39,336         39,593         33,953         30,281         19,424
Intangible assets                                             641            691            820            924            676
MSRs                                                        1,624          1,559          1,272            944            537
Total assets                                               56,491         60,517         57,019         54,869         31,362

Deposits                                                   25,134         23,430         23,036         24,620         16,203
Securities sold under agreements
    to repurchase                                           2,364          4,511          5,482          4,238          1,842
Borrowings                                                 24,445         28,801         25,669         22,376         11,233
Total liabilities                                          53,421         57,866         54,957         52,694         29,981
Minority interest                                             500            500            500            593          1,012
Stockholders' equity                                        2,570          2,151          1,562          1,582            369

Common shares outstanding                             135,756,046    134,320,658    122,242,588    128,597,769     56,722,988
Diluted shares outstanding                            143,799,140    143,797,709    138,692,802    139,427,759     56,722,988

Book value per diluted share                               $17.87         $14.96         $11.26         $11.34          $6.51
Tangible book value per diluted share                       13.41          10.15           5.35           4.72          (5.40)

REGULATORY CAPITAL RATIOS OF THE BANK
Tangible capital                                             6.62%          6.30%          5.81%          5.29%          5.65%
Core capital                                                 6.62           6.30           5.81           5.29           5.65
Risk-based capital:
     Core capital                                           11.54          11.58          11.36          10.27          10.14
     Total capital                                          12.98          13.08          12.89          11.69          11.93

SELECTED OTHER DATA
Number of full service customer facilities                    356            354            349            358            225
Loans serviced for others (17)                            $85,459        $85,772        $75,782        $68,803        $47,933
Full-time equivalent staff (FTE)                            8,219          7,834          7,578          8,003          4,983
Non-performing assets as a
       % of the Bank's total assets                          0.22%          0.23%          0.35%          0.57%          0.87%
</TABLE>
-----------------
(1)  2001  earnings  include  the  cumulative  effect of  change  in  accounting
     principle related to the adoption of EITF No. 99-20.

(2)  2000  earnings  include gains on the early  extinguishment  of debt of $3.0
     million, net of tax.

(3)  On April 16,  1999,  the  Company  acquired  twelve  retail  branches  with
     deposits of $543 million in the Nevada  Purchase.  During April 1999,  FNMC
     sold  servicing  rights in 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 MSRs and $2.3  million  on the sale of  deposits.
     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.

                                              (Footnotes continued on next page)

                                    Page 18
<PAGE>

(4)  On September 11, 1998, the Company  acquired  assets in the Glen Fed Merger
     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 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 Refinancing  Transactions.
     The Company  purchased  3,806,660  shares of the two outstanding  series of
     Bank Preferred  Stock in the Bank Preferred Stock Tender Offers 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 in the Debt Tender Offers for
     an aggregate purchase price of $1.1 billion.  Further, the Company defeased
     the 12 1/2% Parent Holdings Notes in the Parent Holdings  Defeasance for an
     aggregate  purchase price,  including accrued interest  payable,  of $553.7
     million.  The after-tax  premiums and expenses paid in connection  with the
     Refinancing  Transactions  totalled  $150.3 million and are reflected as an
     extraordinary loss on the Company's 1998 consolidated statement of income.

(5)  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 in the Weyerhaeuser Purchase.  Noninterest
     income for the year ended December 31, 1997 includes pre-tax gains of $14.0
     million  related to the 1997 Servicing Sale, $25 million on the sale of 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.

(6)  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
     and Golden State 1998  consolidated  federal  income tax  returns.  The tax
     benefit is fully offset by an increase in minority interest  expense.  2000
     income tax expense  includes a $161.7  million tax benefit as a result of a
     reduction  of the  valuation  allowance  on its deferred tax asset based on
     favorable  resolutions  of  federal  income  tax  audits of Old  California
     Federal and  Glendale  Federal,  and the status of Mafco's,  including  the
     Company's,  audits for the years 1991  through  1995.  This tax  benefit is
     fully offset by an increase to minority interest  expense.  2001 income tax
     expense includes a $25.8 million tax benefit as a result of the reversal of
     an accrued state tax liability. Golden State's effective state tax rate was
     1%, 6% and 8% in 2001,  2000 and 1999,  respectively.  The reduction of the
     rate in 2000 was the  result of changes in  management's  estimates  of the
     expected state tax liability of the Company.  The reduction in 2001 was the
     result  of a  reduction  in  accrued  state  tax  liability  as  previously
     discussed.

(7)  Represents  dividends  on the REIT  Preferred  Stock,  net of  related  tax
     benefit,  the 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, 1999 and 1998 also includes  early  redemption
     premiums on the Bank Preferred  Stock. A 20% minority  interest in Auto One
     is included, as appropriate, beginning in 1998 until its purchase in 2001.

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

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

                                              (Footnotes continued on next page)

                                    Page 19
<PAGE>

(10) Return on tangible common equity represents net income excluding intangible
     asset  amortization  as a percentage  of average  common  equity  excluding
     average intangible assets.

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

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

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

(14) 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).

(15) Dividend  payout ratio  represents  dividends  per share as a percentage of
     basic net income per share.

(16) 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.

(17) Includes loans serviced by the Bank and its  subsidiaries,  excluding loans
     serviced for the Bank by FNMC and including  non-residential loans serviced
     for others.

                                    Page 20
<PAGE>

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

     Please  read  the  MD&A in  conjunction  with  the  Consolidated  Financial
Statements of Golden State and the notes  included  elsewhere in this Form 10-K.
The following  discussion  includes  historical  information  relating to Golden
State.

     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.

CRITICAL ACCOUNTING POLICIES

     The Company  believes the critical  accounting  policies related to certain
activities  affect its more  significant  judgments  and  estimates  used in the
preparation of its consolidated  financial  statements.  Refer to notes 2(e) and
2(m)  in  the  Company's  Notes  to  Consolidated  Financial  Statements  for  a
discussion  of the  accounting  policies for the  allowance  for loan losses and
MSRs,  as  well  as the  "Allowance  for  Loan  Losses"  and  "Mortgage  Banking
Activities" sections of this document.

RESULTS OF OPERATIONS

     Based in San  Francisco,  Golden  State is the  indirect,  publicly  traded
parent  of  California   Federal,   a  community  oriented  bank  that  provides
diversified  financial services for consumers and small businesses in California
and Nevada.  At December 31, 2001, it was the third  largest  thrift in the U.S.
with $56.5 billion in assets and 356 branches.

     Golden State  reported net income of $409.4  million,  or $2.85 per diluted
share for 2001. Net income for 2001 includes a loss of $1.6 million, net of tax,
from the  cumulative  effect of change in  accounting  principle  related to the
adoption  of EITF No.  99-20.  Income  before  cumulative  effect  of  change in
accounting principle was $410.9 million, or $2.86 per diluted share for the year
ended December 31, 2001.

       On a pre-tax  basis,  net income for 2001 also included a $153.3  million
valuation provision on the Company's MSR asset that related to revised estimates
of future loan payoffs as a result of lower mortgage interest rates. This amount
was  partially  offset by a $79.9  million gain from the  Company's  MSR hedging
activities  in  accordance  with SFAS No. 133. Net income for 2001 also included
MSR amortization  expense of $361.1 million,  and a $6.1 million unrealized loss
from the application of SFAS No. 133 on the derivative rate locks,  forward loan
sale commitments and closed loan inventory. Cash flow hedging related activities
resulted in net interest  rate swap expense on FHLB  advances of $67.3  million,
and net interest  rate swap  expense on reverse  repurchase  agreements  of $8.2
million.

     Net income for 2000 was $350.5 million,  or $2.46 per diluted share,  which
includes gains on the early extinguishment of debt, net of tax, of $3.0 million.
The Bank's  efficiency  ratio was 48.35% for the year ended  December  31, 2001,
compared to 47.85% for the comparable period in 2000.

     On a pre-tax basis, net income for 2000 also included the effect of hedging
activities  resulting in net interest rate swap expense on FHLB advances of $7.2
million and net interest rate swap expense on reverse  repurchase  agreements of
$0.9 million.  Amortization expense on the MSRs was $204.0 million. During 2000,
hedging-related activities on the MSRs were not accounted for in accordance with
SFAS No. 133, which was prospective in application.

                                    Page 21
<PAGE>

     The following  table presents Golden State's  consolidated  average balance
sheet for the past three  years,  with the  related  interest  income,  interest
expense, and average interest rates for the periods presented.  Average balances
are calculated on a daily basis.
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                        2001                         2000                            1999
                                            ---------------------------    ---------------------------   ---------------------------
                                            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)              $   749   $   43    5.81%      $ 1,424   $   90     6.34%     $ 1,554   $  100     6.45%
      Mortgage-backed securities
          available for sale                  9,278      603    6.50        12,017      800     6.66       13,706      873     6.37
      Mortgage-backed securities
          held to maturity                    1,572      124    7.89         2,730      206     7.56        2,392      178     7.43
      Loans held for sale                     2,026      138    6.78           837       63     7.48        1,659      110     6.60
      Loans receivable, net:
         Residential                         31,428    2,142    6.81        29,800    2,108     7.07       24,723    1,726     6.98
         Commercial real estate               6,273      506    8.06         5,711      465     8.13        5,427      416     7.67
         Consumer                               896       75    8.40           763       78    10.27          649       62     9.59
         Auto                                 1,800      212   11.76         1,294      151    11.64          635       80    12.50
         Commercial banking                     610       47    7.69           519       52     9.96          514       48     9.40
                                            -------   ------               -------   ------               -------   ------
      Loans receivable, net                  41,007    2,982    7.27        38,087    2,854     7.49       31,948    2,332     7.30
      FHLB stock                              1,412       79    5.63         1,301       93     7.14        1,113       60     5.36
                                            -------   ------               -------   ------               -------   ------
      Total interest-earning assets          56,044    3,969    7.08%       56,396    4,106     7.28%      52,372    3,653     6.97%
                                                      ------               -------                        -------
   Noninterest-earning assets                 3,819                          3,070                          3,735
                                            -------                        -------                        -------
      Total assets                          $59,863                        $59,466                        $56,107
                                            =======                        =======                        =======

LIABILITIES, MINORITY INTEREST
   AND STOCKHOLDERS' EQUITY
   Interest-bearing liabilities:
      Deposits                              $24,358   $  832    3.41%      $23,240   $  928     3.99%     $23,902   $  888     3.72%
      Securities sold under agreements
         to repurchase (3)                    3,590      196    5.41         5,380      352     6.45        5,057      266     5.18
      Borrowings (3)                         27,727    1,578    5.67        27,407    1,679     6.10       23,613    1,313     5.56
      Other                                      55        1    2.80            --       --       --           --       --       --
                                            -------   ------               -------   ------               -------   ------
      Total interest-bearing liabilities     55,730    2,607    4.66%       56,027    2,959     5.26%      52,572    2,467     4.69%
                                                      ------               -------   ------               -------   ------
   Noninterest-bearing liabilities            1,338                          1,210                          1,453
   Minority interest                            497                            498                            540
   Stockholders' equity                       2,298                          1,731                          1,542
                                            -------                        -------                        -------
      Total liabilities, minority interest
         and stockholders' equity           $59,863                        $59,466                        $56,107
                                            =======                        =======                        =======
   Net interest income                                $1,362                         $1,147                         $1,186
                                                      ======                         ======                         ======
   Interest rate spread (4)                                     2.42%                             2.02%                        2.28%
                                                                ====                              ====                         ====
   Net interest margin                                          2.44%                             2.05%                        2.27%
                                                                ====                              ====                         ====

</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.

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

                                    Page 22
<PAGE>

     The following table shows the changes in interest income and expense due to
changes in rate and volume.  For each  category of  interest-earning  assets and
interest-bearing liabilities, information is provided on changes attributable to
volume  (change in average  outstanding  balance  multiplied by the prior 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,
                                                         ------------------------------------------------------------
                                                                2001 vs. 2000                    2000 vs. 1999
                                                         ----------------------------      --------------------------
                                                          Increase (Decrease) Due to       Increase (Decrease) Due to
                                                         ----------------------------      --------------------------
                                                         Volume       Rate       Net       Volume    Rate        Net
                                                         ------       ----       ---       ------    ----        ---
                                                                                  (in millions)
<S>                                                       <C>        <C>        <C>        <C>       <C>
INTEREST INCOME:
Securities and interest-bearing deposits in banks         $ (40)     $  (7)     $ (47)     $  (8)    $  (2)     $ (10)
Mortgage-backed securities available for sale              (178)       (19)      (197)      (116)       43        (73)
Mortgage-backed securities held to maturity                 (91)         9        (82)        25         3         28
Loans held for sale                                          80         (5)        75        (63)       16        (47)
Loans receivable, net                                       301       (173)       128        460        62        522
FHLB stock                                                    9        (23)       (14)        11        22         33
                                                          -----      -----      -----      -----     -----      -----
       Total                                                 81       (218)      (137)       309       144        453
                                                          -----      -----      -----      -----     -----      -----

INTEREST EXPENSE:
Deposits                                                    (23)       (73)       (96)       (24)       64         40
Securities sold under agreements to repurchase             (105)       (51)      (156)        18        68         86
Borrowings                                                   13       (114)      (101)       228       138        366
Other                                                         1         --          1         --        --         --
                                                          -----      -----      -----      -----     -----      -----
       Total                                               (114)      (238)      (352)       222       270        492
                                                          -----      -----      -----      -----     -----      -----

Change in net interest income                             $ 195      $  20      $ 215      $  87     $(126)     $ (39)
                                                          =====      =====      =====      =====     =====      =====
</TABLE>

     YEAR ENDED DECEMBER 31, 2001 VERSUS YEAR ENDED DECEMBER 31, 2000

     INTEREST  INCOME.  Total  interest  income  was $4.0  billion  for 2001,  a
decrease of $137.1  million from 2000.  Total  interest-earning  assets for 2001
averaged  $56.0  billion,  compared to $56.4  billion for 2000.  The decrease in
interest-earning  assets is  primarily a result of a decline in  mortgage-backed
securities,   principally  due  to  management's   decision  to  sharply  reduce
purchases.  This decrease was partially  offset by increased  loan volume and an
increase in loans held for sale due to significant  refinancing  activity during
2001 as a result of 40-year record low mortgage  interest  rates.  The change in
net interest income attributed to changes in volume increased despite a decrease
in  total  average   interest-earning  assets  because  the  volume  of  average
interest-earning  assets with higher rates  increased  more than the  offsetting
decrease in the volume of average  interest-earning assets with lower rates. The
yield on total  interest-earning  assets for 2001  decreased to 7.08% from 7.28%
for 2000,  primarily due to the repricing of loans and securities  available for
sale at lower rates,  partially offset by a higher  percentage of loans to total
earning assets during 2001. At December 31, 2001, 13% of the Company's portfolio
loans were tied to COFI  indices,  13% to  Treasury-based  indices  and 47% were
"hybrid"  ARMs - fixed  for  three to ten  years  and then  adjusting  annually.
Twenty-three  percent  of  the  portfolio  is  fixed.  The  remaining  4% of the
portfolio is in other adjustable-rate products.

     Golden State earned $3.0 billion of interest income on loans receivable for
2001,  an increase of $127.9  million  from 2000.  The average  balance of loans
receivable  was $41.0 billion for 2001,  compared to $38.1 billion for 2000. The
weighted  average  yield on loans  receivable  decreased  to 7.27% for 2001 from
7.49% for 2000. The increase in the average  balance  reflects a net increase in
residential and commercial real estate loan origination  activities and new auto
loan  production,  primarily  due to lower  interest  rates  during 2001 and new
product  offerings.  The decrease in the  weighted  average  yield  reflects the
repricing of  variable-rate  loans,  a decrease in the prime rate on  commercial
banking loans and comparatively  lower market interest rates in 2001,  partially
offset by a higher yield on auto loans purchased  after July 1, 2001,  which are
recorded on a gross-coupon basis, rather than a credit-adjusted yield basis. The
impact of this change on net interest  income during the year ended December 31,
2001 was an increase of $10.1 million.

                                    Page 23
<PAGE>

     Loan production is detailed in the table below (in thousands):
<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                             ----------------------------------------------------
                                                                 2001               2000                 1999
                                                             -----------         -----------          -----------
     <S>                                                     <C>                 <C>                  <C>
     Loans funded:
         Residential real estate loans:
              Adjustable-rate                                $ 6,765,133         $ 7,259,633          $ 6,959,519
              Fixed-rate                                      18,748,809           5,841,362            8,755,853
                                                             -----------         -----------          -----------
                  Total  residential  real  estate loans      25,513,942          13,100,995           15,715,372

         Commercial real estate loans                          1,652,885           1,287,732              781,042
         Commercial loans                                      1,043,144             701,023              610,385
         Consumer nonmortgage loans                              803,997             736,416              573,844
         Auto loans (directly originated)                         20,175              12,145                   --
         Other                                                        --                 124                  353
                                                             -----------         -----------          -----------
                  Total loans funded                         $29,034,143         $15,838,435          $17,680,996
                                                             ===========         ===========          ===========

     Loans purchased:
         Residential real estate loans                       $ 3,148,581         $   594,639          $ 2,048,315
         Auto loans (a)                                        1,150,013           1,053,960              485,802
                                                             -----------         -----------          -----------
                  Total loans purchased                      $ 4,298,594         $ 1,648,599          $ 2,534,117
                                                             ===========         ===========          ===========
</TABLE>
------------
(a)  Approximately  41%,  43% and  zero  percent  of this  volume  was in  prime
     product;  59%,  57% and 100% was in  sub-prime  product for the years ended
     December 31, 2001, 2000 and 1999, respectively.

     Golden State  earned  $137.4  million of interest  income on loans held for
sale for 2001,  an increase of $74.8 million from 2000.  The average  balance of
loans held for sale was $2.0 billion for 2001,  an increase of $1.2 billion from
2000, primarily attributed to increased  originations of residential  fixed-rate
loans as a result of  heightened  borrower  refinancing  activity in the current
declining  interest rate  environment.  Fixed-rate  production for sale totalled
$17.6 billion  during the year ended December 31, 2001, an increase of 230% over
the $5.3 billion  originated  during 2000.  The weighted  average yield on loans
held for sale decreased to 6.78% for 2001 from 7.48% for 2000,  primarily due to
declining market interest rates.

     Interest income on mortgage-backed securities available-for-sale was $603.1
million in 2001, a decrease of $197.3 million from 2000.  The average  portfolio
balance  decreased $2.7 billion,  to $9.3 billion for 2001. The weighted average
yield on these  assets  decreased  from  6.66% for 2000 to 6.50%  for 2001.  The
decrease  in the volume is  primarily  attributed  to  management's  decision to
sharply   reduce   purchases,   coupled  with  high   repayments  and  sales  of
mortgage-backed    securities,    partially   offset   by   the   $1.1   billion
reclassification  in  mortgage-backed   securities  from  the   held-to-maturity
portfolio,  as  permitted  upon the adoption of SFAS No. 133 on January 1, 2001.
The decrease in the weighted  average yield primarily  reflects the repricing of
variable-rate securities at lower rates.

     Interest income on mortgage-backed  securities  held-to-maturity was $124.1
million for 2001, a decrease of $82.4 million from 2000.  The average  portfolio
balance decreased $1.2 billion,  to $1.6 billion for 2001,  primarily due to the
$1.1   billion   reclassification   in   mortgage-backed   securities   to   the
available-for-sale  portfolio, as permitted upon the adoption of SFAS No. 133 on
January 1, 2001.  The weighted  average  yields for 2001 and 2000 were 7.89% and
7.56%, respectively. The increase in the weighted average yield is primarily the
result of the aforementioned $1.1 billion  reclassification of securities with a
weighted average rate of 6.84%.

     Interest income on securities and interest-bearing  deposits in other banks
was $43.6 million for 2001, a decrease of $46.9  million from 2000.  The average
portfolio  balance  was $0.7  billion for 2001 and $1.4  billion  for 2000.  The
decrease in the volume is primarily  attributed  to payments and  maturities  of
securities. The lower weighted average yield of 5.81% for 2001 compared to 6.34%
for 2000 is primarily due to $2.4 million in interest income on a federal income
tax refund related to Old California Federal, received in the first half of 2000
(for which  there is no  corresponding  earning  asset),  and the  repricing  of
securities at lower rates during 2001.

                                    Page 24
<PAGE>

     Dividends  on FHLB stock were $79.5  million for 2001,  a decrease of $13.4
million from 2000. The average balance outstanding during 2001 and 2000 was $1.4
billion and $1.3 billion,  respectively.  The weighted  average dividend on FHLB
stock  declined  to 5.63% for 2001 from  7.14% for  2000.  The  increase  in the
average  balance is due to an overall  increase in average  borrowings  from the
FHLB  while  the  decrease  in the  weighted  average  yield is the  result of a
reduction in the dividend rate on FHLB stock.

     INTEREST  EXPENSE.  Total  interest  expense was $2.6  billion for 2001,  a
decrease of $351.8 million from 2000. The decrease is primarily due to declining
market  interest  rates and a reduction in securities  sold under  agreements to
repurchase,  partially  offset by additional  borrowings under FHLB advances and
deposits used to fund total assets.

     Interest  expense on  deposits,  including  Brokered  Deposits,  was $831.5
million for 2001, a decrease of $96.9 million from 2000. The average  balance of
deposits outstanding  increased from $23.2 billion for 2000 to $24.4 billion for
2001. Deposit interest expense attributed to changes in volume decreased despite
an increase  in average  volume  because  the volume of the  average  individual
deposit  categories  with lower or zero rates (such as transaction and custodial
accounts) increased  significantly,  while those with higher rates (such as CDs)
decreased.  The  increase  in the average  balance is  primarily  attributed  to
increases in the average balances of money market accounts,  custodial  accounts
and retail customer checking  accounts,  partially offset by declines in CDs and
savings  account  balances.  The  overall  weighted  average  cost  of  deposits
decreased  to 3.41% for 2001 from  3.99%  for  2000,  primarily  due to a higher
average balance of lower rate money market,  custodial and checking accounts and
a lower average balance of higher rate CDs in 2001.

     Interest expense on securities sold under agreements to repurchase totalled
$196.4  million for 2001, a decrease of $155.7  million  from 2000.  The average
balance of such  borrowings for 2001 and 2000 was $3.6 billion and $5.4 billion,
respectively.  The decrease in the average  balance is  primarily  the result of
maturities  during  the year ended  December  31,  2001.  The  weighted  average
interest  rate on these  instruments  decreased to 5.41% for 2001 from 6.45% for
2000,  primarily due to maturities of higher rate fixed-rate  borrowings and the
repricing of variable-rate borrowings at lower rates during 2001.

     Interest  expense on borrowings  totalled $1.6 billion for 2001, a decrease
of $100.9 million from 2000. The average  balance  outstanding for 2001 and 2000
was $27.7 billion and $27.4 billion, respectively. The weighted average interest
rate on these  instruments  decreased to 5.67% for 2001 from 6.10% for 2000. The
increase in the average volume is the result of additional  FHLB borrowings used
to replace securities sold under agreements to repurchase, while the decrease in
the weighted average rate is primarily due to declining market interest rates in
2001.

     NET  INTEREST  INCOME.  Net interest  income was $1.4 billion for 2001,  an
increase of $214.7  million  from 2000.  The interest  rate spread  increased to
2.42% for 2001 from 2.02% for 2000,  primarily as a result of  declining  market
interest  rates  reducing costs of liabilities at a faster rate than the decline
in the  yield  on  assets.  Lower-costing  liabilities  were the  result  of the
replacement of higher-rate  borrowings and deposits with  lower-rate  borrowings
and  deposits as these  instruments  came due or were  repaid.  The net interest
margin  increased to 2.44% for the year ended  December  31,  2001,  up 39 basis
points from the 2.05% reported during the year 2000.

     NONINTEREST INCOME. Total noninterest income,  consisting primarily of loan
servicing fees, customer banking fees, gain on sale,  settlement and transfer of
loans, net, gain on sale of assets,  net and other income was $350.9 million for
2001,  representing  a decrease of $89.8 million from 2000.  Noninterest  income
includes the following components (in thousands):
<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                                  -------------------------------------
                                                                    2001           2000          1999
                                                                    ----           ----          ----
     <S>                                                          <C>            <C>           <C>
     Noninterest income:
        Loan servicing fees, net                                  $(14,393)      $176,159      $127,834
        Customer banking fees and servicing charges                221,796        196,969       187,022
        Gain on sale, settlement and transfer of loans, net         78,440         49,730        32,885
        Gain (loss) on sale of assets, net                          17,525        (13,426)       24,042
        Other income                                                47,550         31,333        28,211
                                                                  --------       --------      --------
             Total noninterest income                             $350,918       $440,765      $399,994
                                                                  ========       ========      ========
</TABLE>


                                    Page 25
<PAGE>

     Loan servicing fees for the Company were $(14.4) million for the year ended
December 31,  2001,  compared to $176.2  million in 2000 and $127.8  million for
1999. The following  table details the  components of loan  servicing  fees, net
(dollars in thousands):
<TABLE>
<CAPTION>

                                                                                Year Ended December 31,
                                                                       ------------------------------------------
                                                                         2001            2000             1999
                                                                         ----            ----             ----
     <S>                                                               <C>             <C>              <C>
     Components of loan servicing fees, net:
        Loan servicing fees                                            $ 457,542       $ 390,616        $ 358,992
        Amortization of MSRs                                            (361,076)       (204,032)        (212,310)
        Pass-through Interest Expense                                    (37,462)        (10,425)         (18,848)
        Net gain on MSRs/MSR derivatives (SFAS No. 133)                   79,948              --               --
        MSR valuation provision                                         (153,345)             --               --
                                                                       ---------       ---------        ---------
             Total loan servicing fees, net                            $ (14,393)      $ 176,159        $ 127,834
                                                                       =========       =========        =========

     Portfolio run off rate (residential portfolio only)                    30.1%           12.3%            20.7%
     Run off rate of MSR value (residential portfolio only)                 23.9            11.2              N/A
     MSR amortization rate (residential portfolio only)                     24.1            13.6             18.1
</TABLE>

     As the table  reflects,  gross loan servicing fees increased  $66.9 million
from  year-ago  levels,  which is  primarily  attributable  to the growth of the
Company's  servicing  portfolio and higher  ancillary  fees.  The  single-family
residential  loan servicing  portfolio,  excluding  loans serviced for the Bank,
increased  from $84.1  billion at December 31, 2000 to $85.2 billion at December
31,  2001.  The  portfolio  runoff  rate,  representing  the  percentage  of the
residential  portfolio  that has been paid off during the year,  influences  MSR
amortization,  which  increased  $157.0  million in 2001 over the same period in
2000. MSR amortization was also affected by a higher average MSR balance for the
year ended  December 31, 2001 compared to the same period in 2000.  Pass-through
Interest Expense  increased $27.0 million (259%) year over year, also influenced
by higher runoff rates.  Servicing fee income  includes a $79.9 million  pre-tax
gain from the impact of SFAS No. 133 pertaining to the MSR fair value hedges.  A
$153.3 million pre-tax  valuation  provision on the MSRs was recorded during the
year ended  December 31, 2001.  See  "--Mortgage  Banking Risk  Management"  for
further discussion.

     Customer  banking  fees were  $221.8  million  for 2001  compared to $197.0
million for 2000. The increase is primarily  attributed to increased emphasis by
management on  transaction  account growth and higher fee income on mutual fund,
annuity  and other  investment  and  insurance  product  sales  through  Cal Fed
Investments. 2001 also includes a $3.3 million reclassification to reflect gross
revenues from customer check printing fees rather than net revenues. Transaction
accounts  (including  custodial  accounts)  as a percentage  of retail  deposits
increased to 57.4% at December 31,  2001,  from 46.5% at December 31, 2000.  The
following table details the components of customer banking fees (in thousands):
<TABLE>
<CAPTION>

                                                                                  Year ended December 31,
                                                                          --------------------------------------
                                                                            2001          2000            1999
                                                                            ----          ----            ----
     <S>                                                                  <C>           <C>             <C>
     Components of customer banking fees and service charges:
         Transaction account fees                                         $146,580      $120,992        $117,500
         Other retail customer fees                                          2,548         3,179           2,633
         Investment sales income                                            61,994        55,435          51,608
         Insurance commissions                                              10,674        17,363          15,281
                                                                          --------      --------        --------
              Total customer banking fees and service charges             $221,796      $196,969        $187,022
                                                                          ========      ========        ========
</TABLE>

                                    Page 26
<PAGE>

     Gain on sale,  settlement and transfer of loans, net totalled $78.4 million
for 2001,  an  increase  of $28.7  million  from 2000.  During  the years  ended
December  31, 2001 and 2000,  the Company  recorded  reductions  in its recourse
liability of $24.5 million and $20.5 million, respectively, which is included in
this  income  category.  This  liability  is a  life-of-loan  accrual  which has
experienced  favorable  performance  over the past several years.  The Company's
revised loss  estimate is lower than  previously  expected,  primarily for three
reasons:

     (a)  The  historical  performance  of these  loans since they were sold has
          been better than initial estimates and expectations, with only minimal
          losses experienced over the past four years.

     (b)  These  loans are  generally  over 10 years  old.  This  seasoning  has
          contributed to lower LTVs, and hence, lower loss exposure.

     (c)  Interest rates have been  relatively low over the past few years,  and
          have continued to decline.  Because  substantially  all of these loans
          are adjustable-rate  loans, borrowers have enjoyed lower payments. The
          lag associated  with  adjustable-rate  indices assures that borrowers'
          payments will continue to decline.

     During  2001,  California  Federal  sold  $16.3  billion  in  single-family
mortgage loans originated for sale with servicing rights retained as part of its
ongoing mortgage  banking  operations at gains of $48.7 million compared to $5.2
billion  of such  sales for the  corresponding  period in 2000 at gains of $21.1
million. The results in 2001 include $4.2 million related to the gain on sale of
$136.2  million  in  government-insured  loans  that were  previously  seriously
delinquent and had become performing (GNMA  reperformers).  The overall increase
in the volume of loans sold and the related gain is a result of the  significant
increase in fixed-rate  loan  originations as a result of the overall decline in
market interest rates and increased mortgage  refinancing.  Gain on sale in 2001
also includes a $6.1 million  unrealized  loss from the  application of SFAS No.
133 on the derivative rate locks,  forward loan sale commitments and closed loan
inventory.

     Gain on sale of assets, net totalled $17.5 million for 2001,  compared to a
net loss of $13.4  million  for 2000.  The gain  during  2001  includes  a $17.3
million gain on the sale of $777.9 million in  mortgage-backed  securities and a
gain of $9.3 million on the sale of the  Company's  Concord EFS stock.  This was
partially offset by a $5.8 million loss on the  mark-to-market  of the Company's
portfolio of IO strip and "B" tranche mortgage  securities  pursuant to EITF No.
99-20, as well as a $4.1 million  write-down in the Company's equity  securities
portfolio. The loss during 2000 is primarily attributed to an $18.7 million loss
from the sale of approximately $500 million of  mortgage-backed  securities with
an average yield of 6.64% during the second quarter and a $0.9 million loss from
the sale of $187.6 million of  mortgage-backed  securities with an average yield
of 6.59% during the third quarter,  partially offset by a $1.5 million gain from
the sale of $699.2 million  mortgage-backed  securities with an average yield of
7.27%  during  the  fourth  quarter  and a $1.3  million  gain  from the sale of
interest rate swaps with a notional amount of $150.0 million in August 2000.

     Other income  totalled $47.6 million for 2001, an increase of $16.2 million
from 2000,  primarily  attributed to a gain of $20.7 million on the non-monetary
exchange of Star Systems  common stock for 634,520  shares of Concord EFS common
stock,  which  occurred  in the first  quarter of 2001 as a result of  Concord's
acquisition of Star Systems.

                                    Page 27
<PAGE>

     NONINTEREST EXPENSE. Total noninterest expense was $979.3 million for 2001,
an increase of $66.1  million from 2000.  Noninterest  expense for 2001 included
increases  of $29.0  million  in other  noninterest  expense,  $27.8  million in
compensation  and employee  benefit  expense,  $12.4  million in  occupancy  and
equipment  expense and $3.8 million in foreclosed real estate  operations,  net.
These  increases  were  partially   offset  by  decreases  of  $3.9  million  in
professional  fees  and $2.9  million  in  amortization  of  intangible  assets.
Noninterest expense includes the following components (in thousands):
<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                        ------------------------------------------
                                                          2001             2000             1999
                                                        --------         --------         --------
     <S>                                                <C>              <C>              <C>
     Noninterest expense:
       Compensation and employee benefits               $455,199         $427,362         $391,597
       Occupancy and equipment                           173,269          160,820          148,411
       Professional fees                                  37,475           41,381           52,667
       Loan expense                                       16,828           17,018           17,200
       Foreclosed real estate operations, net               (905)          (4,690)          (6,411)
       Amortization of intangible assets                  59,861           62,717           69,724
       Other expense                                     237,616          208,631          233,421
                                                        --------         --------         --------
            Total noninterest expense                   $979,343         $913,239         $906,609
                                                        ========         ========         ========
</TABLE>

     Compensation and employee  benefits expense was $455.2 million for 2001, an
increase of $27.8 million from 2000. The increase is primarily  attributed to an
increase in staff (from 7,834 FTE at December  31, 2000 to 8,219 at December 31,
2001),  primarily in  volume-related  operating groups, as well as normal salary
adjustments.  In  addition,  the  Company has  experienced  an increase in group
insurance  and other  benefit  costs that it has  elected  not to pass on to its
employees.

     Occupancy and equipment expense was $173.3 million for 2001, an increase of
$12.4 million from 2000, primarily due to an increase in depreciation expense as
a result  of  purchases  of  furniture  and  equipment,  mainly  computers  with
depreciable  lives of 36  months,  as well as higher  contract  maintenance  and
repair fees and increased rent expense.

     Professional  fees were $37.5  million for 2001, a decrease of $3.9 million
from 2000,  primarily  due to a decrease in  consulting  fees related to various
data processing systems projects.

     Foreclosed real estate operations,  net totalled $0.9 million in income for
the year ended 2001, compared to $4.7 million in income for 2000,  primarily due
to fewer gains on sale of REO properties during 2001.

     Amortization of intangible assets was $59.9 million for 2001, a decrease of
$2.9 million from 2000, primarily attributed to a $50.0 million reduction in the
goodwill balance in December 2000 due to the reversal of Old California  Federal
state deferred taxes.

     Other  noninterest  expense was $237.6  million in 2001  compared to $208.6
million in 2000.  The  increase in expenses  relates to increases in a number of
operating  expense  categories,  including retail back office  operations,  bank
charges, telephone, marketing, courier service and charitable contributions.

     PROVISION FOR LOAN LOSSES.  The provision for loan losses was zero for both
2001 and 2000.  This  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 28
<PAGE>

     PROVISION FOR INCOME TAX. During 2001, Golden State recorded net income tax
expense of $292.0 million,  which included net tax benefits of $29.0 million. In
prior years, an accrued  liability was established for the purpose of satisfying
assessments that may result from issues arising during audits with various state
taxing  authorities.  As a result of the  completion and settlement of audits in
various state taxing jurisdictions,  additional guidance on the deductibility of
covered asset losses,  and the current assessment of exposure for tax strategies
employed for prior years,  management reduced its accrued state tax liability by
$39.7 million. The Company also recorded additional Federal tax expense of $13.9
million due to the reduction of the state tax expense.

     In  addition,  during  2001,  a provision  in lieu of income  taxes of $3.2
million  was  recorded  due to the  utilization  of net  operating  losses  of a
subsidiary  made  available  as a result of the  subsidiary's  liquidation  into
California Federal.  Because these tax benefits accrue to the previous owners of
FN  Holdings  under  the  Golden  State  Merger  agreement,  minority  interest:
provision in lieu of income tax expense was increased by $3.2 million, an amount
equal to the reduction in income tax expense. These adjustments had no impact on
net income available to common stockholders (see "--Minority Interest.")

     During  2000,  Golden  State  recorded  gross  income tax expense of $298.5
million,  which was offset by a tax benefit of $161.7 million,  resulting in net
income tax expense of $136.8 million.  Based on favorable resolutions of federal
income  tax audits of Old  California  Federal  and  Glendale  Federal,  and the
current status of Mafco's,  including the  Company's,  audits for the years 1991
through  1995.   During  2000,   management   changed  its  judgment  about  the
realizability  of the  Company's  deferred  tax asset and reduced its  valuation
allowance by $211.7  million.  As a result of reducing the valuation  allowance,
income tax  expense was reduced by $161.7  million and  goodwill  was reduced by
$50.0 million.  Because these tax benefits  accrue to the previous  owners of FN
Holdings under the Golden State Merger agreement,  minority interest:  provision
in lieu of income tax expense was increased by $161.7  million,  an amount equal
to the reduction in income tax expense.  These  adjustments had no impact on net
income available to common shareholders (see "--Minority Interest.")

     Golden  State's  effective  gross  federal  income tax rate was 39% and 38%
during 2001 and 2000, respectively,  while its federal statutory income tax rate
was 35% during both periods.  In 2001, the difference  between the effective and
statutory rates was primarily the result of a reduction in the accrued state tax
liability and  non-deductible  goodwill  amortization.  In 2000,  the difference
between  the  effective  and  statutory   rates  was  primarily  the  result  of
non-deductible  goodwill  amortization.  Golden State's effective state tax rate
was 1% and 6% during 2001 and 2000,  respectively.  The effective state tax rate
declined  during  2001 as a result  of a  reduction  in the  accrued  state  tax
liability previously discussed.

     MINORITY INTEREST.  For each of the years ended December 31, 2001 and 2000,
dividends on the REIT Preferred Stock were recorded totalling $27.0 million, net
of the  income  tax  benefit,  which  will  inure to the Bank as a result of the
deductibility of such dividends for income tax purposes.

     Minority  interest for 2001  includes a $3.2  million  provision in lieu of
income  taxes,  representing  pre-merger  tax benefits  retained by the previous
owners of FN Holdings related to net operating losses made available as a result
of a subsidiary's  liquidation  into California  Federal Bank. Also during 2001,
minority interest income of $110 thousand was recorded representing  post-merger
interest expense resulting from tax audit of Old California Federal. As a result
of this transaction, Issuable Shares was reduced by $110 thousand.

     Minority  interest expense for 2000 includes a $161.7 million  provision in
lieu of income  taxes,  representing  pre-merger  tax  benefits  retained by the
previous  owners of FN Holdings  related to the first  quarter  reduction of the
valuation  allowance  on the  Bank's  deferred  tax  asset  (see  note 23 of the
Company's Notes to Consolidated Financial Statements). Minority interest expense
for 2000 also includes  $1.4 million due to the previous  owners of FN Holdings,
representing after-tax interest income on a tax refund related to Old California
Federal for periods prior to the Golden State Acquisition.

     EXTRAORDINARY ITEMS. During 2000, the FHLB called and the Bank prepaid $400
million in advances,  resulting in an extraordinary gain of $3.0 million, net of
income taxes of $2.1 million,  on the early  extinguishment  of such borrowings.
Also during 2000, the Bank repurchased $2.5 million outstanding principal amount
of  the  Convertible   Subordinated   Debentures  due  2001,   resulting  in  an
extraordinary gain of $41 thousand,  net of income taxes of $30 thousand, on the
early extinguishment of debt.

                                    Page 29
<PAGE>

     CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING  PRINCIPLE.  Cumulative effect of
change in accounting  principle for the year ended  December 31, 2001 includes a
write-down  of $1.6  million,  net of income taxes of $1.1  million,  on certain
securities  as a result of the  Company's  implementation  of EITF No.  99-20 on
April 1, 2001.  See note 32 of the  Company's  Notes to  Consolidated  Financial
Statements.

     IMPACT OF SFAS NO. 133. On January 1, 2001,  the Company  adopted  SFAS No.
133.  In  connection  with  the  adoption  of this  pronouncement,  the  Company
reclassified   $1.2   billion   in   securities   from    held-to-maturity    to
available-for-sale,  which had the  effect of  improving  the OCI  component  of
stockholders' equity by $30.4 million. The pronouncement  impacted several other
areas of the financial  statements on a year-to-date  basis, as summarized below
(debit/(credit); in thousands):
<TABLE>
<CAPTION>
                                              Assets                      Liabilities and Equity             Pre-tax Earnings
                                  --------------------------------   --------------------------------     ---------------------
                                   Loans                                             Taxes-                 Loan    (Gain)/Loss
                                    Held    Residential Derivative   Derivative       Other               Servicing  on Sale of
                                  for Sale     MSRs       Assets     Liabilities   Liabilities   OCI      Fees, net     Loans
                                  --------     ----       ------     -----------   -----------   ---      ---------     -----
<S>                               <C>       <C>          <C>         <C>          <C>         <C>         <C>        <C>
Transfer hedge component
  of MSR balance                  $    --   $ (95,013)   $ 95,013    $      --    $     --    $     --    $     --   $     --

Transition adjustment - (record
  initial fair values):
  MSRs and MSR hedges                  --     (69,754)     78,610       (8,856)         --          --          --         --
  Warehouse loans                   3,834          --          --           --          --          --          --     (3,834)
  Interest rate locks                  --          --       2,911           --          --          --          --     (2,911)
  FLSC hedges                          --          --          --       (5,696)         --          --          --      5,696
  Cash flow hedges - swaps             --          --          --      (75,482)     30,835      44,647          --         --
                                  -------   ---------    --------    ---------    --------    --------     -------    -------
SUBTOTAL - JANUARY 1, 2001
  TRANSITION ENTRIES                3,834    (164,767)    176,534      (90,034)     30,835      44,647          --     (1,049)

Fair value adjustments:
  MSRs and MSR hedges                  --      66,146      69,856      (56,324)         --          --     (79,948)        --
  Warehouse loans                 (33,562)         --          --           --          --          --          --     33,562
  Interest rate locks                  --          --      (2,911)     (13,269)         --          --          --     16,180
  FLSC hedges                          --          --      36,878        5,697          --          --          --    (42,575)
  Cash flow hedges - swaps             --          --          --     (126,343)     51,611      74,732          --         --
                                  -------   ---------    --------    ---------    --------    --------    --------    -------
FAIR VALUE ADJUSTMENTS -
  YEAR ENDED
  DECEMBER 31, 2001                (33,562)     66,416      103,823    (190,239)    51,611      74,732     (79,948)      7,167

Other Activity - Year ended
  Dcember 31, 2001:
  MSR hedge additions                   --          --      713,575          --         --          --          --         --
  MSR hedge sales and
     maturities                         --          --     (660,726)     37,693         --          --          --         --
  Hedge receipts and
     payments                           --        (121)      15,820      (8,401)        --          --          --         --
                                  --------   ---------    ---------   ---------   --------    --------    --------    -------
TOTAL OTHER ACTIVITY -
  YEAR ENDED
  DECEMBER 31, 2001                     --        (121)      68,669      29,562         --          --          --         --
                                  --------   ---------    ---------   ---------   --------    --------    --------    -------
TOTAL IMPACT FROM
  SFAS NO. 133 - YEAR
  ENDED DECEMBER 31, 2001         $(29,728)   $(98,472)   $ 349,026   $(250,711)   $82,446    $119,379    $(79,948)   $  6,118
                                  ========    ========    =========   =========    =======    ========    ========    ========
</TABLE>

     During the year ended  December 31, 2001,  the impact of SFAS No. 133 added
$0.30 to diluted earnings per share. For additional  discussion of the Company's
hedging  activities,  please see note 37 to the Company's  Notes to Consolidated
Financial Statements.

                                    Page 30
<PAGE>

     YEAR ENDED DECEMBER 31, 2000 VERSUS YEAR ENDED DECEMBER 31, 1999

     INTEREST  INCOME.  Total  interest  income was $4.1  billion  for 2000,  an
increase of $453.5  million from 1999.  Total  interest-earning  assets for 2000
averaged $56.4 billion,  compared to $52.4 billion for the corresponding  period
in 1999,  primarily as a result of increased loan volume,  partially offset by a
decline  in  mortgage-backed  securities.  The  yield on total  interest-earning
assets  during 2000  increased to 7.28% from 6.97% for 1999,  primarily due to a
higher  percentage  of  loans to  total  earning  assets  and the  repricing  of
variable-rate earning assets.

     Golden State earned $2.9 billion of interest income on loans receivable for
2000,  an increase of $520.5  million  from 1999.  The average  balance of loans
receivable  was $38.1 billion for 2000,  compared to $31.9 billion for 1999. The
weighted average rate on loans receivable increased to 7.49% for 2000 from 7.30%
for 1999.  The  increase  in the  average  balance  reflects an increase in loan
origination  activity and new auto loan production from the Downey  Acquisition.
The  increase  in  the  weighted   average  rate   reflects  the   repricing  of
variable-rate  loans, an increase in the prime rate on commercial  banking loans
and comparatively  higher market rates in 2000,  partially offset by lower rates
on new purchases of prime auto loans,  including  those  purchased in the Downey
Acquisition.

     Golden State earned $62.6 million of interest income on loans held for sale
for 2000, a decrease of $46.9  million from 1999.  The average  balance of loans
held for sale was $837  million for 2000,  a decrease of $822 million from 1999,
primarily  attributed  to a reduction in fixed-rate  originations  due to higher
interest  rates,  coupled with longer holding periods for loans held for sale in
1999.  The weighted  average rate on loans held for sale  increased to 7.48% for
2000 from 6.60% for 1999, primarily due to higher market interest rates.

     Interest income on mortgage-backed securities available for sale was $800.4
million in 2000, a decrease of $72.4  million from 1999.  The average  portfolio
balance  decreased  during 2000 by $1.7 billion,  to $12.0 billion for 2000. The
weighted  average yield on these assets  increased  from 6.37% for 1999 to 6.66%
for 2000.  The decrease in the volume and the  increase in the weighted  average
yield  are   primarily   due  to  the   reclassification   of  $1.1  billion  in
mortgage-backed  securities  to  the  held-to-maturity  portfolio,   run-off  of
existing   portfolios   and  the  sale  of   approximately   $1.4   billion   in
mortgage-backed  securities  during  2000,  partially  offset  by the  impact of
purchases.

     Interest income on  mortgage-backed  securities held to maturity was $206.5
million for 2000, an increase of $28.8 million from 1999. The average  portfolio
balance  increased  during  2000 by $338.0  million,  to $2.7  billion for 2000,
primarily  attributed to the reclassification of $1.1 billion in mortgage-backed
securities  from  the  available-for-sale  portfolio,  partially  offset  by the
run-off of existing  portfolios.  The run-off in these  securities  was replaced
with  the  origination  and  purchase  of  whole  loans  instead  of  additional
mortgage-backed  securities.  The weighted average yields for 2000 and 1999 were
7.56% and 7.43%, respectively.

     Interest income on securities and interest-bearing  deposits in other banks
was $90.5  million for 2000, a decrease of $9.7  million from 1999.  The average
portfolio balance was $1.4 billion for 2000 and $1.6 billion for 1999. The lower
weighted  average  yield of 6.34% for 2000,  compared to 6.45% for 1999 reflects
$2.4  million and $7.7  million,  respectively,  in  interest  income on federal
income tax refunds  related to Old  California  Federal for periods prior to the
Golden State Acquisition for which there are no corresponding assets.

     Dividends on FHLB stock were $92.9  million for 2000,  an increase of $33.2
million from 1999. The average balance outstanding during 2000 and 1999 was $1.3
billion and $1.1 billion,  respectively.  The weighted  average dividend on FHLB
stock  increased  to 7.14% for 2000 from  5.36% for 1999.  The  increase  in the
average  balance and weighted  average yield is due to an increase in the amount
of such stock  owned by the  Company as a result of an  increase  in  borrowings
under FHLB advances and an increase in the dividend rate on FHLB stock.

     INTEREST  EXPENSE.  Total  interest  expense was $3.0 billion for 2000,  an
increase of $492.6  million from 1999.  The increase is primarily  the result of
additional  borrowings  under FHLB advances and securities sold under agreements
to  repurchase  used to fund loans and offset the  reduction in average  deposit
balances, coupled with an overall higher interest rate environment.

                                    Page 31
<PAGE>

     Interest  expense on  deposits,  including  Brokered  Deposits,  was $928.4
million for 2000, an increase of $40.1 million from 1999. The average balance of
deposits outstanding  decreased from $23.9 billion for 1999 to $23.2 billion for
2000.  The  decrease in the  average  balance  includes  declines in the average
balance of CDs, custodial accounts,  passbook savings and money market accounts,
offset in part by an  increase  in the  average  balance  of  customer  checking
accounts.  These  changes  reflect the  Company's  focus during 2000 on consumer
checking account growth. The overall weighted average cost of deposits increased
to 3.99% for 2000 from 3.72% for 1999,  primarily due to rising market  interest
rates.

     Interest expense on securities sold under agreements to repurchase totalled
$352.1  million for 2000,  an increase of $86.6  million from 1999.  The average
balance of such  borrowings for 2000 and 1999 was $5.4 billion and $5.1 billion,
respectively.  The increase is primarily  attributed to the funding of loans and
the  purchase of  mortgage-backed  securities  during  1999,  as well as deposit
run-off.  The weighted average interest rate on these  instruments  increased to
6.45% for 2000  from  5.18% for 1999,  primarily  due to an  increase  in market
interest rates on new borrowings in 2000 compared to 1999.

     Interest expense on borrowings  totalled $1.7 billion for 2000, an increase
of $365.9 million from 1999. The average  balance  outstanding for 2000 and 1999
was $27.4 billion and $23.6 billion, respectively. The weighted average interest
rate on these  instruments  increased  to 6.10%  for 2000  from  5.56% for 1999,
primarily due to higher  prevailing  market  interest  rates in 2000. The higher
volume  reflects  the  increase  in FHLB  advances  used to fund  loans  and the
purchase of mortgage-backed securities during 1999.

     NET  INTEREST  INCOME.  Net  interest  income was $1.1  billion for 2000, a
decrease of $39.1 million from 1999. The interest rate spread  declined to 2.02%
for 2000 from 2.28% for 1999, primarily as a result of maturities and repayments
of lower rate interest-bearing  liabilities being replaced with interest-bearing
liabilities  having  comparatively  higher rates.  The effect of higher rates on
liabilities was partially  offset by higher yielding assets  replenishing  asset
run-off in a rising rate environment and the repricing of variable-rate assets.

     NONINTEREST INCOME. Total noninterest income,  consisting primarily of loan
servicing fees,  customer banking fees and gains on sales of assets,  was $440.8
million for 2000, representing an increase of $40.8 million from 1999.

     Loan servicing fees, net of amortization of MSR and  pass-through  interest
expense,  were $176.2 million for 2000, compared to $127.8 million for 1999. The
single-family residential loan servicing portfolio, excluding loans serviced for
the Bank,  increased from $72.9 billion at December 31, 1999 to $84.1 billion at
December 31, 2000.  Incremental  loan servicing  fees were  partially  offset by
amortization of MSRs and  pass-through  interest  expense.  MSR amortization for
2000  decreased by $8.3  million  from 1999 due to a reduction in the  estimated
prepayment  rate,  partially  offset by a higher MSR basis.  Loan servicing fees
benefited  from the  slowdown  in mortgage  loan  prepayments  in 2000,  with an
average prepayment rate on loans serviced for others of 9% during 2000, compared
to 17% during 1999. Interest  pass-through expense declined $8.4 million in 2000
compared to 1999, as a result of these lower  prepayments  on loans serviced for
others.

     Customer  banking  fees were  $197.0  million  for 2000  compared to $187.0
million for 1999. The increase is primarily  attributed to increased emphasis by
management on  transaction  account growth and higher fee income on mutual fund,
annuity and other security sales through Cal Fed Investments.

     Gain on sale,  settlement and transfer of loans, net totalled $49.7 million
for 2000,  an increase of $16.8  million  from 1999.  During  2000,  the Company
recorded $20.5 million of reductions in its recourse  liability.  This liability
is a  life-of-asset  accrual.  Given the  paydowns  which have  occurred  on the
underlying  loans and the  improving  credit and real estate  market  conditions
present, the Company determined that the liability balance exceeded its estimate
of the required  accrual for the remaining life of the recourse  assets by $20.5
million.  Gains  attributed to early payoffs and settlement of commercial  loans
with  unamortized  discounts  were $9.8 million  lower in 2000 compared to 1999.
During 2000,  California  Federal sold $5.1  billion in  single-family  mortgage
loans  originated for sale with servicing rights retained as part of its ongoing
mortgage  banking  operations  compared to $9.7  billion of such sales for 1999,
while the gains on such sales increased $3.5 million between the two periods. In
addition, the gain on sale was reduced in 1999 by $2.7 million, reflecting LOCOM
adjustments.

                                    Page 32
<PAGE>

     Net loss on sale of assets  totalled $13.4 million for 2000,  compared to a
net gain of $21.7 million for 1999. The loss during 2000 is primarily attributed
to an $18.7  million  loss  from  the  sale of  approximately  $500  million  of
mortgage-backed  securities  with an  average  yield of 6.64%  during the second
quarter  and  a  $0.9  million   loss  from  the  sale  of  $187.6   million  of
mortgage-backed  securities  with an  average  yield of 6.59%  during  the third
quarter, partially offset by a $1.5 million gain from the sale of $699.2 million
mortgage-backed  securities  with an  average  yield of 7.27%  during the fourth
quarter  and a $1.3  million  gain from the sale of  interest  rate swaps with a
notional amount of $150.0 million in August 2000. These sales were undertaken to
benefit both the net interest margin and the Company's interest rate sensitivity
in future periods.  The $21.7 million gain reported in 1999 primarily relates to
the $16.3 million gain on the Servicing Sale.

     NONINTEREST EXPENSE. Total noninterest expense was $913.2 million for 2000,
an increase of $6.6 million  from 1999.  Noninterest  expense for 2000  included
increases  of $35.8  million  in  compensation  expense  and  $12.4  million  in
occupancy  and equipment  expense.  These  increases  were  partially  offset by
decreases  of $24.8  million  in other  noninterest  expense,  $11.3  million in
professional fees and $7.0 million in amortization of intangible assets.

     Compensation and employee  benefits expense was $427.4 million for 2000, an
increase of $35.8  million from 1999.  The increase is primarily  attributed  to
normal  salary  increases  and higher  employment  levels in expanding  lines of
business,   including  the  impact  of  additional  employees  from  the  Downey
Acquisition.

     Occupancy and equipment expense was $160.8 million for 2000, an increase of
$12.4 million from 1999, primarily attributed to increased  depreciation expense
related  to a change  in the  depreciable  lives of  personal  computers  and an
increase in rent expense on leased facilities.

     Professional  fees were $41.4 million for 2000, a decrease of $11.3 million
from 1999,  primarily due to legal and consulting fee expenses  incurred in 1999
related to the two goodwill litigation cases and the Y2K project.

     Amortization of intangible assets was $62.7 million for 2000, a decrease of
$7.0 million from 1999,  primarily  attributed to a lower goodwill base due to a
$50.0 million reduction in goodwill in the first quarter of 2000, resulting from
a reduction in the valuation  allowance against the Company's deferred tax asset
(see "- Provision  for Income Tax"),  and a $38.2 million  reduction in goodwill
resulting from an income tax refund  received  during the fourth quarter of 1999
related  to Old  California  Federal.  This  decrease  was  partially  offset by
amortization  expense  related to the $7.7 million and $50.7 million in goodwill
recorded in  connection  with the Downey  Acquisition  and the Nevada  Purchase,
respectively.

     Other  noninterest  expense was $208.6  million in 2000  compared to $233.4
million in 1999. The decline in operating  expenses was primarily  attributed to
management's  continued expense reduction  efforts.  In addition,  1999 included
merger and integration costs of $7.7 million,  representing transition expenses,
which  include  severance,   conversion  and  consolidation  costs  incurred  in
connection  with the Golden  State  Acquisition.  Such  costs were not  incurred
during 2000.

     PROVISION FOR LOAN LOSSES.  The provision for loan losses was zero in 2000,
down from $10  million  in 1999.  The  decrease  in 2000  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."

     PROVISION FOR INCOME TAX.  During 2000,  Golden State recorded gross income
tax  expense  of $298.5  million,  which was  offset by a tax  benefit of $161.7
million,  resulting  in net  income  tax  expense  of $136.8  million.  Based on
favorable resolutions of federal income tax audits of Old California Federal and
Glendale  Federal,  and the current status of Mafco's,  including the Company's,
audits for the years 1991 through 1995,  management  changed its judgment  about
the realizability of the Company's  deferred tax asset and reduced its valuation
allowance by $211.7  million  during 2000. As a result of reducing the valuation
allowance,  income tax expense was reduced by $161.7  million and  goodwill  was
reduced by $50.0  million.  Because  these tax  benefits  accrue to the previous
owners  of FN  Holdings  under  the  Golden  State  Merger  agreement,  minority
interest:  provision  in lieu of income  tax  expense  was  increased  by $161.7
million,  an  amount  equal  to the  reduction  in  income  tax  expense.  These
adjustments had no impact on net income available to common shareholders.

                                    Page 33
<PAGE>

     During  1999,  Golden  State  recorded  gross  income tax expense of $309.2
million,  which was offset by a tax benefit of $122.7 million,  for a net income
tax expense of $186.5 million.  A provision in lieu of income taxes was recorded
for the $122.7 million of pre-merger tax benefits,  in the form of net operating
losses  and  other  items,  which  are  retained  by the  previous  owners of FN
Holdings. The tax benefit adjustment resulted from the 1998 tax filings in 1999.

     Golden State's  effective gross federal income tax rate was 38% during 2000
and 1999,  while its  federal  statutory  income  tax rate was 35%  during  both
periods.  The difference between the effective and statutory rates was primarily
the result of  non-deductible  goodwill  amortization.  Golden State's effective
state tax rate was 6% and 8% during 2000 and 1999,  respectively.  The effective
state tax rate  declined  during  2000 as a result of  changes  in  management's
estimates of the expected state tax liability of the Company.

     MINORITY  INTEREST.  Minority  interest  expense for 2000 includes a $161.7
million provision in lieu of income taxes,  representing pre-merger tax benefits
retained  by the  previous  owners of FN Holdings  related to the first  quarter
reduction of the valuation  allowance on the Bank's deferred tax asset (see note
28 of the  Company's  Notes  to  Consolidated  Financial  Statements).  Minority
interest  expense for 2000 also includes $1.4 million due to the previous owners
of FN Holdings,  representing  after-tax interest income on a tax refund related
to Old California Federal for periods prior to the Golden State Acquisition.  In
addition,  for  2000,  dividends  on the  REIT  Preferred  Stock  were  recorded
totalling $27.0 million, net of the income tax benefit,  which will inure to the
Bank as a result of the deductibility of such dividends for income tax purposes.

     Minority  interest for 1999 included a $122.7 million  provision in lieu of
income  taxes,  representing  pre-merger  tax benefits  retained by the previous
owners of FN Holdings and $5.0 million in net premiums paid in  connection  with
the  redemption of the Bank  Preferred  Stock.  Minority  interest  expense also
included dividends on the Bank Preferred Stock that had not yet been acquired by
GS  Holdings  and the REIT  Preferred  Stock  totalling  $1.8  million and $26.4
million,  respectively.  In addition,  for 2000, dividends on the REIT Preferred
Stock were  recorded  totalling  $26.4  million,  net of the income tax benefit,
which will inure to the Bank 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 $60.7 million in Bank Preferred Stock
redeemed on April 1, 1999 and the $31.8  million  redeemed on September 1, 1999.
Minority interest expense for 1999 also included a $1.7 million benefit reversal
representing that portion of Auto One's loss attributable to the 20% interest in
the common stock of Auto One that was issued as part of the GSAC Acquisition.

     EXTRAORDINARY ITEMS. During 2000, the FHLB called and the Bank prepaid $400
million in advances,  resulting in an extraordinary gain of $3.0 million, net of
income taxes of $2.1 million,  on the early  extinguishment  of such borrowings.
Also during 2000, the Bank repurchased $2.5 million outstanding principal amount
of  the  Convertible   Subordinated   Debentures  due  2001,   resulting  in  an
extraordinary gain of $41 thousand,  net of income taxes of $30 thousand, on the
early extinguishment of debt.

     During  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 of $0.1 million, on the early extinguishment of debt. In addition,  during
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 of $1.9
million, on the early extinguishment of such borrowings.

     PROVISION FOR FEDERAL AND STATE INCOME TAXES

     During the years 2001,  2000 and 1999,  Golden  State  recorded  income tax
expense,   excluding  the  tax  effects  associated  with  extraordinary  items,
cumulative  effect of change in accounting  principle  and minority  interest in
2001,  2000 and 1999, of $295.1  million,  $298.5  million,  and $309.2 million,
respectively.  In prior years,  an accrued  liability  was  established  for the
purpose of satisfying  assessments  that may result from issues  arising  during
audits with various  state taxing  authorities.  During 2001, as a result of the
completion  and  settlement  of audits in various  state  taxing  jurisdictions,
additional  guidance  on the  deductibility  of covered  asset  losses,  and the
current  assessment  of exposure  for tax  strategies  employed for prior years,
management  reduced  its  accrued  state  tax  liability  by $39.7  million.  In
addition,  during 2001, the Company also recorded additional Federal tax expense
of $13.9 million due to the reduction of the state tax expense.

                                    Page 34
<PAGE>

     In 2001,  a provision  in lieu of income taxes of $3.2 million was recorded
due to the utilization of net operating losses of a subsidiary made available as
a  result  of  the  subsidiary's  liquidation  into  California  Federal.  These
adjustments  had no  impact on net  income  available  to  common  stockholders.
Included in the 2000 tax expense is a $161.7 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  under the Golden  State Merger  agreement.  For
further  information,  see  note  28 of  the  Company's  Notes  to  Consolidated
Financial Statements.

     The Company's  effective  federal income tax rates were 39%, 38% and 38% in
2001, 2000 and 1999,  respectively.  The Company's  federal statutory income tax
rate was 35% in each of the  years  2001,  2000  and  1999.  For the year  ended
December 31, 2001, the difference  between the effective and statutory rates was
primarily  the result of a reduction  in the  accrued  state tax  liability  and
non-deductible goodwill amortization.  For the years ended December 31, 2000 and
1999, the difference between the effective and statutory rates was primarily the
result of non-deductible goodwill amortization.  During the years 2001, 2000 and
1999, Golden State's effective state tax rates were 1%, 6% and 8%, respectively.
The effective  state tax rate declined during 2001 as a result of a reduction in
the accrued state tax liability as previously discussed.

     For federal  income tax  purposes,  the Bank,  GS Holdings and Golden State
Bancorp are parties to a Tax Sharing Agreement, pursuant to which:

     (a)  the Bank pays to GS 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 Golden State Bancorp consolidated group,

     (b)  GS Holdings pays to the Company amounts equal to the income taxes that
          GS Holdings would be required to pay if it were to file a consolidated
          return on behalf of itself  and the Bank  separately  from the  Golden
          State Bancorp consolidated group, and

     (c)  in  connection  with the  Golden  State  Acquisition,  Mafco  Holdings
          continues to be bound for all obligations accruing for taxable periods
          on or prior to September 11, 1998.

     Under federal tax law, the parties subject to the tax sharing  agreement in
effect prior to the Golden State  Acquisition  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 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 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.  The Deconsolidation Adjustment
may  continue to change  based upon the results of 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.

                                    Page 35
<PAGE>

     At December 31, 2001, the Company had regular NOL carryforwards for federal
income tax purposes of approximately $2.8 million, which are available to offset
future federal taxable income,  if any,  through 2007. In addition,  the Company
had AMT credit carryforwards of approximately $126.6 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 or AMT credit  carryforwards  are subject to review and
disallowance, in whole or in part, by the IRS.

     In  accordance  with SFAS No. 109, a deferred  tax  liability  has not been
recognized for the base year reserves of the Bank. For further information,  see
note 28 of the Company's Notes to Consolidated Financial Statements.

     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.

BALANCE SHEET ANALYSIS

     At December 31, 2001,  Golden State's assets  totalled $56.5 billion,  down
from $60.5  billion at December 31, 2000.  The  decrease  was  primarily  due to
management's decision to sharply reduce purchases of mortgage-backed securities,
partially  offset by  increased  loan  volume and growth in loans held for sale.
This shift  represents  strong loan  production by the Company coupled with high
repayment rates for both loans and securities in light of the current  declining
interest rate environment.  (For a discussion of the loan portfolio, see "--Loan
Portfolio.") The decline in interest-earning assets was accompanied by decreased
borrowings  from the FHLB and  securities  sold under  agreements to repurchase,
partially  offset by increases in deposits  and other  liabilities.  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

     OTS regulations  require the Bank to maintain a specified minimum amount of
liquid assets which may be invested in certain types of  securities.  The amount
of excess securities balances (including cash equivalent  securities) may change
over time based on the Bank's  asset/liability  funding  needs and interest rate
risk management  objectives.  Management considers anticipated future cash flows
and all available  sources of credit and maintains  liquidity at levels believed
to be appropriate  in relation to 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 $805.2 million and $783.1 million at December 31,
2001  and  2000,  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 $116.1 million and $641.2 million at
December 31, 2001 and 2000,  respectively.  They consist  primarily of municipal
securities and U.S. government and agency obligations.  For further information,
refer  to  notes  5 and 6 of  the  Company's  Notes  to  Consolidated  Financial
Statements.

     SECURITIES HELD TO MATURITY

     Securities  held to maturity  totalled  $30.6 million and $587.5 million at
December 31, 2001 and 2000,  respectively.  They consist of commercial paper and
municipal  securities.  For further  information,  refer to notes 5 and 7 of the
Company's Notes to Consolidated Financial Statements.

                                    Page 36
<PAGE>

     MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

     Mortgage-backed  securities  available  for sale  totalled $7.1 billion and
$9.9 billion at December 31, 2001 and 2000,  respectively.  At December 31, 2001
and 2000,  mortgage-backed  securities  available for sale  included  securities
totalling $362.8 million and $723.9 million,  respectively,  which resulted from
the  securitization  of  certain  qualifying  mortgage  loans  from  the  Bank's
portfolio  in  order  to  provide  more  efficient  collateral  for  borrowings.
Mortgage-backed  securities  available  for sale  included $1.8 billion and $3.0
billion  of  variable-rate  securities  as  of  December  31,  2001,  and  2000,
respectively.

     On January 1, 2001, the Company reclassified $1.1 billion carrying value of
mortgage-backed  securities from the held-to-maturity to the  available-for-sale
portfolio,  as  permitted  upon the adoption of SFAS No. 133.  During 2000,  the
Company  reclassified $1.1 billion carrying value of mortgage-backed  securities
from  the  available-for-sale  to  the  held-to-maturity   portfolio.  For  more
information,  refer to  notes 5 and 8 of the  Company's  Notes  to  Consolidated
Financial Statements.

     Golden  State   maintains  a  significant   portfolio  of   mortgage-backed
securities  as a means of investing  in  housing-related  mortgages  without the
costs and credit risk associated with originating and holding mortgage loans. 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 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  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 GNMA  are  generally
weighted  at 0% for  risk-based  capital  purposes.  Mortgage-backed  securities
issued or guaranteed by the FNMA or the FHLMC (except  interest-only  securities
or the residual  interests in 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
$5.0 billion at December 31, 2001. 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
------                                      --------------       --------------

Cendant Mortgage Corporation                    $285                  $289
Chase Mortgage Finance Corporation               289                   295
Countrywide Home Loans                           305                   311
First Nationwide Trust                           265                   264
GE Capital Mortgage Services, Inc.               399                   404
Norwest Asset Securities Corp.                   411                   420
Residential Funding Mortgage Securities          541                   549

     At December 31, 2001,  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 $235.5 million,  of which $45.4 million are
non-rated CMO residual class securities  formed by Old California  Federal's and
Glendale Federal's  originations of residential  mortgages.  Rating agencies may
revise or withdraw  credit ratings at anytime.  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

                                    Page 37
<PAGE>

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.

     For further information on mortgage-backed  securities  available for sale,
refer  to  notes  5 and 8 of  the  Company's  Notes  to  Consolidated  Financial
Statements.

     MORTGAGE-BACKED SECURITIES HELD TO MATURITY

     At December 31, 2001 and 2000,  mortgage-backed securities held to maturity
totalled $1.4 billion and $2.9 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.

     On January 1, 2001, the Company reclassified $1.1 billion carrying value of
mortgage-backed  securities from the held-to-maturity to the  available-for-sale
portfolio,  as  permitted  upon the adoption of SFAS No. 133.  During 2000,  the
Company  reclassified $1.1 billion carrying value of mortgage-backed  securities
from the  available-for-sale  to the  held-to-maturity  portfolio.  For  further
information on mortgage-backed securities held to maturity, refer to notes 5 and
9 of the Company's Notes to Consolidated Financial Statements.

     SOURCES OF FUNDS

     The  Company's  major  sources of funds for lending,  investment  and other
general business purposes are: deposits, sales of securities under agreements to
repurchase,  advances from the FHLB, sales,  maturities and principal repayments
on  loans  and  mortgage-backed  securities  and  issuances  of  debentures  and
preferred  stock.  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 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.  The  Company  may use  borrowings  to
compensate for reductions in normal sources of funds such as customer deposits.

                                    Page 38
<PAGE>

     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, 2001, deposits
totalled $25.1 billion, compared with $23.4 billion at December 31, 2000.
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                     --------------------------------------------------------------------------
                                                              2001                      2000                      1999
                                                     ----------------------     ---------------------    ----------------------
                                                                  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                               $ 3,056       12.2%       $ 3,087       13.2%       $ 3,666       16.0%
     Demand deposits:
       Interest-bearing                                2,139        8.5          2,063        8.8          1,974        8.6
       Noninterest bearing custodial
          accounts                                     2,513       10.0            826        3.5            814        3.6
       Other noninterest bearing                       2,000        8.0          1,717        7.4          1,384        6.0
     Money market deposit accounts:
      Non-brokered                                     4,614       18.4          2,949       12.6          2,953       12.8
      Brokered                                            85        0.3             84        0.4            191        0.8
                                                     -------      -----        -------      -----        -------      -----
                  Total transaction accounts          14,407       57.4         10,726       45.9         10,982       47.8
                                                     -------      -----        -------      -----        -------      -----

Term accounts:
      Non-brokered                                    10,618       42.3         12,241       52.5         11,791       51.3
      Brokered                                            61        0.3            370        1.6            199        0.9
                                                     -------      ------       -------      -----        -------      -----
      Total term accounts                             10,679       42.6         12,611       54.1         11,990       52.2
                                                     -------      -----        -------      -----        -------      -----
Total transaction and term accounts                   25,086      100.0%        23,337      100.0%        22,972      100.0%
                                                                  =====                     =====                     =====
Accrued interest payable                                  47                        92                        61
Purchase accounting adjustments                            1                         1                         3
                                                     -------                   -------                   -------
       Total                                         $25,134                   $23,430                   $23,036
                                                     =======                   =======                   =======
</TABLE>

     Deposit  balances  averaged $24.4 billion and $23.2 billion during 2001 and
2000,   respectively,   with  average   interest   rates  of  3.41%  and  3.99%,
respectively. The weighted average stated interest rates on deposits at December
31, 2001 and 2000 were 3.42% and 4.00%, 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>
                                                              For the Year Ended December 31,
                                        ---------------------------------------------------------------------------
                                               2001                       2000                       1999
                                        ---------------------     ----------------------     ----------------------
                                        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                  $ 3,020       2.54%       $ 3,449        3.38%       $ 3,652        3.41%
     Demand deposits:
             Interest-bearing             2,053       0.25          2,056        0.68          1,908        0.93
             Noninterest bearing          3,701         --          2,523          --          2,665          --
Money market deposit accounts             3,958       3.28          2,997        4.03          3,196        3.89
Term accounts                            11,626       5.30         12,214        5.56         12,476        5.02
                                        -------                   -------                    -------
       Total                            $24,358       3.42%       $23,239        4.00%       $23,897        3.74%
                                        =======                   =======                    =======
</TABLE>

                                    Page 39
<PAGE>

     The following  table sets forth the  scheduled  maturities of the Company's
term accounts by stated interest rate at December 31, 2001 (in millions):
<TABLE>
<CAPTION>
                                         2002        2003       2004      2005      2006       Total
                                         ----        ----       ----      ----      ----       -----
      <S>                               <C>         <C>         <C>       <C>       <C>       <C>
      3.00 - or less                    $1,857      $  166      $ --      $ --      $ --      $ 2,023
      3.01 - 4.00%                       2,345         331        35        --         1        2,712
      4.01 - 5.00%                       3,103         442        68         4       162        3,779
      5.01 - 6.00%                       1,160          87        16        14        11        1,288
      6.01 - 7.00%                         653           3        14       169         1          840
      7.01 - 8.00%                          24           1         7         5        --           37
                                        ------      ------      ----      ----      ----      -------
           Total term accounts          $9,142      $1,030      $140      $192      $175      $10,679
                                        ======      ======      ====      ====      ====      =======
</TABLE>

     The following table sets forth remaining  maturities for the Company's term
deposits in amounts of $100,000 or more at December 31, 2001 (in millions):

     3 months or less                               $  811
     Over 3 months but within 6 months                 745
     Over 6 months but within 12 months                842
     Over 12 months                                    401
                                                    ------
                                                    $2,799
                                                    ======

     At December 31, 2001, the aggregate  amount  outstanding of CDs of $100,000
or larger at the  Company  was $2.8  billion,  compared  with  $3.3  billion  at
December 31, 2000. Deposits held by foreign investors at the Bank totalled $99.6
million and $93.6 million at December 31, 2001 and 2000, respectively.

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

     The Bank issues Brokered  Deposits,  usually in amounts less than $100,000,
which are obtained from a diverse customer base. These funds generally cost more
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
supplement  retail  customer  deposits  as a source of funds for  financing  and
liquidity purposes.  At December 31, 2001, California Federal had $146.5 million
of Brokered Deposits outstanding,  representing 0.6% of total deposits. For more
information on deposits, refer to note 17 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. For further information,  refer to
notes 18 and 19 of the Company's Notes to Consolidated Financial Statements.

     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.

                                    Page 40
<PAGE>

     The following  table sets forth each  category of the Company's  borrowings
maturing  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 repricing, accrued interest payable and purchase accounting
adjustments.
<TABLE>
<CAPTION>
                                                                  At or for the year ended December 31,
                                                                 --------------------------------------
                                                                  2001            2000            1999
                                                                  ----            ----            ----
                                                                          (dollars in millions)
<S>                                                              <C>            <C>             <C>
Securities sold under agreements to repurchase:
     Average balance outstanding                                 $ 1,688        $ 4,049         $ 4,959
     Maximum amount outstanding at any
         month end during the period                               2,448          6,073           5,996
     Balance outstanding at end of period                            400          2,596           5,207
     Average interest rate during the period                        5.52%          6.28%           5.24%
     Average interest rate at end of period                         3.63           6.68            5.48

Federal funds purchased:
     Average balance outstanding                                 $   296        $    73         $    54
     Maximum amount outstanding at any
         month end during the period                                 670            315             160
     Balance outstanding at end of period                            225             --              55
     Average interest rate during the period                        3.94%          6.52%           5.12%
     Average interest rate at end of period                         1.63             --            5.50

Short-term FHLB advances:
     Average balance outstanding                                 $10,899        $10,816         $ 8,107
     Maximum amount outstanding at any
         month end during the period                              11,431         13,601          11,270
     Balance outstanding at end of period                         10,231          8,791          11,270
     Average interest rate during the period                        5.05%          6.26%           5.40%
     Average interest rate at end of period                         4.20           6.56            5.84
</TABLE>

     At December  31,  2001,  the Company had an  estimated  additional  secured
borrowing capacity of $8.7 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  Company  enters  into the
reverse repurchase  agreements 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.

                                    Page 41
<PAGE>

     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.  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>

                                             2001                    2000                  1999
                                       -----------------      -------------------     ------------------
                                                 Average                  Average                Average
                                       Balance    Rate        Balance      Rate       Balance     Rate
                                       -------    ----        -------      ----       -------     ----
     <S>                               <C>        <C>         <C>          <C>        <C>         <C>
     Fixed-rate borrowings             $17,484    5.13%       $21,333      6.08%      $19,971     5.61%
     Variable-rate borrowings            4,836    2.23          5,090      6.71         3,365     6.04
                                       -------                -------                 -------
             Total FHLB advances       $22,320    4.50%       $26,423      6.21%      $23,336     5.67%
                                       =======                =======                 =======
</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 19 of the Company's  Notes to  Consolidated
Financial Statements.

     INTEREST  RATE  SWAP  AGREEMENTS.  The  Company  uses  interest  rate  swap
agreements to hedge  against  movements in interest  rates that would  otherwise
have adverse effects on its net interest margin.  The Company utilizes pay-fixed
swaps  as  an  alternative  to  longer-term  fixed  rate  borrowings,  as  these
instruments are more liquid and often times less costly than borrowing long term
directly.  The  Company  had  interest  rate  swap  agreements  with a  notional
principal  amount of $4.1 billion and $3.2 billion  outstanding  at December 31,
2001 and 2000,  respectively,  for this  purpose.  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
LIBOR and pays a fixed rate under these agreements.  In order to reduce possible
counterparty  nonperformance  risk,  the Company  enters into interest rate swap
agreements only with primary dealers in U.S. government securities and the FHLB.
The Company  incurred net interest  rate swap expense on FHLB  advances of $67.3
million and $7.2 million  during 2001 and 2000,  respectively,  and net interest
rate swap  expense on reverse  repurchase  agreements  of $8.2  million and $0.9
million in 2001 and 2000,  respectively.  For additional  information,  refer to
note 37 of the Company's Notes to Consolidated Financial Statements.

     GS HOLDINGS NOTES. On August 6, 1998, GS Escrow,  which subsequently merged
into GS Holdings,  issued $2 billion  principal amount of 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 notes
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. On August
1, 2001, $350 million of the GS Holdings Notes matured and was paid in full. For

                                    Page 42
<PAGE>

additional  information on the GS Holdings Notes and other borrowings,  refer to
note 19 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,
2001,  management had identified $2.6 billion of 1-4 unit  residential  loans as
held-for-sale.  These loans are  recorded at either fair market value (for those
loans  which were  hedged in  accordance  with SFAS No. 133) or LOCOM (for those
loans which were not hedged). At December 31, 2001,  the Company had forward and
whole loan sale  commitments to sell loans totalling $4.7 billion.  In addition,
FNMC  had  entered  into  commitments  to  originate  and  purchase  fixed-  and
variable-rate loans (mortgage loan pipeline) of $9.0 billion.

     The following table provides detailed information related to FNMC's MSRs:
<TABLE>
<CAPTION>

                                                                                December 31,
                                                                      ----------------------------------
                                                                          2001                  2000
                                                                      ------------          ------------
                                                                            (dollars in thousands)
     <S>                                                              <C>                   <C>
     Residential Mortgage Servicing Portfolio:
         Total UPB residential loans serviced                         $112,262,916          $111,992,361
         Total number of residential loans serviced                        997,276             1,048,262

         Total UPB residential loans serviced for others              $ 85,218,280          $ 84,080,891
         Total number of residential loans serviced for others             838,234               879,180

                                                                             Year Ended December 31,
                                                                       -----------------------------------
                                                                            2001                 2000
                                                                       -------------         -------------
                                                                     (dollars in thousands, except as noted)

         Mortgage loans sold                                           $16,379,633           $5,249,365
         Mortgage loans sold with recourse                                 503,107              728,011
         Mortgage loans sold (servicing retained)                       16,357,473            5,249,365

     Portfolio Characteristics:
         Weighted average contractual servicing fee earned                      42bps                41bps
         Average loan balance                                          $       102           $       96
         Weighted average note rate                                            7.36%                7.58%
         Secured by California property                                       45.67%               45.21%
         Per loan servicing cost (in whole dollars)                    $        47           $        47
</TABLE>


                                    Page 43
<PAGE>
<TABLE>
<CAPTION>
                                                         Number of Loans       Loan Principal         MSR Basis
                                                         ---------------       --------------         ---------
                                                         (whole numbers)             (dollars in thousands)
<S>                                                          <C>                <C>                   <C>
Residential Mortgage Servicing Portfolio:
Balance - December 31, 2000 (a)                               879,180           $ 84,080,891          $1,555,232
       Originated servicing                                    92,845             14,997,706             369,514
       Flow purchases                                          82,540             11,457,943             306,198
       Bulk purchases                                             (20)                (1,587)                (34)
       Runoff                                                (216,311)           (25,316,673)           (358,177)
       Valuation provision                                         --                     --            (153,345)
       SFAS No. 133 reclassification to derivatives                --                     --             (95,013)
       Fair value adjustment (SFAS No. 133)                        --                     --              (3,338)
       Other                                                       --                     --                (121)
                                                             --------           ------------          ----------
Balance - December 31, 2001 (a)                               838,234           $ 85,218,280          $1,620,916
                                                             ========           ============          ==========
</TABLE>
-----------
(a)  Excludes  $3.0  million  and  $4.1  million  of MSRs on  non-single  family
     residential portfolios at December 31, 2001 and 2000, respectively.

     The table below summarizes mortgage servicing acquisitions and sales:
<TABLE>
<CAPTION>

                                        Number of Loans                      Loan Principal                      MSR Basis
                                 ----------------------------     -----------------------------------   ----------------------------
                                  2001      2000       1999         2001        2000          1999       2001       2000       1999
                                  ----      ----       ----         ----        ----          ----       ----       ----       ----
                                       (whole numbers)                      (in millions)                     (in millions)
                                 ----------------------------     -----------------------------------   ----------------------------
<S>                              <C>       <C>        <C>         <C>          <C>          <C>         <C>         <C>       <C>
Residential Mortgage
    Servicing Portfolio:

    Acquired servicing rights    82,520    146,601    121,568     $11,456.4    $15,679.0    $14,482.9    $306.2     $344.3    $333.7
    Servicing rights sold            --        861     50,700            --         22.7      2,121.8        --        0.2      18.6
</TABLE>

     The Company uses a variety of  instruments  to hedge  against the change in
value of the  mortgage  servicing  portfolio  due to  expected  prepayment  risk
assumption  changes  in a  declining  interest  rate  environment.  See  "--Risk
Management--Mortgage  Banking  Risk  Management"  and  notes  16  and  37 to the
Company's  Notes  to  Consolidated  Financial  Statements  for a  more  detailed
discussion of these hedging  activities.  During 2001,  the Company's net income
reflected net gains on the hedging of the fair value of loan servicing rights of
$79.9 million and net losses on the hedging of the fair value of derivative rate
locks,  forward loan sale  commitments and closed loan inventory of $6.1 million
as a result of the Company's implementation and adoption of SFAS No. 133.

     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 2001,  2000 and 1999  totalled  $48.7  million,  $21.1
million and $14.9 million,  respectively,  and included  amounts  related to the
capitalization  of originated  and excess MSRs. The Company  capitalized  $369.5
million,  $126.6  million  and  $193.9  million  during  2001,  2000  and  1999,
respectively,  related to the origination of residential loans. During 2001, the
Company recorded a $6.1 million unrealized loss from the application of SFAS No.
133 on the derivative rate locks,  forward loan sale commitments and closed loan
inventory.  The Company  monitors  the  prepayments  on the loans  serviced  for
investors  and reduces  the  balance of the MSR asset if the actual  prepayments
exceed 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, 2001, the Company had a $153.3 million  allowance for the
loss in fair  value  of the  MSRs.  At  December  31,  2000,  no  allowance  for
impairment of the Company's MSRs was necessary.

                                    Page 44
<PAGE>

     In addition to MSRs, the Company, through FNMC, has non-credit enhancing IO
strips  that are  created  when  loans are sold with  servicing  retained  and a
portion of the interest retained by the Company does not depend on the servicing
work being performed.  The Company,  in the event the servicing rights were sold
or  transferred,  would  retain  the right to this  interest.  The IO strips are
amortized to interest income using the interest  method.  IO strips issued prior
to  April  1,  2001  of  $19.9  million  are  classified  as  available-for-sale
securities,  while IO strips  issued  after  April 1, 2001 of $16.2  million are
classified as held-for-trading  securities. Like MSRs, the value of IO strips is
sensitive to the prepayment speeds of the underlying loans. The Company monitors
the prepayments of the underlying  loans and reduces the balance of these assets
if expected  prepayments are in excess of the estimated  prepayment  assumptions
used to record the original asset. At December 31, 2001, the Company had an $8.8
million valuation allowance on the available-for-sale IO strips and had recorded
an unrealized  gain of $1.7 million for the fair market value  adjustment on the
held-for-trading securities.

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

     LOAN PORTFOLIO

     The Company principally originates adjustable and fixed-rate mortgage loans
secured by residential real estate. The Company also originates  adjustable-rate
and  fixed-rate  mortgage  loans secured by  multi-family  and  commercial  real
estate,  commercial,  and home equity loans. The Company also  participates in a
number of affordable  housing  programs and  initiatives.  During 2000 and 2001,
increased  focus was  placed on  expanding  the  percentage  of  non-1-4  family
mortgage loans in the portfolio. As a result,  originations for multi-family and
commercial real estate loans increased from $1.3 billion in 2000 to $1.7 billion
in 2001, auto loan originations and purchases  totalled $1.2 billion in 2001, an
increase of $104.1  million over 2000,  and home equity  lending  increased from
$525.9  million in 2000 to $601.9  million in 2001. In addition,  the commercial
banking group was expanded to heighten focus on small business and middle market
lending.

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

                                                   Year Ended December 31,
                                                 --------------------------
                                                   2001             2000
                                                   ----             ----
                                                       (in millions)

     Balance at beginning of period              $ 39,881          $34,327
     Fundings:
         1-4 unit residential                       7,791            7,756
         Multi-family residential                   1,302              987
         Commercial real estate                       351              301
         Construction                                   1                1
         Equity line                                  602              526
         Other consumer                               222              223
         Commercial loans                           1,043              701
     Purchases:
         Downey Acquisition                            --              380
         Automobile                                 1,150            1,054
         Other                                      3,149              595
     Sales                                            (84)             (69)
     Foreclosures                                     (31)             (47)
     Payments, payoffs and other                  (15,796)          (6,854)
                                                 --------          -------
     Balance at end of period                    $ 39,581          $39,881
                                                 ========          =======

                                    Page 45
<PAGE>

     The composition of the Company's loan  portfolio,  excluding loans held for
sale, is as follows:
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                   ------------------------------------------------------------
                                                                    2001          2000         1999         1998         1997
                                                                   -------       -------      -------      -------      -------
                                                                                          (in millions)
<S>                                                                <C>           <C>          <C>          <C>          <C>
Real estate loans:
        1-4 unit residential                                       $29,546       $30,828      $26,966      $23,493      $14,071
        Multi-family residential                                     4,130         3,569        2,881        2,641        3,035
        Commercial real estate                                       2,355         2,487        2,565        2,940        2,146
        Land                                                            14            22           32           33            5
        Construction                                                     3             8            8           22            1
                                                                   -------       -------      -------      -------      -------
                  Total real estate loans                           36,048        36,914       32,452       29,129       19,258
                                                                   -------       -------      -------      -------      -------
Equity-line loans                                                      639           539          433          385          355
Other consumer loans                                                   283           303          237          242          107
Auto loans, net                                                      1,918         1,567          698          487          171
Commercial loans                                                       693           558          507          541           30
                                                                   -------       -------      -------      -------      -------
                  Total loans receivable                            39,581        39,881       34,327       30,784       19,921
                                                                   -------       -------      -------      -------      -------
Less:
     Deferred loan fees, costs, discounts and premiums, net           (243)         (230)        (174)         (82)         (47)
        Allowance for loan losses                                      497           526          555          589          419
        Purchase accounting adjustments, net                            (9)           (8)         (7)           (4)         125
                                                                   -------       -------      -------      -------      -------

Loans receivable, net                                              $39,336       $39,593      $33,953      $30,281      $19,424
                                                                   =======       =======      =======      =======      =======
</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,  assumptions 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 are  generally not imposed until
the payment is more than 10 days late, in accordance with the contractual  terms
of the loans and regulatory requirements in effect when the loans were made.

     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, 2001:
<TABLE>
<CAPTION>
                         1-4 unit               Multi-family               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          $18,547     $4,707        $2,518      $1,097        $1,524       $559         $28,952       80.32%
Texas                   429        125            87         120            11         34             806        2.24
Florida                 532        201            23           6            33          7             802        2.22
Illinois                412         68            18           6             9         21             534        1.48
Washington              393         45            40          18             4          2             502        1.39
Colorado                371         52            14          17             4          7             465        1.29
New York                253        129             6           4            12         15             419        1.16
Nevada                  215        103            23          33             9          2             385        1.07
Other states (1)      2,149        815            36          64            66         53           3,183        8.83
                    -------     ------        ------      ------        ------       ----         -------      ------
          Total     $23,301     $6,245        $2,765      $1,365        $1,672       $700         $36,048      100.00%
                    =======     ======        ======      ======        ======       ====         =======      ======
</TABLE>
------------
(1)  Real estate loans involving property located in 42 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.

                                    Page 46
<PAGE>

     The following  table  summarizes  the Company's loan  portfolio,  excluding
loans held for sale, at December 31, 2001,  based upon  contractually  scheduled
principal payments allocated to the indicated  maturity  categories.  This table
does not reflect expected prepayments.
<TABLE>
<CAPTION>
                                                                   Due
                                                 Due             Over One               Due
                                                Within          But Within              Over
                                               One Year         Five Years           Five Years           Total
                                               --------         ----------           ----------           -----
                                                                          (in millions)
<S>                                            <C>                <C>                  <C>               <C>
Real estate loans:
    1-4 unit residential
         Variable-rate                         $    4             $   18               $23,279           $23,301
         Fixed-rate                                29                 36                 6,180             6,245
    Multi-family residential
         Variable-rate                            129                576                 2,060             2,765
         Fixed-rate                                43                125                 1,197             1,365
    Commercial real estate and other
         Variable-rate                            268                638                   766             1,672
         Fixed-rate                                41                141                   518               700
                                               ------             ------               -------           -------
             Total                                514              1,534                34,000            36,048
                                               ------             ------               -------           -------
Commercial and consumer loans:
         Variable-rate                            240                110                   671             1,021
         Fixed-rate                               476              1,657                   379             2,512
                                               ------             ------               -------           -------
             Total                                716              1,767                 1,050             3,533
                                               ------             ------               -------           -------

             Total loans receivable            $1,230             $3,301               $35,050           $39,581
                                               ======             ======               =======           =======
</TABLE>

     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.  In addition,
the  Company  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's originations of ARM loans
on 1-4 unit  residential  real estate are generally held for  investment,  while
fixed-rate  1-4  unit  residential  loans  are  generally  held-for-sale  to the
secondary mortgage market.

     Adjustable-rate programs include mortgages which:

     (a)  provide for annual interest rate adjustments based upon the average of
          the six-month LIBOR,

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

     (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, or

     (d)  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.

                                    Page 47
<PAGE>

     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. In addition,  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 UPB in full at the  maturity  date.  As of December 31,
2001, the Company's  capitalized  interest relative to such 1-4 unit residential
loans was  approximately  $13.0 million.  This amount  represents  approximately
0.39% of the  approximately  $3.4 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 $5.5 billion of
loans with  prepayment  penalty  options  during 2001. See  "--Mortgage  Banking
Activities" for a further discussion of these activities.

     The following table summarizes 1-4 unit  residential loan  originations (in
millions):
<TABLE>
<CAPTION>

                                           2001                                  2000
                            -----------------------------------    ----------------------------------
Production Channel            ARM         Fixed         Total         ARM        Fixed        Total
------------------            ---         -----         -----         ---        -----        -----
<S>                         <C>         <C>           <C>          <C>          <C>         <C>
Retail                      $  492.1    $ 2,722.6     $ 3,214.7    $  652.9     $  842.8    $ 1,495.7
Wholesale                    5,212.8      6,943.7      12,156.5     4,360.7      1,448.5      5,809.2
Correspondent                1,060.2      4,986.6       6,046.8     2,246.0      1,993.5      4,239.5
Other                             --      4,095.9       4,095.9          --      1,556.6      1,556.6
                            --------    ---------     ---------    --------     --------    ---------
                            $6,765.1    $18,748.8     $25,513.9    $7,259.6     $5,841.4    $13,101.0
                            ========    =========     =========    ========     ========    =========
</TABLE>

     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.

                                    Page 48
<PAGE>

     LOANS HELD FOR SALE

     Activity related to loans held for sale is summarized as follows:

                                                      December 31,
                                                 -----------------------
                                                  2001             2000
                                                  ----             ----
                                                       (in millions)

     Balance at beginning of period              $    846        $   729
     Purchases and originations                    17,723          5,344
     Sales                                        (16,296)        (5,151)
     Payments, payoffs and other                      335            (76)
                                                 --------        -------
     Balance at end of period                    $  2,608        $   846
                                                 ========        =======

     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

     The Company's loan portfolio  includes loans that are primarily  secured by
multi-family residential,  commercial, industrial, office and retail real estate
properties.  The Company's  efforts to grow this portfolio were enhanced  during
2000 and 2001, in line with the Company's goal to increase its overall portfolio
percentage of non-residential loans.

     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  ranging from one to 30 years.  ARMs  primarily  adjust with either the
FHLB 11th District  COFI,  the 12 MAT or the LIBOR 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,  except that newly  originated  loans do not typically
have  negative  amortization  features.  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  on a portion  of the loan  portfolio.  Negative  amortization,  if
applicable,  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, 2001,  the  Company's  capitalized
interest relative to such loans was approximately $0.3 million, which represents
approximately  0.01% of the $2.1 billion of  multi-family  and  commercial  real
estate loans that have the potential to experience negative amortization.

     At December 31, 2001 and 2000, the  multi-family and commercial real estate
loan portfolio totalled $6.5 billion and $6.1 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, Phoenix, San Diego and Sacramento.  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.

     Generally,  multi-family  secured loans have LTV ratios of 75% or below and
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 1.30 and above. Typically,  loan originations do not include loans secured by
land, land development  properties or special purpose properties such as hotels,
motels,  golf courses and resort properties.  Most loan originations are secured
by completed and leased properties.

                                    Page 49
<PAGE>

     The  following  table  summarizes  origination  activity for  multi-family,
commercial and other real estate loans (in millions):

                                                   December 31,
                                               ---------------------
                                                2001           2000
                                                ----           ----

         Multi-family residential              $1,302         $  987
         Commercial real estate                   351            301
                                               ------         ------
                                               $1,653         $1,288
                                               ======         ======

     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, 2001, the principal balance of loans sold with recourse totalled
$1.5 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, 2001, the home equity portfolio  totalled $639 million or 69.3% of the total
consumer loan  portfolio of $922 million.  At December 31, 2000, the home equity
portfolio totalled $539 million or 64.0% of the total consumer loan portfolio of
$842 million.

     The  following  table  summarizes  consumer loan  origination  activity (in
millions):

                                    December 31,
                                   --------------
                                   2001      2000
                                   ----      ----

      Equity line of credit        $602      $526
      Other consumer                222       223
                                   ----      ----
                                   $824      $749
                                   ====      ====

     The Company offers a prime interest  rate-based  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,  mobile  home  loans,  overdraft
protection  lines and other  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.

     AUTO LENDING

     The Company purchases and originates prime and sub-prime auto loans through
its subsidiary,  Auto One, which has an established  servicing platform for such
loans. At December 31, 2001 and 2000, the Company's auto loan portfolio totalled
$1.9 billion and $1.6 billion,  respectively,  of which, $1.2 billion and $934.9
million,  respectively,  were sub-prime.  Substantially  all of Auto One's loans
were  purchased  from  independent  automobile  dealers  or in bulk  from  third
parties.

     Auto One's loans have fixed  interest  rates,  with terms to maturity based
upon the mileage on the collateral  vehicle,  up to a maximum of 72 months.  The
weighted  average  term for 2001 prime and  sub-prime  production  was 65 and 61
months,  respectively,  while the  weighted  average  term on the  portfolio  at
December 31, 2001 was 52 and 47 months, respectively.

                                    Page 50
<PAGE>

     Auto One loan  purchases  in 2001  consisted  of 24,968  prime  and  45,263
sub-prime  loans,  with  average  loan  balances  of $19.1  thousand  and  $14.7
thousand,  respectively.  The portfolio at December 31, 2001 consisted of 55,987
prime and 105,299  sub-prime  contracts,  with  average  loan  balances of $13.3
thousand and $11.1 thousand, respectively.

     Approximately  70% of Auto  One's  purchases  of  prime  loans  in 2001 are
collateralized  with vehicles two years old or newer.  Approximately 68% of Auto
One's purchases of sub-prime loans in 2001 are collateralized  with vehicles two
years old or newer. Underwriting on loans purchased from dealers is performed by
Auto One personnel prior to purchase.

     All Auto One originated  loans and loans  purchased  after July 1, 2001 are
recorded on a gross-coupon basis, rather than on a credit-adjusted  yield basis.
Accordingly,  an allowance for loan losses is established  for those loans where
an adverse  situation  has occurred that will affect the  borrower's  ability to
repay the principal and interest.  Please refer to note 2 of the Company's Notes
to Consolidated Financial Statements for a complete discussion of the accounting
for purchased auto loans.

     Activity  related  to  auto  loans  purchased  prior  to  July  1,  2001 is
summarized as follows (in millions):
<TABLE>
<CAPTION>
                                                                                         Allocated
                                       Contractual     Nonaccretable                     Allowance      Purchased
                                        Payments        Contractual      Accretable      for Loan          Auto
                                       Receivable       Cash Flows         Yield          Losses        Loans, net
                                       ----------       ----------         -----          ------        ----------
<S>                                     <C>               <C>             <C>              <C>            <C>
Balance, December 31, 1999              $ 1,025           $(203)          $(124)           $ (3)          $  695

Purchases and acquisitions                1,965            (267)           (266)             --            1,432
Repossessions & charge-offs                (150)             90              (6)              8              (58)
Payments, payoffs & accretion              (716)             64             145              --             (507)
Provision for loan losses                    --              --              --              (7)              (7)
Reclassification                             --             (19)             19              --               --
                                        -------           -----           -----            ----           ------
Balance, December 31, 2000                2,124            (335)           (232)             (2)           1,555

Purchases and acquisitions
       through June 30, 2001                914            (154)           (125)             --              635
Repossessions & charge-offs                (142)             83             (12)             12              (59)
Payments, payoffs & accretion            (1,011)            100             203              --             (708)
Provision for loan losses                    --              --              --             (13)             (13)
Reclassification                             --             (30)             30              --               --
                                        -------           -----           -----            ----           ------
Balance, December 31, 2001              $ 1,885           $(336)          $(136)           $ (3)          $1,410
                                        =======           =====           =====            ====           ======
</TABLE>

     COMMERCIAL BANKING

     The Company's  commercial  banking program has four  components:  community
business  banking,  commercial  markets  banking,  agribusiness  lending and SBA
lending.   The  Company's   commercial  banking  loan  products  primarily  have
adjustable  interest  rates that are indexed to the prime rate.  At December 31,
2001, deposit  relationships  under the various commercial banking product lines
totalled $1.6 billion.

     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, 2001,  total  funded and unfunded  credit  commitments
under the community business banking group totalled $496.1 million,  compared to
$382.6 million at December 31, 2000.

                                    Page 51
<PAGE>

     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, 2001, funded and unfunded credit  commitments  under the commercial  markets
group totalled $392.8 million, compared to $234.6 million at December 31, 2000.

     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,
2001,  funded and unfunded credit  commitments  under the  agribusiness  lending
program  totalled  $172.3  million,  compared to $171.7  million at December 31,
2000.

     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, 2001,  funded and unfunded  credit
commitments  under the SBA lending program totalled $160.1 million,  compared to
$157.7 million at December 31, 2000.  Additionally,  the SBA servicing portfolio
totalled  $70.8  million  and $100.1  million  at  December  31,  2001 and 2000,
respectively.

     PROBLEM AND POTENTIAL PROBLEM ASSETS

     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.  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 52
<PAGE>

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

     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, 2001 and 2000,  loans that were  considered  to be impaired
totalled $59.1 million and $97.2 million,  respectively, (of which $14.1 million
and  $19.5  million,  respectively,  were on  nonaccrual  status).  The  average
recorded  investment in impaired  loans during the years ended December 31, 2001
and 2000, was approximately $60.5 million and $91.3 million,  respectively.  For
the years  ended  December  31,  2001,  2000 and 1999,  the  Company  recognized
interest  income on those impaired loans of $4.6 million,  $8.3 million and $9.5
million,  respectively,  which  included  $0.5  million,  $1.6  million and $2.7
million, respectively, of interest income recognized using the cash basis method
of income recognition.

     The  following  table  presents the Company's  non-performing  and impaired
loans,  foreclosed real estate and repossessed assets as of the dates indicated.
These categories are not mutually exclusive;  certain loans are included in more
than one  classification.  Purchased auto loans are reflected in the table below
using each individual loan's contractual UPB.
<TABLE>
<CAPTION>
                                                       December 31, 2001                December 31, 2000
                                                 ----------------------------     ----------------------------
                                                 Non-performing      Impaired     Non-performing      Impaired
                                                 --------------      --------     --------------      --------
                                                                           (in millions)
<S>                                                   <C>              <C>             <C>              <C>
Real Estate:
       1-4 unit residential                           $ 75             $ 1             $ 89             $ 1
       Multi-family residential                         --               9                3              24
       Commercial and other                              4              32                2              40
                                                      ----             ---             ----             ---
           Total real estate                            79              42               94              65
Non-real estate                                         22              17               21              32
                                                      ----             ---             ----             ---
           Total loans                                 101 (a)         $59 (b)          115 (a)         $97 (b)
                                                                       ===                              ===
Foreclosed real estate, net                             19                               19
Repossessed assets                                       4                                7
                                                      ----                             ----
           Total non-performing assets                $124                             $141
                                                      ====                             ====
</TABLE>
-----------------
(a)  There were no loans securitized with recourse on  non-performing  status at
     December 31, 2001 and 2000.

(b)  Includes  $14.1  million  and  $19.5  million  of  non-performing  loans at
     December 31, 2001 and 2000, respectively.

                                    Page 53
<PAGE>

     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, 2001:
<TABLE>
<CAPTION>

                        1-4 Unit            Multi-family        Commercial
                       Residential          Residential          and Other         Non-real Estate         Total
                    -----------------     ----------------    ----------------    -----------------      Impaired      % of
                    Variable    Fixed     Variable   Fixed    Variable   Fixed    Variable    Fixed        Loans       Total
                    --------    -----     --------   -----    --------   -----    --------    -----      --------      -----
      State                                        (dollars in millions)
      -----
<S>                   <C>        <C>         <C>      <C>        <C>      <C>        <C>       <C>          <C>       <C>
California            $ 1        $--         $ 9      $--        $15      $ 1        $16       $ 1          $43        72.88%
Illinois               --         --          --       --          6       --         --        --            6        10.17
Other states (1)       --         --          --       --         10       --         --        --           10        16.95
                      ---        ---         ---      ---        ---      ---        ---       ---          ---       ------
      Total           $ 1        $--         $ 9      $--        $31      $ 1        $16       $ 1          $59       100.00%
                      ===        ===         ===      ===        ===      ===        ===       ===          ===       ======
</TABLE>
---------------
(1)  Represents five states, none of which had impaired loans in excess of 1% of
     the total.

     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, generally begin 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 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.

                                    Page 54
<PAGE>

     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,
                                                 -------------------------------------------------------
                                                 2001        2000         1999         1998         1997
                                                 ----        ----         ----         ----         ----
                                                                   (dollars in millions)
<S>                                              <C>         <C>          <C>          <C>          <C>
Non-performing loans:
       Real Estate:
              1-4 unit residential               $ 75        $ 89         $126         $190         $165
              Multi-family residential             --           3            6           16           12
              Commercial and other                  4           2            8           10            6
              Construction                         --          --           --            1            2
                                                 ----        ----         ----         ----         ----
                      Total real estate            79          94          140          217          185
       Equity-line, consumer and other
              non-real estate                      22          21           11            9            7
                                                 ----        ----         ----         ----         ----
              Total non-performing loans          101         115          151          226          192
Foreclosed real estate, net                        19          19           45           80           77
Repossessed assets                                  4           7            4            4            3
                                                 ----        ----         ----         ----         ----
              Total non-performing assets        $124        $141         $200         $310 (a)     $272 (b)
                                                 ====        ====         ====         ====         ====
Non-performing loans as a percentage
       of loans receivable                       0.25%       0.29%        0.44%        0.75%        0.99%
                                                 ====        ====         ====         ====         ====
Non-performing assets as a percentage
       of the Bank's total assets                0.22%       0.23%        0.35%        0.57%        0.87%
                                                 ====        ====         ====         ====         ====
</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.

     Interest income of $6.2 million, $4.7 million and $6.4 million was received
and recognized by the Company during the years ended December 31, 2001, 2000 and
1999, respectively,  for loans on nonaccrual status at each respective year end.
Had the loans performed in accordance with their original terms,  $10.0 million,
$7.4 million and $10.9 million would have been  recognized  during  December 31,
2001, 2000 and 1999,  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, 2001:
<TABLE>
<CAPTION>
                                                                              Total
                                   Non-performing       Foreclosed        Non-performing
                                    Real Estate        Real Estate,        Real Estate         Geographic
                                   Loans, Net (2)         Net (2)             Assets          Concentration
                                   --------------         -------             ------          -------------
                                                             (dollars in millions)
     <S>                                <C>                 <C>                <C>               <C>
     Region:
            Northeast (1)               $10                 $ 2                $12                12.25%
            California                   46                  10                 56                57.15
            Other regions                23                   7                 30                30.60
                                        ---                 ---                ---               ------
                    Total               $79                 $19                $98               100.00%
                                        ===                 ===                ===               ======
</TABLE>
     ------------
     (1)  Consists of Connecticut, Delaware, Maine, Maryland, Massachusetts, New
          Hampshire,  New  Jersey,  New York,  Pennsylvania,  Rhode  Island  and
          Vermont.

     (2)  Net of purchase accounting adjustments.

                                    Page 55
<PAGE>

     At December 31, 2001, the Company's largest  non-performing  asset was $2.3
million and the Company  had two  non-performing  assets over $2 million in size
with  balances  averaging  $1.9 million.  At December 31, 2001,  the Company had
3,850   non-performing   assets  below  $2  million  in  size,   including   905
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, 2001:
<TABLE>
<CAPTION>

                           1 - 4 unit             Multi-family           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                $29         $14        $--        $--         $ 3         $--            $46          58.23%
Florida                     5           3         --         --           1          --              9          11.39
New York                    4           1         --         --          --          --              5           6.33
Hawaii                      2           1         --         --          --          --              3           3.80
New Jersey                  2           1         --         --          --          --              3           3.80
Illinois                    1           1         --         --          --          --              2           2.53
Texas                       1           1         --         --          --          --              2           2.53
Other states (1)            6           3         --         --          --          --              9          11.39
                          ---         ---        ---        ---         ---         ---            ---         ------
     Total                $50         $25        $--        $--         $ 4         $--            $79         100.00%
                          ===         ===        ===        ===         ===         ===            ===         ======
</TABLE>
---------------
(1)  There are 29 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.

     ALLOWANCE FOR LOAN LOSSES

     The Company  maintains an allowance to absorb  losses  inherent in the loan
portfolio.  Management  periodically  evaluates the adequacy of the allowance to
maintain a level sufficient to absorb expected loan losses.  Provisions for loan
losses (charged to current earnings) and balances acquired through  acquisitions
increase the allowance,  while charge-offs (net of recoveries)  decrease it. The
provision considers both specifically identified problem loans as well as credit
risks not specifically identified in the loan portfolio. The Company recorded no
provision for loan losses during the years ended December 31, 2001 and 2000. The
Company  recorded  provisions  for loan losses of $10 million for the year ended
December 31, 1999.  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. For more information on
the  accounting  policy for the allowance for loan losses,  see note 2(e) of the
Company's Notes to Consolidated Financial Statements.

     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  considers  losses that are embedded within
loan portfolios,  but have not yet been realized. Losses are recognized when (a)
available  information  indicates  that  it is  probable  that a loss  has  been
incurred and (b) the amount of the loss can be reasonably estimated.  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.

                                    Page 56
<PAGE>

     Therefore,  if the general credit  characteristics of a loan portfolio have
not changed significantly over time, and the time-frame between the loss-causing
event and loss  realization  is determined to be  approximately  two years for a
given portfolio type based upon observable  data, it is probable that historical
losses  approximate  the loss that is  embedded in today's  portfolio,  and such
embedded 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
ten  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.  Specific  allowances  are
established against individual residential 1-4 mortgage loans,  commercial loans
and  commercial  and  multi-family  real estate loans for which  management  has
performed analyses and concluded that, based on current  information and events,
it is probable that the Bank will be unable to collect all amounts due according
to the contractual terms of the loan agreement.  Generally,  management believes
that  collectibility is improbable if a loan is severely delinquent or if it has
been determined  that borrower cash flow is inadequate for debt  repayment.  The
amount of specific  allowance  is  determined  by an  estimation  of  collateral
deficiency,  including  consideration  of costs  that will  likely  be  incurred
through the disposal of any repossessed  collateral.  In other words, management
estimates the fair value of  collateral,  net of the cost of  disposition of the
collateral, and the fair value is compared to the net book value of the loan. If
the net book value exceeds the fair value,  a specific  allowance is established
in an amount equal to the excess.  Loans  evaluated  for specific  allowance are
excluded  from the formula  allowance  analysis so as not to  double-count  loss
exposure.

     The unallocated  allowance is established for inherent losses which may not
have been  identified  through the more  objective  processes used to derive the
formula and  specific  portions of the  allowance.  The  unallocated  portion is
necessarily  more  subjective and requires a high degree of management  judgment
and  experience.  Management  has  identified  several  factors  that impact the
potential for credit losses that are not considered in either the formula or the
specific  allowance  segments.  These factors consist of industry and geographic
loan concentrations,  changes in underwriting  processes,  and trends in problem
loan and loss recovery rates.  Geographic  concentration  is a particularly  key
component  as there is evidence of  deterioration  in some real estate  markets,
especially in northern California. Statistics regarding California concentration
of the Company's entire real estate-secured portfolio are summarized below:

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

     Residential                          79%            39%            40%
     Commercial Real Estate               88             28             60
     Consumer (primarily Home Equity)     88             41             47

     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.

                                    Page 57
<PAGE>

     At December  31,  2001,  the  allowance  for loan losses was $497  million,
consisting  of a  $377  million  formula  allowance,  an  $18  million  specific
allowance  and a $102  million  unallocated  allowance.  Although  the loan loss
allowance has been  allocated by type of loan for internal  valuation  purposes,
$479  million of the  allowance is general in nature and is available to support
any losses which may occur, regardless of type, in the Company's loan portfolio.
The Company's unallocated allowance at December 31, 2001, 2000 and 1999 was $102
million, $113 million and $158 million, respectively. The unallocated portion of
the  allowance  declined  over the past two years,  primarily as a result of the
reduced  uncertainty  associated with the changes in portfolio  composition from
various  acquisitions and new business  activities,  most notably the entry into
commercial banking and sub-prime auto lending.

     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,
                                                       -----------------------------------------------------------
                                                       2001          2000         1999          1998          1997
                                                       ----          ----         ----          ----          ----
                                                                              (in millions)
<S>                                                    <C>           <C>          <C>           <C>           <C>
Specific allowance:
     Real estate loans:
        1-4 unit residential                           $  9          $ 11         $ 16          $ --          $ --
        Multi-family residential and
           commercial real estate                         6             8           18            17             8
                                                       ----          ----         ----          ----          ----
               Total real estate loans                   15            19           34            17             8
        Equity-line and consumer loans                    3             8            5            --            --
                                                       ----          ----         ----          ----          ----
               Total specific allowance                  18            27           39            17             8
                                                       ----          ----         ----          ----          ----
General allowance:
     Real estate loans:
        1-4 unit residential                            215           217          219           251           202
        Multi-family residential and
           commercial real estate                       153           175          258           261           190
                                                       ----          ----         ----          ----          ----
               Total real estate loans                  368           392          477           512           392
        Equity-line and consumer loans                  111           107           39            60            19
                                                       ----          ----         ----          ----          ----
               Total general allowance                  479           499          516           572           411
                                                       ----          ----         ----          ----          ----
               Total allowance for
                  loan losses                          $497          $526         $555          $589          $419
                                                       ====          ====         ====          ====          ====
</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,
                               -----------------------------------------------------------------------------------------------------
                                     2001                  2000                1999                 1998                  1997
                               -------------------  -------------------  ------------------  -------------------  ------------------
                                           % 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            $224       75%       $228        77%      $235       79%       $251      76%       $202      71%
 Multi-family residential and
    commercial real estate        159       16         183        15        276       16         278      18         198      26
                                 ----      ---        ----       ---       ----      ---        ----     ---        ----     ---
      Total real estate loans     383       91         411        92        511       95         529      94         400      97

 Equity-line and other loans      114        9         115         8         44        5          60       6          19       3
                                 ----      ---        ----       ---       ----      ---        ----     ---        ----     ---
      Total                      $497      100%       $526       100%      $555      100%       $589     100%       $419     100%
                                 ====      ===        ====       ===       ====      ===        ====     ===        ====     ===
</TABLE>

                                    Page 58
<PAGE>

     The following table summarizes activity in the Company's allowance for loan
losses during the periods indicated:
<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                         ----------------------------------------------------
                                                                         2001        2000        1999         1998       1997
                                                                         ----        ----        ----         ----       ----
                                                                                             (in millions)
<S>                                                                      <C>         <C>         <C>          <C>        <C>
Balance at beginning of period                                           $526        $555        $589         $419       $247
       Purchases - Glen Fed Merger                                         --          --          --          170         --
       Purchases - Cal Fed Acquisition                                     --          --          --          --         144
       Provision for loan losses                                           --          --          10          40          80
       Charge-offs:
            1-4 unit residential                                           (5)         (7)        (19)        (27)        (38)
            Multi-family  residential  and  commercial  real estate        --          (6)         (7)         (9)         (8)
       Auto loans                                                         (15)         (7)         (1)         (1)         --
            Consumer and other                                            (12)        (14)        (13)         (9)        (10)
                                                                         ----        ----        ----        ----        ----
                     Total charge-offs                                    (32)        (34)        (40)        (46)        (56)
     Recoveries:
       1-4 unit residential                                                 1          --           1           1           2
       Multi-family residential and commercial real estate                 --           1           1           2          --
       Consumer and other                                                   2           4           2           3           2
                                                                         ----        ----        ----        ----        ----
            Total recoveries                                                3           5           4           6           4
                                                                         ----        ----        ----        ----        ----
        Net charge-offs                                                   (29)        (29)        (36)        (40)        (52)
     Allocation to Nonaccretable Contractual
        Cash Flows of purchased auto loan portfolio                        --          --          (7)         --          --
     Reclassifications                                                     --          --          (1)         --          --
                                                                         ----        ----        ----        ----        ----
Balance at end of period                                                 $497        $526        $555        $589        $419
                                                                         ====        ====        ====        ====        ====
</TABLE>

     The Company has  increased its allowance for loan losses over the past five
years both  through  provisions  (and  charges to  income) of $130  million  and
through  balances  of $314  million  acquired  in  connection  with the  various
acquisitions  which occurred during that time.  Charge-offs during the five-year
period  totalled $208 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 2001 totalled $76 million.

                                    Page 59
<PAGE>

     A summary of the activity in the  allowance for loan losses by loan type is
as follows for the years ended December 31, 2001, 2000 and 1999:
<TABLE>
<CAPTION>
                                                                     Multi-family
                                                                     Residential
                                                   1-4 Unit         and Commercial      Consumer
                                                  Residential        Real Estate        and Other          Total
                                                  -----------       --------------      ---------          -----
                                                                          (in millions)
<S>                                                 <C>                 <C>              <C>                <C>
Balance - December 31, 1998                         $251                $278             $  60              $589
         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
         Provisions for loan losses                   --                  (7)                7                --
         Charge-offs                                  (7)                 (6)              (21)              (34)
         Recoveries                                   --                   1                 4                 5
         Reclassifications                            --                 (80)               80                --
                                                    ----                ----              ----              ----
Balance - December 31, 2000                          228                 184               114               526
         Provisions for loan losses                   --                 (25)               25                --
         Charge-offs                                  (5)                 --               (27)              (32)
         Recoveries                                    1                  --                 2                 3
                                                    ----                ----              ----              ----
Balance - December 31, 2001                         $224                $159              $114              $497
                                                    ====                ====              ====              ====
</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,
                                     ----------------------------------------
                                     2001     2000     1999     1998     1997
                                     ----     ----     ----     ----     ----

Real estate:
   1-4 unit residential              0.01%    0.02%    0.07%    0.11%    0.25%
   Multi-family residential and
      commercial real estate           --     0.09     0.10     0.18     0.15
Consumer and other                   0.74     0.64     0.67     0.50     1.72

RISK MANAGEMENT

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

     Banks  are  subject  to  interest  rate  risk  to  the  degree  that  their
interest-bearing  liabilities mature or reprice more or less frequently, or on a
different  basis,  than  their  interest-earning  assets.  A key  element of the
banking  business is the  monitoring  and  management  of interest rate risk and
liquidity  risk.  The process of planning and  controlling  asset and  liability
mixes,  volumes, and maturities to influence the net interest spread is referred
to as asset and liability

                                    Page 60
<PAGE>

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 net interest  income and market value  simulation,  as well as gap
and duration  analysis.  After taking into consideration both the variability of
rates and the maturities of various  instruments,  it evaluates strategies which
may reduce the  sensitivity  of its  earnings to interest  rate and market value
fluctuations. In order to reduce interest rate risk by increasing the percentage
of interest-rate-sensitive assets, the Company has continued its emphasis on the
origination of ARM products for its portfolio. Where possible, the Company seeks
to originate  real estate and other loans that on the whole adjust in accordance
with the repricing of its liabilities.  At December 31, 2001,  approximately 77%
of the Company's net loan portfolio consisted of ARMs.

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

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

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

     During 2001,  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 2001, the Company's net interest  margin  decreased by $75.5 million as a
result of these  interest  rate swap  agreements.  See notes 2 (p) and 37 of the
Company's Notes to Consolidated Financial Statements for more information.

     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 61
<PAGE>

     The  following  table  sets  forth  the  projected  maturities  based  upon
contractual  maturities as adjusted for  projected  prepayments  and  "repricing
mechanisms"  (provisions  for  changes  in the  interest  rates  of  assets  and
liabilities).  Prepayment rates are assumed in each period on substantially  all
of the Company's loan portfolio based upon expected loan prepayments.  Repricing
mechanisms on the Company's  assets are subject to limitations,  such as caps on
the  amount  that  interest   rates  and  payments  on  its  loans  may  adjust.
Accordingly,  such  assets  may not  respond  in the same  manner or to the same
extent to changes in interest rates as the Company's  liabilities.  In addition,
the interest rate  sensitivity of the assets and liabilities  illustrated in the
table would vary  substantially if different  assumptions were used or if actual
experience  differed from the assumptions used. The Company's estimated interest
rate sensitivity gap at December 31, 2001 was as follows:
<TABLE>
<CAPTION>
                                                                                 Maturity/Rate Sensitivity
                                                               -------------------------------------------------------------
                                                               Within         1 - 5        Over 5     Noninterest
                                                               1 Year         Years        Years        Bearing        Total
                                                               ------         -----        -----        -------        -----
                                                                                    (dollars in millions)
<S>                                                            <C>           <C>           <C>           <C>          <C>
INTEREST-EARNING ASSETS:
     Interest-bearing deposits in other banks and
         short term investment securities (1) (2)              $    96       $    --       $   --        $   --       $    96
     Securities held to maturity (1)                                31            --           --            --            31
     Securities available for sale (3)                             116            --           --            --           116
     Mortgage-backed securities available
         for sale (3)                                            7,058            --           --            --         7,058
     Mortgage-backed securities held
         to maturity (1) (4)                                     1,356            10           18            --         1,384
     Loans held for sale, net (3)                                2,608            --           --            --         2,608
     Loans receivable, net (1) (5)                              19,251        17,262        3,219            --        39,732
     Investment in FHLB                                          1,447            --           --            --         1,447
                                                               -------       -------       ------        ------       -------
         Total interest-earning assets                          31,963        17,272        3,237            --        52,472
     Noninterest-earning assets                                     --            --           --         4,019         4,019
                                                               -------       -------       ------        ------       -------
                                                               $31,963       $17,272       $3,237        $4,019       $56,491
                                                               =======       =======       ======        ======       =======
INTEREST-BEARING LIABILITES:
     Deposits (6)                                              $23,595       $ 1,538       $    1        $   --       $25,134
     Securities sold under agreements to
         repurchase (1)                                          2,291            73           --            --         2,364
     FHLB advances (1)                                          13,844         8,591           --            --        22,435
     Other borrowings (1)                                          270         1,740           --            --         2,010
                                                               -------       -------       ------        ------       -------
         Total interest-bearing liabilities                     40,000        11,942            1            --        51,943
     Noninterest-bearing liabilities                                --            --           --         1,479         1,479
     Minority interest                                              --            --           --           500           500
     Stockholders' equity                                           --            --           --         2,569         2,569
                                                               -------       -------       ------        ------       -------

                                                               $40,000       $11,942       $    1        $4,548       $56,491
                                                               =======       =======       ======        ======       =======
     Gap before interest rate swap agreements                  $(8,037)      $ 5,330       $3,236                     $   529
     Interest rate swap agreements                               3,340        (3,320)         (20)                         --
                                                               -------       -------       ------                     -------
     Gap                                                       $(4,697)      $ 2,010       $3,216                     $   529
                                                               =======       =======       ======                     =======

     Cumulative gap                                            $(4,697)      $(2,687)      $  529
                                                               =======       =======       ======

     Gap as a percentage of total assets                         (8.31)%        3.56%        5.69%                       0.94%
                                                               =======       =======       ======                     =======

     Cumulative gap as a percentage of total assets              (8.31)%       (4.75)%       0.94%                       0.94%
                                                               =======       =======       ======                     =======

                                                                                                                   (Continued)
</TABLE>

                                    Page 62
<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, 2001.
     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 and $95.9 million of short-term investment securities.

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

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

(5)  Excludes allowance for loan losses of $497 million and non-performing loans
     of $101 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, 2001, Golden State's  cumulative gap totalled $529 million.
At December 31, 2000, Golden State's cumulative gap totalled $(463) million.

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

                                    Page 63
<PAGE>

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

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

                                                           December 31,
                                                   -----------------------------
                                                       2001             2000
                                                       ----             ----

Balance Sheet Composition by Index:
    Securities
       Fixed                                       $ 5,348,562      $ 9,784,461
       COFI                                          1,140,414        1,498,062
       Treasury                                      1,516,419        2,174,307
       Other ARMs                                      483,136          670,580
       Unrealized gain/(loss)                           97,070         (152,264)
       Purchase accounting                               4,129            6,997
                                                   -----------      -----------
          Total securities                           8,589,730       13,982,143
                                                   -----------      -----------

    Loans
       Fixed                                         9,149,482        8,715,151
       Hybrid ARMs                                  18,649,980       14,850,893
       COFI                                          5,092,248        6,665,995
       Treasury                                      5,340,633        8,473,308
       Other ARMs                                    1,592,005        1,405,724
       Purchase accounting                               8,573            8,051
       Allowance for loan losses                      (497,298)        (526,308)
                                                   -----------      -----------
          Total loans                               39,335,623       39,592,814
                                                   -----------      -----------

    Other interest-earning assets                    4,151,004        2,292,462
    Noninterest-earning assets                       4,414,312        4,649,459
                                                   -----------      -----------
          Total assets                             $56,490,669      $60,516,878
                                                   ===========      ===========

    Deposits                                       $25,134,078      $23,429,754
    Borrowings:
       Fixed with maturities < 1 year                9,416,480       10,381,852
       Fixed with maturities > 1 year               10,155,390       15,591,137
       Adjustable                                    7,063,000        6,990,000
       Purchase accounting                               2,524            7,421
       Accrued interest payable                        171,092          341,456
                                                   -----------      -----------
          Total borrowings                          26,808,486       33,311,866
                                                   -----------      -----------

    Noninterest-bearing liabilities                  1,478,670        1,124,524
    Minority interest and stockholders' equity       3,069,435        2,650,734
                                                   -----------      -----------
          Total liabilities and equity             $56,490,669      $60,516,878
                                                   ===========      ===========

                                    Page 64
<PAGE>

     MORTGAGE BANKING RISK MANAGEMENT

     The  recent  decline  in  long-term  interest  rates  has  resulted  in the
acceleration  of  mortgage  loan  prepayments.   Higher  levels  of  prepayments
generally accelerate amortization of MSRs which results in reduced servicing fee
income and generally will result in a reduction in the market value of MSRs. For
more  information  on the  accounting  policy  for  MSRs,  see note 2 (m) of the
Company's Notes to Consolidated Financial Statements.  To reduce the sensitivity
of its  earnings to interest  rate and market  value  fluctuations,  the Company
hedges  the  change  in value of its MSRs  based  on  changes  in the  benchmark
interest rate.  Although the Company hedges the change in value of its MSRs, its
hedge coverage ratio does not equate to 100%. The Company does not hedge certain
components of its portfolio,  notably ARMs and loans with prepayment  penalties.
In addition,  the Company hedges only certain components of risk, which have not
generally included the mortgage rate spread to other market interest rates.

     The Company  owned  several  derivative  instruments  at December 31, 2001,
which were used to hedge  against the change in value of the mortgage  servicing
portfolio due to expected prepayment risk assumption changes caused by declining
rates.  These  derivative  instruments  included  interest rate swap agreements,
Constant  Maturity Swap interest rate floor  contracts,  swaptions and principal
only swaps.  MSR derivatives  used to hedge prepayment risk are comprised of the
following (dollars in thousands):
<TABLE>
<CAPTION>
                                      Notional                                                                   Fair Value at
          Derivative                   Amount             Contract Provisions                Maturity          December 31, 2001
          ----------                  --------            -------------------                --------      -------------------------
                                                                                                             Assets      Liabilities
                                                                                                             ------      -----------
<S>                                 <C>             <C>                                     <C>            <C>            <C>
Interest rate swap agreements       $  2,462,000    Weighted average pay rate of 1.9%       2010 - 2011    $  42,102      $(34,541)
                                                    Receive rates between 4.8% and 6.2%

Interest rate floor  contracts (a)     3,054,000    Strike rates between 6.0% and 6.7%      2006              78,917            --

Swaption contracts (b)                 4,111,000    Strike rates between 5.5% and 6.9%      2002 - 2004      183,641            --

Principal only swap agreements                      Index tied to LIBOR based on cash
                                         378,928            flow from a PO strip            2002 - 2029        7,487        (1,076)
                                     -----------                                                            --------      --------
                                     $10,005,928                                                            $312,147      $(35,617)
                                     ===========                                                            ========      ========
</TABLE>
--------------
(a)  Premiums paid to  counterparties  in exchange for the right to receive cash
     payments  when the  10-year  Constant  Maturity  Swap rate falls  below the
     strike rate are recorded as part of the MSR derivative asset on the balance
     sheet.

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

     The estimated market value of interest rate floor contracts,  interest rate
swaps,  principal only swaps and swaptions  designated as hedges against MSRs at
December  31, 2000 were $52.8  million,  $5.1  million,  $1.2 million and $105.6
million, respectively. Beginning January 1, 2001, the derivative instruments are
carried at fair value in  accordance  with SFAS No. 133. See note 38 for further
discussion.

     These instruments  effect an 80% hedge coverage  (computed on the change in
value under a 50 basis point change in interest  rates) at December 31, 2001, 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, 2000 was 75%.  MSRs decline in value as interest  rates fall due to
the impact of increased  prepayment  activity.  The level of prepayments and the
decline  in value are more  sensitive  at lower  interest  rates  than at higher
interest rate levels.  As interest rates declined  throughout  2001, the Company
consistently  increased the hedging activity in order to both increase the hedge
ratio and to best  offset  the  accelerating  changes  in MSR value for  further
declines in rates. The Company does not hedge loans with prepayment penalties or
variable-rate  loans.  The Bank is exposed to  counterparty  credit  risk to the
extent of its  derivative  assets.  In order to reduce the  counterparty  credit
risk, the Bank has imposed credit approvals,  limits and monitoring  procedures.
Credit risk related to derivative  financial  instruments is considered  and, if
material,  provided for  separately  from the allowance for loan losses.  As the
Company   generally   enters   into   transactions   only  with   high   quality
counterparties, it has no losses associated with

                                    Page 65
<PAGE>

counterparty  nonperformance on derivative financial  instruments.  Further, the
Company   obtains   collateral   where   appropriate  and  uses  master  netting
arrangements in accordance with FASB  Interpretation  No. 39, as amended by FASB
Interpretation No. 41.

     For  information  on the  accounting for and activities in MSRs and the MSR
Hedge,  refer  to  notes 2, 16 and 37 of the  Company's  Notes  to  Consolidated
Financial Statements.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     BUSINESS COMBINATIONS

     On July 20,  2001,  the FASB issued  SFAS No. 141 which  defines a business
combination  as a  transaction  through  which an  enterprise  acquires all or a
portion of the net assets that constitute a business or equity  interests of one
or more enterprises and obtains control over those enterprises.  This definition
is not substantively different from the APB Opinion No. 16 definition.

     SFAS No. 141 requires that all business combinations be accounted for using
the  purchase  method.  Use of the  pooling-of-interests  method to account  for
business combinations, which APB Opinion No. 16 required to be used when certain
criteria were met, is prohibited. SFAS No. 141 provides guidance for determining
the acquiror  versus the acquiree in an acquisition.  In addition,  SFAS No. 141
requires that  additional  information be disclosed  about business  combination
transactions.

     The accounting,  disclosure and financial statement  provisions of SFAS No.
141 became  effective for business  combinations  initiated after June 30, 2001,
and has not materially  impacted the Company's  current  financial  condition or
operating results.

     GOODWILL AND OTHER INTANGIBLE ASSETS

     On July  20,  2001,  the  FASB  also  issued  SFAS No.  142.  SFAS No.  142
supersedes APB Opinion No. 17 and establishes new accounting  standards for both
identifiable  and  unidentifiable  intangible  assets  acquired  in  a  business
combination,  including  goodwill,  but does not  address  internally  developed
intangible  assets.  It would continue to require  recognition of goodwill as an
asset but would not permit amortization of goodwill as currently required by APB
Opinion No. 17.  Instead,  goodwill  would be tested for  impairment  at a level
referred to as a reporting  unit. A reporting  unit is the same level as, or one
level below, an operating segment (as that term is used in SFAS No. 131).

     Goodwill would be tested for impairment annually and on an interim basis if
an event or circumstance  occurs between annual tests that might reduce the fair
value of a reporting unit below its carrying  value. An example of such an event
or circumstance may include an adverse change in the business climate or market,
a legal factor,  an action by regulators,  an introduction of competition,  or a
loss of key  personnel.  Goodwill  would  also be tested  for  impairment  on an
interim  basis  when  (a)  a  more-likely-than-not  expectation  exists  that  a
reporting  unit or a  significant  portion of a  reporting  unit will be sold or
otherwise  disposed of, (b) a significant asset group within a reporting unit is
tested  for  recoverability  under SFAS No.  121,  or (c) a  subsidiary  of that
reporting unit has recognized a goodwill impairment loss. The fair value of each
reporting  unit would not have to be recomputed  every year if the components of
the reporting  unit had not changed  since the previous fair value  computation,
the previous  fair value amount  exceeded the carrying  amount of the  reporting
unit by a substantial margin, and no evidence exists indicating that the current
fair value of the reporting unit may be less than its current carrying amount.

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

                                    Page 66
<PAGE>

     An acquired  intangible  asset other than goodwill  would be amortized over
its useful economic life and reviewed for impairment in accordance with SFAS No.
144.

     The aggregate amount of goodwill would be presented as a separate line item
in the balance sheet. The aggregate amount of goodwill  impairment  losses would
be  presented  as a separate  line item in the  operating  section of the income
statement  unless a goodwill  impairment  loss is associated with a discontinued
operation. At a minimum,  intangible assets would be aggregated and presented as
a  separate  line item in the  statement  of  financial  position.  Amortization
expense and impairment losses for intangible assets other than goodwill would be
presented in income statement line items as deemed appropriate for each entity.

     SFAS No. 142 is effective for the Company on January 1, 2002.

     Management   has   reviewed  the  records   from  the   Company's   various
acquisitions.  At December 31, 2001,  the Company's  $640.8  million  intangible
asset  includes $1.0 million  representing  a core deposit  intangible and $49.4
million  representing  goodwill generated pursuant to SFAS No. 72. The remaining
$590.4 million of this asset balance  represents  goodwill that will cease to be
amortized  as of January 1, 2002  pursuant  to SFAS No.  142. As a result of the
implementation of SFAS No. 142,  management expects GAAP earnings to increase by
$13.9 million per quarter in 2002.

     ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

     In June 2001, the FASB issued SFAS No. 143, which addresses the recognition
and  measurement  of  obligations  associated  with the  retirement  of tangible
long-lived assets. SFAS No. 143 applies to legal obligations associated with the
retirement of long-lived  assets resulting from the  acquisition,  construction,
development or the normal operation of a long-lived asset. SFAS No. 143 requires
that  the fair  value  of an asset  retirement  obligation  be  recognized  as a
liability in the period in which it is incurred. The asset retirement obligation
is to be capitalized as part of the carrying amount of the long-lived  asset and
the expense is to be recognized  over the useful life of the  long-lived  asset.
SFAS No. 143 is effective  January 1, 2003, with early adoption  permitted.  The
Company  plans to adopt  SFAS No.  143  effective  January  1, 2003 and does not
expect the adoption of the statement to have a material  effect on the financial
statements.

     ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

     On October 3, 2001, the FASB issued SFAS No. 144. SFAS No. 144  establishes
a single  accounting  model  for the  financial  accounting  and  reporting  for
impairment  or  disposal  of  long-lived  assets.  The  reason for  issuing  the
Statement stemmed from the failure of SFAS No. 121 to address the accounting for
the  disposal  of a  segment  of a  business  accounted  for  as a  discontinued
operation under APB Opinion No. 30. Thus, two accounting  models existed for the
disposal  of  long-lived  assets.  SFAS  No.  144  is  based  on  the  framework
established in SFAS No. 121.

     The accounting,  disclosure and financial statement  provisions of SFAS No.
144 are  effective  for financial  statements  issued for the Company  beginning
January 1, 2002.  The  provisions of the  Statement  generally are to be applied
prospectively.

     The implementation of SFAS No. 144 is not expected to materially impact the
Company's financial condition or operating results.

LIQUIDITY

     The  ratio of cash and  short-term  U.S.  Government  securities  and other
specified securities to deposits and borrowings due within one year measures the
Company's   liquidity.   The  OTS  requires  that  California  Federal  maintain
sufficient liquidity to ensure its safe and sound operation. Effective March 15,
2001, the OTS eliminated the previously imposed minimum liquidity requirement of
4.00%.  California Federal has been in compliance with the liquidity regulations
during 2001 and 2000.

                                    Page 67
<PAGE>

     The major source of funding for Golden State on an unconsolidated  basis is
distributions from its subsidiary, GS Holdings, which receives substantially all
of its  funding  from  distributions  of the  Bank's  earnings  and tax  sharing
payments.  Distributions  of the  Bank's  earnings  are  subject  to  regulatory
limitations.  The Bank also uses its  operating  income to pay  dividends on its
preferred stock owned by GS Holdings, subject to certain restrictions.  In turn,
GS Holdings uses distributions  received from the Bank primarily to pay debt and
expenses,   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 24 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 Company
must  retain and  attract  new  deposits,  which  depends  upon the  variety and
effectiveness of its customer  account  products,  service and convenience,  and
rates paid to customers.  Any decline in retail deposit  funding would adversely
impact  the  Company's  liquidity.  The  Company  also  obtains  funds  from the
repayment  and  maturity  of loans and  mortgage-backed  securities,  as well as
deposit  inflows,  loan sales,  securities sold under  agreements to repurchase,
FHLB  advances,  and  other  secured  and  unsecured  borrowings.   The  Company
anticipates   that  FHLB  advances  and  securities  sold  under  agreements  to
repurchase  will  continue to be important  sources of funding,  and  management
expects there to be adequate collateral for such funding requirements. A decline
in the Bank's credit rating would adversely  affect the Bank's ability to borrow
and/or the related borrowing costs, thus impacting the Company's  liquidity.  In
addition,  if  the  Company  were  to  default  on  a  borrowing  (see  note  19
"Borrowings"  for events of default),  all principal and accrued  interest would
become due and payable, thus negatively affecting the Company's liquidity.

     The  consolidated  Company's  primary uses of funds are the  origination or
purchase of loans and mortgage-backed  securities,  maturing CDs, demand deposit
withdrawals,  repayment of borrowings and dividends to common shareholders.  CDs
scheduled to mature during the twelve months ending  December 31, 2001 aggregate
$9.1 billion. The Company may renew these certificates,  attract new replacement
deposits,  replace such funds with other  borrowings,  or reduce the size of the
balance  sheet.  See note 36 of the Company's  Notes to  Consolidated  Financial
Statements for the expirations of commitments to extend credit. In addition,  at
December  31,  2001,  the  Company  had FHLB  advances,  securities  sold  under
agreements to repurchase and other borrowings aggregating $16.4 billion maturing
or repricing within twelve months. The Company may elect to pay off such debt or
to replace such borrowings with additional FHLB advances,  securities sold under
agreements to repurchase or other  borrowings at prevailing  rates.  See note 18
"Securities  Sold Under  Agreements to Repurchase" and note 19 "Borrowings"  for
the Company's contractual cash obligations related to these borrowings.

     At December 31, 2001,  all 3,007,300  shares of the 11 1/2% Bank  Preferred
Stock were held  indirectly by Golden State.  In 1999, GS Holdings  redeemed the
remaining  318,341 shares held by third  parties.  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, subject to
certain  federal laws  applicable to savings  associations.  Dividends  totalled
$34.6 million for each year ended December 31, 2001 and 2000.

     At December 31, 2001, all 1,725,000  shares of 10 5/8% Bank Preferred Stock
were  held  indirectly  by Golden  State.  In 1999,  GS  Holdings  redeemed  the
remaining  607,299 shares held by third  parties.  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,  subject
to certain federal laws applicable to savings  associations.  Dividends totalled
$18.3 million for each year ended December 31, 2001 and 2000.

     The dividends,  net of tax benefits, on the REIT Preferred Stock were $27.0
million for each year ended  December  31, 2001 and 2000.  The terms of the REIT
Preferred  Stock  provide  that  Preferred  Capital  Corp.  may  declare  or pay
dividends  and other  distributions  of cash or stock so long as: (a)  Preferred
Capital Corp. has paid full  dividends on the REIT Preferred  Stock for the four
most recent dividend periods and (b) the Board of Directors of Preferred Capital
Corp. has approved the dividend. Repurchases,  redemptions or other acquisitions
of stock are considered  distributions subject to these requirements.  Preferred
Capital Corp. is currently in compliance with such requirements.

                                    Page 68
<PAGE>

     On August 1, 2001,  $350 million of the GS Holdings  Notes  matured and was
paid in full. Interest expense on the remaining $1.65 billion on the GS Holdings
Notes will  approximate  $108.1 million for the year 2002.  Although GS Holdings
expects that  distributions  and tax sharing  payments  from the Bank will cover
future  interest and principal  payments,  there is no  guarantee.  In addition,
there is no assurance that Bank  distributions will be permitted by the terms of
any GS Holdings  debt  instruments,  any class of preferred  stock issued by the
Bank  or  its  subsidiaries,  including  the  REIT  Preferred  Stock,  or  under
applicable federal thrift laws then in effect.

     The Company  anticipates  that cash and cash  equivalents  on hand, and its
sources of funds will provide  adequate  liquidity for its operating,  investing
and financing needs and the Bank's  regulatory  liquidity  requirements  for the
foreseeable  future.  See  notes  17,  18  and  19 of  the  Company's  Notes  to
Consolidated  Financial Statements for debt maturity information and note 36 for
commitment positions. See "Business--Regulation and Supervision." In addition to
cash and cash  equivalents  of $805.2  million at December 31, 2001, the Company
has substantial  additional  secured borrowing  capacity with the FHLB and other
sources  amounting  to $8.7  billion.  The Company is exposed to  credit-related
losses in the event of nonperformance by the counterparties to these agreements.
See note 37 of the Company's Notes to Consolidated Financial Statements.

     Net cash used in operating  activities for the year ended December 31, 2001
totalled  $379.0  million  compared to $267.0 million cash provided by operating
activities  in December  31,  2000.  The change was  principally  due to a $12.6
billion increase in purchases and originations of loans held for sale, partially
offset by a $10.9  billion  increase in net proceeds from the sale of loans held
for sale.

     Net cash provided by operating  activities  for the year ended December 31,
2000  totalled  $267.0  million  compared to $2.0 billion  during the year ended
December 31, 1999. The change was principally due to a $4.6 billion  decrease in
net proceeds  from the sale of loans held for sale,  partially  offset by a $3.0
billion reduction in purchases and originations of loans held for sale.

     Net cash provided by investing  activities  for the year ended December 31,
2001  totalled  $5.3  billion,  an increase of $7.9  billion from the year ended
December 31, 2000. Cash flows provided by investing activities included net loan
originations and principal  collections of $4.3 billion,  principal  payments on
mortgage-backed  securities  totalling  $3.9  billion,  proceeds  from  maturing
securities of $1.2 billion,  proceeds  from sale of  mortgage-backed  securities
available for sale of $788.6 million and proceeds from sales and  settlements of
derivatives of $622.8 million.  Cash flows used in investing activities included
purchases of loans  receivable  of $4.3  billion,  purchases of  derivatives  of
$713.6  million,  purchases of MSRs of $308.0  million and purchases of mortgage
backed-securities available for sale of $171.9 million.

     Net cash used in investing  activities for the year ended December 31, 2000
totalled $2.6 billion,  a decrease of $1.9 billion from the year ended December
31, 1999. Cash flows used in investing activities included net loan originations
and principal collections of $3.8 billion, purchases of loans receivable of $1.6
billion, purchases of MSRs of $344.3 million, purchases of derivatives of $127.2
million,  purchases of mortgage  backed-securities  available for sale of $115.3
million and  purchases  of FHLB stock of $107.6  million.  Additionally,  $379.3
million was used in the Downey  Acquisition.  Cash flows  provided by  investing
activities included principal payments on mortgage-backed  securities  totalling
$2.3 billion,  proceeds from sale of  mortgage-backed  securities  available for
sale of $1.4 billion and proceeds from maturing securities of $109.3 million.

     Net cash used in financing  activities for the year ended December 31, 2001
totalled $4.9 billion,  compared to net cash provided by financing activities of
$2.5 billion from the year ended December 31, 2000. Cash flows used in financing
activities  included  principal  payments on borrowings of $115.5 billion, a net
decrease in securities sold under agreements to repurchase of $2.1 billion, $350
million in  principal  payment  on GS  Holdings  Notes and $64.0  million in the
extinguishment of Issuable Shares. Additionally,  $54.1 million in dividends was
paid to common  stockholders,  while $27.0  million,  net of taxes,  was paid to
minority  stockholders.  Cash flows  provided by financing  activities  included
proceeds  from  additional  borrowings  of $111.5  billion and a net increase in
deposits of $1.7 billion.

                                    Page 69
<PAGE>

     Net cash provided by financing  activities  for the year ended December 31,
2000 totalled $2.5  billion,  an increase of $437.5  million from the year ended
December  31,  1999.  Cash  flows  provided  by  financing  activities  included
additional  borrowings  of $43.5  billion,  a net increase in deposits of $395.4
million and the exercise of stock options and warrants of $131.9  million.  Cash
flows used in financing  activities included principal payments on borrowings of
$40.4 billion, net decrease in securities sold under agreements to repurchase of
$970.4 million, $85.0 million in the extinguishment of Issuable Shares and $63.7
million  for  purchases  of  treasury  stock.  Additionally,  $26.4  million  in
dividends was paid to common  stockholders,  while $27.0 million,  net of taxes,
was paid to minority stockholders.

     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. See
note 36 of the Company's Notes to Consolidated Financial Statements.

OTHER ACTIVITIES

     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company  periodically  enters into  certain  relationships  and related
transactions.  See Item 13, "Certain Relationships and Related Transactions" for
a discussion of these transactions.

     LITIGATION TRACKING WARRANTS(TM)

     In  connection  with  the  Glendale  Goodwill   Litigation,   Golden  State
distributed  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 25 of the Company's  Notes to
Consolidated Financial Statements.

     LITIGATION INTERESTS

     As a result of the California Federal Goodwill Litigation, the Bank has two
outstanding classes of securities: the CALGZs and the CALGLs.

     Each CALGZ entitles the holder to receive a recovery payment based upon the
Cash  Payment,  if any,  actually  received by the Bank from the  Government  in
resolution of the  California  Federal  Goodwill  Litigation.  The amount of the
recovery  payment is equal to five millionths of one percent  (0.000005%) of the
Cash Payment after deducting:

       (i)    certain expenses incurred by the Bank in prosecuting the case;

       (ii)   any income tax  liabilities  of the Bank,  computed on a pro forma
              basis, as a result of the Bank's receipt of the Cash Payment, with
              certain adjustments;

       (iii)  the effect of certain net operating  loss  carryforwards  or other
              tax attributes, if any; and (iv) the expenses incurred by the Bank
              in creating, issuing and trading the CALGZs.

                                    Page 70
<PAGE>

     Each CALGL entitles the holder to receive twenty  millionths of one percent
(0.0000020%) of the secondary  recovery payment,  if any. The secondary recovery
payment means sixty percent (60%) of the Cash Payment, minus the sum of:

       (i)    certain expenses incurred by the Bank in prosecuting the case;

       (ii)   any income tax  liabilities  of the Bank,  computed on a pro forma
              basis,  as a result of the Bank's receipt of the Cash Payment (net
              of any income tax benefit, computed on a pro forma basis, from the
              payment of a portion of the secondary  recovery payment to holders
              of the CALGLs);

       (iii)  the expenses incurred by the Bank in creating, issuing and trading
              the CALGZs and the CALGLs;

       (iv)   the payment due to the holders of the CALGZs; and

       (v)    $125,000,000.

     Any  payment to holders of the CALGZs and CALGLs 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 to 1/5 of one
vote.

     As of January 3, 1997, in connection with the Cal Fed Acquisition, the Bank
recorded the California Federal Goodwill  Litigation Asset at its estimated fair
value of $100  million,  net of estimated tax  liabilities.  As of September 11,
1998,  in  connection  with the Glen Fed Merger,  the Bank recorded the Glendale
Goodwill  Litigation  Asset,  which is the estimated  after-tax  recovery in the
Glendale Goodwill Litigation that will inure to the Bank, net of amounts payable
to the holders of the LTW(TM)s,  at its estimated  fair value of $56.9  million,
net of estimated tax liabilities.

     The merger agreement for the Golden State Acquisition  included a provision
that  "equalized"  the  effect of the  potential  recoveries  in the  California
Federal Goodwill Litigation and the Glendale Goodwill 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 and  fluctuates  based upon the market value of the LTW(TM)s.
Subsequently,  changes to retained earnings and the contribution receivable were
recorded to reflect  changes in value.  At December 31, 2001, 2000 and 1999, the
inherent value of the amount to be contributed by GSB  Investments  and Hunter's
Glen  was  recorded  at  $21.2   million,   $20.6  million  and  $17.1  million,
respectively.

                                    Page 71
<PAGE>

CAPITAL MANAGEMENT

     At December 31, 2001, stockholders' equity was $2.6 billion, an increase of
$418.7  million  from  December 31, 2000.  The increase is  principally  the net
result  of  $409.4  million  in net  income  for the  year,  $112.6  million  in
adjustments to Issuable  Shares  related to pre-merger tax benefits  retained by
the  previous  owners  of FN  Holdings,  an  $88.1  million  improvement  in net
unrealized  gain/loss,  after tax, on  securities  available  for sale,  a $30.4
million improvement in unrealized loss on securities upon  reclassification from
the  held-to-maturity to the  available-for-sale  portfolio and $29.0 million of
amortization  on the  unrealized  holding loss on  securities  held to maturity.
These amounts are offset,  in part, by $74.7 million in net  unrealized  losses,
after tax, during the period on derivatives,  $63.7 million in extinguishment of
Issuable  Shares,  $54.1  million of common  stock  dividends,  a $44.6  million
transition  adjustment  recorded  upon the  adoption  of SFAS No.  133 and $24.7
million in adjustments to additional  paid-in  capital related to pre-merger tax
benefits  recorded  as  goodwill.  For further  information,  see note 26 of the
Company's Notes to Consolidated Financial Statements.

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

     TANGIBLE  CAPITAL.  Tangible  capital  is the sum of  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. In addition,  the OTS regulations  provide that
minimum  capital  levels higher than those  provided in the  regulations  may be
established by the OTS for individual savings associations, depending upon their
circumstances. The Bank is not subject to any such individual regulatory capital
requirement  that is higher than the minimum.  These  capital  requirements  are
currently applicable to the Bank but not to Golden State.

       At December 31, 2001, the Bank's tangible, core and risk-based capital
ratios of 6.62%, 6.62% and 12.98%, respectively, exceeded the minimum regulatory
capital requirements.

                                    Page 72
<PAGE>

     The following is a  reconciliation  of the Bank's  stockholder's  equity to
regulatory capital as of December 31, 2001:
<TABLE>
<CAPTION>
                                                                    Tangible            Core            Risk-based
                                                                    Capital            Capital           Capital
                                                                    -------            -------           -------
                                                                                   (dollars in millions)
<S>                                                                  <C>               <C>                <C>
Stockholder's equity of the Bank                                     $4,124            $4,124             $4,124
Minority interest - REIT Preferred Stock                                500               500                500
Unrealized holding gain on securities, net                              (57)              (57)               (57)
Unrealized holding loss on derivative instruments, net                  119               119                119
Non-allowable capital:
     Non-qualifying loan servicing rights                              (149)             (149)              (149)
       Intangible assets                                               (641)             (641)              (641)
       Goodwill Litigation Assets                                      (159)             (159)              (159)
       Investment in non-includable subsidiaries                        (68)              (68)               (68)
Supplemental capital:
       Qualifying subordinated debentures                                --                --                 73
       General loan loss allowance                                       --                --                397
Assets required to be deducted:
       Land loans with more than 80% LTV ratio                           --                --                 (9)
       Equity in subsidiaries                                            --                --                 (7)
       Low-level recourse deduction                                      --                --                 (9)
                                                                     ------            ------             ------
Regulatory capital of the Bank                                        3,669             3,669              4,114
Minimum regulatory capital requirement                                  831             2,218              2,536
                                                                     ------            ------             ------
Excess above minimum capital requirement                             $2,838            $1,451             $1,578
                                                                     ======            ======             ======

                                                                    Tangible          Leverage          Risk-based
                                                                    Capital            Capital            Capital
                                                                     Ratio              Ratio              Ratio
                                                                     -----              -----              -----
Regulatory capital of the Bank                                        6.62%             6.62%              12.98%
Minimum regulatory capital requirement                                1.50              4.00                8.00
                                                                      ----              ----               -----
Excess above minimum capital requirement                              5.12%             2.62%               4.98%
                                                                      ====              ====               =====
</TABLE>

                                    Page 73
<PAGE>

     The amount of adjusted  total  assets used for the  tangible  and  leverage
capital  ratios is $55.5 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $31.7 billion.

     At December 31, 2001, the Bank's  capital levels were  sufficient for it to
be considered "well capitalized," as presented below.


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

Regulatory capital of the Bank              6.62%       11.54%         12.98%
"Well capitalized" ratio                    5.00         6.00          10.00
                                            ----        -----          -----
Excess above "well capitalized" ratio       1.62%        5.54%          2.98%
                                            ====        =====          =====

     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, 2001, none of the
net tax  benefit  was  determined  to be  attributable  to the amount of taxable
income that may be realized in periods beyond one year.  Accordingly,  no amount
has been excluded from the Bank's regulatory capital at December 31, 2001.

     OTHER CAPITAL ACTIVITIES

     Warrants.  During  1999,  the Company had common  stock  purchase  warrants
outstanding  which were  exercised  or expired  before the end of the year.  The
Company had 10,768,153 transferable Standby Warrants outstanding at December 31,
1999,  all of which were  either  exercised  or expired  during  2000.  For more
information on the Standby Warrants,  refer to note 24 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 Golden
State will accrue and distribute Issuable Shares to GSB Investments and Hunter's
Glen based upon Golden  State's use of certain tax benefits and upon  California
Federal's recoveries in certain specified litigation. The tax benefits are those
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.  The  recoveries  are
California  Federal's net after-tax  recovery in certain  specified  litigation,
including a portion 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 holders of the CALGZs and CALGLs and the  retention  of
certain amounts of such recovery by the Bank).  The portion of any net after-tax
recovery in the California Federal Goodwill  Litigation that will be excluded in
determining  the  number of  Issuable  Shares to be issued  will be based,  with
certain adjustments, on the amount of any net after-tax recovery in the Glendale
Goodwill  Litigation  that the Bank may  exclude  in  determining  the number of
shares of Golden  State  Common  Stock that are  issuable  upon  exercise of the
LTW(TM)s.  At December 31, 2001,  Issuable  Shares valued at $189.5 million were
included in equity. For more information on Issuable Shares, refer to notes 2(r)
and 24 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.

                                    Page 74
<PAGE>

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, caps and floors.

     ALCO,  which  includes  senior  management  representatives,  monitors  and
considers   methods  of  managing  the   sensitivity   of  rate  and   repricing
characteristics of the balance sheet components to maintain acceptable levels of
changes in the NPV ratio and net  interest  income  due to  changes in  interest
rates.  The Company's goal is to effectively  invest its capital and to preserve
the value created by its core business  operations.  The  management  monitoring
processes  discussed  below are  designed to  minimize  the impact of sudden and
sustained changes in interest rates on the NPV ratio and net interest income.

     The Company's exposure to interest rate risk is reviewed at least quarterly
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 the
NPV  ratio and net  interest  income in the  event of  hypothetical  changes  in
interest  rates.  Interest  rate  sensitivity  gap analysis is used to determine
impact of the repricing  characteristics  of the Bank's assets and  liabilities.
The Board may direct  management  to adjust its asset and  liability mix to keep
interest rate risk within Board-approved limits.

     To reduce  exposure to interest rate  fluctuations,  the Company  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  originating  primarily  adjustable-rate  residential
mortgage  loans and  consumer  loans,  which are retained by the Company for its
portfolio. Any long-term,  fixed-rate  single-family  residential mortgage loans
are either exchanged for  mortgage-backed  securities  secured by such loans and
are then sold or are sold directly for cash in the secondary  market,  generally
with servicing retained.

     Interest rate sensitivity  analysis  measures the Bank's interest rate risk
by  computing  estimated  changes  in the NPV  ratio in the  event of a range of
assumed  changes  in market  interest  rates.  The NPV  ratio is a market  value
adjusted  capital to asset ratio and is  computed by taking the market  value of
assets  minus the market  value of  liabilities,  divided by the market value of
assets.  This  analysis  assesses  the risk of loss in  value 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, 2001.

                        Change in
                      Interest Rates                    NPV Ratio
                      --------------                    ---------

                 300 basis point rise                     5.65%
                 200 basis point rise                     6.90%
                 100 basis point rise                     7.77%
                 Base Scenario                            8.26%
                 100 basis point decline                  8.01%
                 200 basis point decline                  8.16%

                 NPV Sensitivity Measure                 (1.36)%

     The preceding  table indicates that as of December 31, 2001, the Bank's NPV
ratio would be expected to decrease in the event that  prevailing  market  rates
increase in a sudden and sustained manner.  The NPV sensitivity  measure,  which
compares  the  difference  between the base  scenario  and the lesser of the 200
basis point rise or decline,  as estimated  by the Bank's model is (1.36)%.  The
NPV  sensitivity  measure of (1.36)% when  combined with the Bank's NPV ratio of
6.90% in the 200 basis point rise results in a "minimal  risk" rating as defined
by the OTS policies, the lowest, or best, of four risk ratings.

                                    Page 75
<PAGE>

     The  fair  market  value  of the  Company's  equity  decreases  in a rising
interest rate  environment  because the Company's  interest-bearing  liabilities
generally  reprice faster than its  interest-earning  assets,  some of which 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 the current assumed declining interest rate environment,
the fair market value of the portfolio equity remains  relatively  stable as the
repricing of assets and  liabilities are similar and the decline in value of the
MSRs is more highly offset by the hedges.

     The Bank calculates the NPV ratio pursuant to guidelines established by the
OTS. The  calculation  is based on the net present value of estimated cash flows
considering  market  prepayment  assumptions  and  interest  rates  provided  by
independent  broker quotations and other public sources as of December 31, 2001,
adjusted to reflect shifts in the Treasury yield curve, as appropriate.

     The  computation  of the effect 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 the NPV.  Actual  values may differ from those  projections
presented, based upon market conditions. 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 Bank's  adjustable-rate  loan portfolio  could
decrease due to refinancing if market interest rates remain at current levels or
decline  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.

     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,  to  maintain  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, 2001 and 2000 and for the years ended  December 31, 2001,  2000 and 1999 are
included in this report at the pages indicated.

                                                                  Page
                                                                  ----
Independent Auditors' 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-8
Notes to Consolidated Financial Statements                         F-10

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

     None.

                                    Page 76
<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 SEC  pursuant  to  Regulation  14A for use in  connection  with  Golden
State's  Annual  Meeting  of  Stockholders  to be held on May 21,  2002  ("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,
2002) concerning the executive officers of Golden State.
<TABLE>
<CAPTION>
Name                                 Age                 Position
----                                 ---                 ---------
<S>                                  <C>                 <C>
Gerald J. Ford                       57                  Chairman  of  the  Board, Chief Executive Officer and Director
Carl B. Webb                         52                  President, Chief Operating Officer and Director
Christie S. Flanagan                 63                  Executive Vice President and General Counsel
Richard A. Fink                      61                  Executive Vice President
Richard P. Hodge                     47                  Executive Vice President
Scott A. Kisting                     54                  Executive Vice President
James R. Staff                       54                  Executive Vice President
Richard H. Terzian                   65                  Executive Vice President and Chief Financial Officer
Stephen J. Trafton                   55                  Executive Vice President
Renee Nichols Tucei                  45                  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.
<TABLE>
<CAPTION>
Name                                 Age                 Position at the Bank
----                                 ---                 --------------------
<S>                                  <C>                 <C>
Walter C. Klein, Jr.                 58                  Group Executive Vice President
Dennis L. Verhaegen                  50                  Group Executive Vice President
</TABLE>

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

     Mr.  Flanagan has been  Executive  Vice  President  and General  Counsel of
Golden State since September 1998 and Group Executive Vice President and General
Counsel of the Bank since June 2000. He served as Executive  Vice  President and
General  Counsel of the Bank from 1994 until June 2000. 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 Chief Credit  Officer from  February  1996 until  September
1998.

                                    Page 77
<PAGE>

     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 LLP.

     Mr.  Kisting  has been  Executive  Vice  President  of Golden  State  since
September  1998.  He has been Group  Executive  Vice  President  and Director of
Consumer  and  Business  Banking  of the Bank  since  June  2000.  He  served as
Executive  Vice  President and Director of Consumer and Business  Banking of the
Bank from  September 1998 until June 2000. 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 1990 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. He has been Group Executive Vice President
and Chief Financial  Advisor of the Bank since June 2000. He served as Executive
Vice  President  and Chief  Financial  Advisor  of the Bank from 1994 until June
2000.  He also serves as a Director of  Preferred  Capital  Corp.,  Auto One and
FNMC.  Prior to  joining  the Bank,  Mr.  Staff was  associated  with the public
accounting  firm of  KPMG  LLP,  most  recently  as a  partner  specializing  in
financial services.

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

     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 of GS Holdings since
November 2000 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. Klein has been a Group  Executive Vice President of the Bank since June
2000. He served as Executive  Vice President of the Bank from January 1996 until
June 2000.  Mr. Klein has been 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. Verhaegen has been Group Executive Vice President and Corporate Finance
Director of the Bank since August 2000.  He served as Executive  Vice  President
and Corporate Finance Director of the Bank from February 1997 until August 2000.
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.

                                    Page 78
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

     Those  portions  of Golden  State's  Proxy  Statement  appearing  under the
caption  "Executive  Compensation,"  "Report of the  Compensation  Committee  on
Executive  Compensation"  and  "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
"Ownership  of Golden  State and Other  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 79
<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    Agreement  dated as of August 20, 2000 by and between Golden State
              Bancorp Inc. and GSB Investments Corp.  (Incorporated by reference
              to Exhibit 2.3 to the Registrant's  Annual Report on Form 10-K for
              the year ended December 31, 2000.)

       2.4    Agreement  dated as of July 26, 2001 by and between  Golden  State
              Bancorp Inc. and GSB Investments Corp.

       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 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.  (Incorporated by reference to Exhibit 4.5 to
              FN  Holdings'  Annual  Report  on Form  10-K  for the  year  ended
              December 31, 1994.)

       4.2    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.)

       4.3    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).)

                                    Page 80
<PAGE>

       4.4    Agreement Regarding Contingent  Litigation Recovery  Participation
              Interests,  dated as of June 30, 1995,  between California Federal
              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).)

       4.5    Agreement  Regarding  Secondary  Contingent   Litigation  Recovery
              Participation  Interests,  dated as of December  2, 1996,  between
              California  Federal  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).)

       4.6    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.)

       4.7    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).)

       4.8    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).)

       4.9    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).)

       4.10   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).)

       4.11   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).)

       4.12   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   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).)

                                    Page 81
<PAGE>

       10.5   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).)

       10.6   Letter dated March 30, 2000 extending the term of the office lease
              dated as of  November  15, 1990  between  RNM 135 Main,  L. P., as
              successor to Webb/San  Francisco  Venture,  Ltd.,  and  California
              Federal  Bank,  as successor to First  Nationwide  Bank, A Federal
              Savings  Bank.  (Incorporated  by reference to Exhibit 10.6 to the
              Registrant's 2000 Form 10-K.)

       10.7   Employment  Agreement dated November 22, 1999,  between California
              Federal Bank,  and Gerald J. Ford.  (Incorporated  by reference to
              Exhibit 10.11 to the  Registrant's  Annual Report on Form 10-K for
              the year ended December 31, 1999 (the "1999 Form 10-K").)

       10.8   Employment  Agreement,  dated as of  December  17,  1999,  between
              California  Federal Bank, and Carl B. Webb, II.  (Incorporated  by
              reference to Exhibit 10.13 to the Registrant's 1999 Form 10-K.)

       10.9   Employment  Agreement,   dated  as  of  August  1,  1999,  between
              California  Federal 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.)

       10.10  Employment  Agreement,  dated as of  December  17,  1999,  between
              California  Federal  Bank,  and J. Randy Staff.  (Incorporated  by
              reference to Exhibit 10.18 to the Registrant's 1999 Form 10-K.)

       10.11  Employment   Agreement, dated  as  of  August  1,  1999,   between
              California  Federal 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.)

       10.12  1998  Change  of  Control  Plan,  dated  as  of  March  25,  1999.
              (Incorporated  by reference to Exhibit  10.24 to the  Registrant's
              1999 Form 10-K.)

       10.13  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.)

       10.14  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.)

       10.15  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, Stephen J. Trafton
              and Richard A. Fink. (Incorporated by reference to Exhibit 99.2 to
              the February 1998 Form 8-K.)

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

       10.17  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.)

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

                                    Page 82
<PAGE>

       10.19  Amendment  No. 1 dated as of  January  1,  2000 to  Agreement  for
              Provision of Services between Mafco Holdings Inc. and Golden State
              Bancorp Inc. dated January 1, 1999.  (Incorporated by reference to
              Exhibit 10.19 to the Registrant's 2000 Form 10-K.)

       10.20  Amendment  No. 2 dated as of  December  2, 2001 to  Agreement  for
              Provision of Services between Mafco Holdings Inc. and Golden State
              Bancorp Inc., dated January 1, 1999.

       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 John A. Moran.

       24.2   Power of Attorney executed by Ronald O. Perelman.

       24.3   Power of Attorney executed by Cora M. Tellez.

(C)    REPORTS ON FORM 8-K

       None.

                                    Page 83
<PAGE>

                            GLOSSARY OF DEFINED TERMS

     This glossary covers the preceding 10-K as well as the financial statements
beginning on page F-1 of this document.

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
9    1/8%  PREFERRED  STOCK - One newly issued  share of preferred  stock of the
     Bank having substantially the same terms as the REIT Preferred Stock
10%  SUBORDINATED  DEBENTURES DUE 2003 - In 1992, Old California  Federal issued
     $13.6 million of 10.0% unsecured subordinated debentures due 2003
10%  SUBORDINATED DEBENTURES DUE 2006 - As part of its 1994 acquisition of First
     Nationwide,  California  Federal assumed $92.1 million  principal amount of
     subordinated debentures, which bear interest at 10% per annum and mature on
     October 1, 2006
10   5/8% BANK PREFERRED STOCK -10 5/8% noncumulative  perpetual preferred stock
     issued by California Federal
11   1/2%  BANK  PREFERRED  STOCK - 11 1/2%  noncumulative  perpetual  preferred
     stock issued by California Federal
11.20% SENIOR NOTES DUE 2004 - As part of its 1996  acquisition of San Francisco
     Federal,  California Federal assumed $50 million principal amount of 11.20%
     Senior Notes due September 1, 2004
1996 ACQUISITIONS - 1996 acquisitions of Home Federal Financial  Corporation and
     San Francisco Federal
1997 SERVICING  SALE - On September  30, 1997,  FNMC sold  servicing  rights for
     approximately   52,000  loans  with  a  UPB  of approximately $2.3 billion,
     recognizing a pre-tax gain of $14.0 million.
12   MAT - the twelve month average of the monthly  treasury  constant  maturity
     rates
2001 NOTES - 6 3/4% Senior Notes due 2001 that are part of the GS Holdings Fixed
     Rate Notes
2003 NOTES - 7% Senior  Notes due 2003  that are part of the GS  Holdings  Fixed
     Rate Notes
2005 NOTES - 7 1/8% Senior Notes due 2005 that are part of the GS Holdings Fixed
     Rate Notes
ACCRETABLE YIELD - excess of the pool's Expected Cash Flows over the amount paid
ACS  - Affiliated Computer Services
ALCO - Asset/Liability Management Committee
AMT  - alternative minimum tax
APB  - Accounting Principles Board
APB  OPINION NO. 16 - Business Combinations
APB  OPINION NO. 17 - Intangible Assets
APB  OPINION NO. 25 - Accounting for Stock Issued to Employees
APB  OPINION NO. 30 - Reporting the Results of Operations-Reporting  the Effects
     of  Disposal  of a Segment of a Business,  and  Extraordinary,  Unusual and
     Infrequently Occurring Events and Transactions
ARM  - Adjustable-rate mortgage
AUTO ONE - Auto One Acceptance Corporation
BANK - California Federal Bank
BANK PREFERRED  STOCK - the 10 5/8% Bank  Preferred  Stock  together with the 11
     1/2% Bank Preferred Stock
BANK PREFERRED  STOCK TENDER OFFERS - FN Holdings  commenced  cash tender offers
     for each of the Bank's two  outstanding  series of Bank Preferred  Stock in
     August 1998
BIF  - Bank Insurance Fund
BROKERED DEPOSITS - Issued CDs through  direct  placement  programs and national
     investment banking firms
CAL  FED - Cal Fed Bancorp Inc.
CAL  FED  ACQUISITION - Agreement and Plan of Merger among FN Holdings,  Cal Fed
     Bancorp Inc.  and  California  Federal  Bank, A Federal  Savings  Bank.  FN
     Holdings  acquired  100%  of the  outstanding  stock  of Cal  Fed  and  Old
     California  Federal,   and  First  Nationwide  merged  with  and  into  Old
     California Federal in January 1997.
CALGL - Secondary Contingent Litigation Recovery Participation Interests
CALGZ - Contingent Litigation Recovery Participation Interests
CALIFORNIA FEDERAL - California Federal Bank
CALIFORNIA  FEDERAL  GOODWILL  LITIGATION  -  California  Federal Bank v. United
     Sates, Civil Action 92-138
CALIFORNIA FEDERAL GOODWILL  LITIGATION ASSET - an asset,  related to California
     Federal  Goodwill  Litigation,  arising  out of  the  purchase  of the  Old
     California Federal.
CASH PAYMENT - Amount, 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 in the lawsuit,  California Federal Bank v. United
     States, Civil Action No. 92-138C

                                    Page 84
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

CD   - Certificate of deposit
CFI  - Cal Fed Investments
CLAIMS COURT - United States Court of Federal Claims
CMO  - collateralized mortgage obligation
COFI - Cost of Funds Index (tied to the FHLB's 11th District cost of funds)
COMPANY - Golden State Bancorp Inc.
CRA  - Community Reinvestment Act
DCR  - debt coverage ratio
DEBT TENDER OFFERS - On September 14, 1998,  GS Holdings  commenced  cash tender
     offers for the FN Holdings Notes
DECP - Deferred Executive Compensation Plan
DECONSOLIDATION  ADJUSTMENT - Upon the Company's  deconsolidation from the Mafco
     Group,  a federal  income  tax  return  filed on  behalf of itself  and its
     subsidiaries  caused a  reduction  of NOLs and other tax  attributes  which
     resulted in a reduction in retained earnings in 1998
DOWNEY  ACQUISITION  -  Auto  One's  acquisition  of  the  Downey  Auto  Finance
     Corporation in February, 2000.
DP   - Data Processing
ECP  - Executive Compensation Plan
EITF - Emerging Issues Task Force
EITF NO. 99-20 - Recognition of Interest  Income and Impairment on Purchased and
     Retained Beneficial Interests in Securitized Financial Assets
EPS  - earnings per share
EXPECTED CASH FLOWS - expected principal and interest cash flows
FAIR LENDING LAWS - Equal Credit Opportunity and the Fair Housing Act, together
FASB - Financial Accounting Standards Board
FASB INTERPRETATION NO. 39 - Offsetting of Amounts Related to Certain Contracts
FASB INTERPRETATION NO. 41 - Offsetting of Amounts Related to Certain Repurchase
     and Reverse Repurchase Agreements
FDIC - Federal Deposit Insurance Corporation
FDICIA - Federal Deposit Insurance Corporation Improvement Act
FHLB - Federal Home Loan Bank of San Francisco
FHLB SYSTEM - Federal Home Loan Bank System
FHLMC - Federal Home Loan Mortgage Corporation
FICO  - Financing Corporation
FIRREA- Financial Institutions Reform,  Recovery and Enforcement Act of 1989 and
     its implementing regulations.
FIRST GIBRALTAR - First Gibraltar Holdings Inc.
FIXED RATE  NOTES - The 2001  Notes, 2003  Notes and 2005  Notes,  collectively,
     which together with the Floating Rate Notes are the GS Holdings Notes
FLOATING RATE NOTES DUE 2003 - GS Holdings Notes consist in part of $250 million
     aggregate principal amount of its Floating Rate Notes Due 2003
FLORIDA BRANCH SALE - On September 11, 1998,  the Bank  consummated  the sale of
     its Florida deposit  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.
FLSC - forward loan sale commitments
FN   ACQUISITION - California  Federal  acquired First Nationwide as part of its
     1994 acquisition
FN   HOLDINGS - First Nationwide Holdings Inc.
FN   HOLDINGS 10 5/8% NOTES - 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 Subordinated Notes due 2003
FN   HOLDINGS  NOTES - FN  Holdings  12 1/4%,  the FN Holdings 9 1/8% Senior Sub
     Notes and the FN Holdings 10 5/8% Notes, collectively
FN   HOLDINGS PREFERRED STOCK - the preferred stock of FN Holdings
FNMA - Federal National Mortgage Association
FNMC - First Nationwide Mortgage Corporation
FSLIC - Federal Savings and Loan Insurance Corporation

                                    Page 85
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

FTE  - Full-time equivalent staff
GAAP -accounting principles generally accepted in the United States of America
GLEN FED MERGER - Glendale Federal Bank merged with and into the Bank
GLENDALE FEDERAL - Glendale Federal Bank, Federal Savings Bank
GLENDALE GOODWILL  LITIGATION  - Glendale  Federal  Bank v. United  States,  No.
     90-772C
GLENDALE GOODWILL LITIGATION ASSET - an asset,  related to the Glendale Goodwill
     Litigation, arising out of the purchase of Glendale Federal.
GNMA - Government National Mortgage Association
GOLDEN STATE - Golden State Bancorp Inc.
GOLDEN STATE  ACQUISITION - FN Holdings Asset Transfer,  Holding Company Mergers
     and Glen Fed Merger, collectively
GOLDEN STATE COMMON STOCK - Golden State common stock, par value $1.00
GOLDEN STATE GROUP - consolidated  group of Golden State  Bancorp,  Golden State
     Holdings and California  Federal Bank, for which Golden State is the common
     parent
GOLDEN STATE  MERGER - the merger,  completed on  September  11,  1998,  between
     Golden State, the publicly traded parent company of Glendale  Federal,  and
     First Nationwide Holdings Inc. and Hunter's Glen/Ford, Ltd.
GOODWILL LITIGATION  ASSETS - the California  Federal Goodwill  Litigation Asset
     and the Glendale Goodwill Litigation Asset, collectively
GOVERNMENT - United States Government
GSAC - Gulf States Acceptance Company
GSAC ACQUISITION  - Auto One, a  subsidiary  of the Bank,  acquired  100% of the
     partnership interests in Gulf States Acceptance Company, a Delaware limited
     partnership and its general partner, Gulf States Financial Services,  Inc.,
     a Texas corporation, in February 1998
GSB  - Golden State Bancorp
GSB  INVESTMENTS - GSB Investments Corp.
GS   ESCROW - GS Escrow Corp.
GS   HOLDINGS - Golden State Holdings Inc.
GS   HOLDINGS  NOTES - On August 6, 1998,  GS Escrow  Corp,  which  subsequently
     merged  into GS  Holdings,  issued $2  billion of fixed and  floating  rate
     notes.
HOLA - Home Owners' Loan Act of 1933
HUNTER'S GLEN - Hunter's Glen/Ford, Ltd.
IO   - Interest only
INCENTIVE PLAN - management incentive plan
IRS  - Internal Revenue Service
ISSUABLE  SHARES  -  The  Golden  State  Merger  agreement   provides  that  GSB
     Investments  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  ("Issuable
     Shares") to GSB Investments and Hunter's Glen.
LIBOR - London Interbank Offered Rate
LOCOM - lower of cost or market
LTIP - Long Term Incentive Plan
LTV  - Loan-to-value
LTW(TM) - Litigation Tracking Warrants
MAFCO GROUP - Mafco Holdings Inc. affiliated group
MAFCO HOLDINGS - Mafco Holdings Inc.
MBS  - mortgage-backed securities
MD&A - management's discussion and analysis
MERGER AGREEMENT  -  Agreement  and Plan of Merger  among FN  Holdings,  Cal Fed
     Bancorp Inc. and California Federal Bank, A Federal Savings Bank
MSR  - Mortgage servicing rights
MSR  HEDGE - 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
NASDAQ - National Association of Securities Dealers Automated Quotations system

                                    Page 86
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

NEVADA PURCHASE - 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. in April
     1999.
NOL  - net operating loss
NONACCRETABLE   CONTRACTUAL   CASH  FLOWS  -  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
NOTIONAL AMOUNT - the amount on which calculations, payments, and the value of a
       derivative  is based.  Notional  amounts do not  represent  direct credit
       exposures.
NPV  - Net portfolio value
NYSE - New York Stock Exchange
OCI  - Other comprehensive income
OLD  CALIFORNIA  FEDERAL - California Federal Bank, A Federal Savings Bank prior
     to the Cal Fed Acquisition
OLD  FNB - First  Nationwide  Bank,  A  Federal  Savings  Bank  prior  to the FN
     Acquisition
OLD  FNB INDENTURE - Indenture  governing the 10%  Subordinated  Debentures  Due
     2006
OMNIBUS STOCK PLAN - Golden State Bancorp Inc. Omnibus Stock Plan
OTC  - over-the-counter
OTS  - Office of Thrift Supervision
PARENT HOLDINGS - First Nationwide (Parent) Holdings Inc.
PARENT HOLDINGS DEFEASANCE - the defeasance of the Parent Holdings Notes
PARENT HOLDINGS NOTES - 12 1/2 Senior Notes due 2003
PARTICIPANTS  -  certain  executive  officers  of  the  Bank  eligible  for  the
     management incentive plan
PASS-THROUGH  INTEREST  EXPENSE  -  represents  interest  that  FNMC pays to the
     investor(s)  for  loans  serviced  by  FNMC,  which  are  paid  off  by the
     borrower(s)  before the end of the month.  FNMC picks up the  shortfall  of
     interest on the respective  loans as a result of the contractual  agreement
     between the servicer (FNMC) and the investor(s) (I. E. GNMA)
PE   - Pacific Exchange
PO   - Principal only
PREFERRED CAPITAL CORPORATION - California Federal Preferred Capital Corporation
QTL  - Qualified Thrift Lender
REFINANCING  TRANSACTIONS  - On September 14, 1998, GS Holdings  commenced  Debt
     Tender Offers and together with the Bank Preferred  Stock Tender Offers and
     the Parent Holdings Defeasance
REIT - Real Estate Investment Trust
REIT PREFERRED STOCK - 9 1/8% Noncumulative Exchangeable Preferred Stock, Series
     A, issued by California  Federal Preferred  Capital  Corporation in January
     1996.
REO  - real estate owned
REPOS - short-term securities sold under agreements to repurchase
SAIF - Savings Association Insurance Fund
SBA  - Small Business Administration
SCHEDULED CONTRACTUAL CASH FLOWS - the pool's scheduled contractual pricipal and
     contractual interest payments
SEC  - Securities and Exchange Commission
SERVICING SALE - During April 1999,  the Bank's  wholly-owned  mortgage  banking
     subsidiary,  First Nationwide Mortgage Corporation sold servicing rights on
     approximately 49,000 loans with an UPB of $2.0 billion.
SFAS - Statement of Financial Accounting Standards
SFAS NO. 65 - Accounting for Certain Mortgage Banking Activities
SFAS NO.  72  -  Accounting  for  Certain  Acquisitions  of  Banking  or  Thrift
     Institutions
SFAS NO. 109 - Accounting for Income Taxes
SFAS NO. 114 - Accounting by Creditors for Impairment of a Loan
SFAS NO. 115 - Accounting for Certain Investments in Debt and Equity Securities
SFAS NO.  121 -  Accounting  for the  Impairment  of  Long-lived  Assets and for
     Long-lived Assets to be Disposed of
SFAS NO. 123 - Accounting for Stock-Based Compensation
SFAS NO.  131  -  Disclosures  about  Segments  of  an  Enterprise  and  Related
     Information
SFAS NO. 133 - Accounting for Derivative Instruments and Hedging Activities
SFAS NO. 140 - Accounting  for Transfers  and Servicing of Financial  Assets and
     Extinguishments of Liabilities, a replacement of FASB Statement No. 125

                                    Page 87
<PAGE>

                      GLOSSARY OF DEFINED TERMS (CONTINUED)

SFAS NO. 141 - Accounting for Business Combinations
SFAS NO. 142 - Accounting for Goodwill and Intangible Assets
SFAS NO. 143 - Accounting for Asset Retirement Obligations
SFAS NO. 144 - Accounting for the Impairment or Disposal of Long-Lived Assets
SFFED ACQUISITION - The  acquisition of San Francisco  Federal by the Company in
     February 1996
SLHC -savings and loan holding company
STANDBY  WARRANTS - Golden  State  issued  transferable  common  stock  purchase
     warrants
STOCK PLAN - Golden State Bancorp Inc. Omnibus Stock Plan
TAX  SHARING  AGREEMENT  - 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
WARRANTS - Golden State issued common stock  purchase  warrants in March 1993 in
     connection with an exchange of preferred stock for outstanding subordinated
     debentures and capital notes
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
UPB  - Unpaid principal balance
VERDUGO - Verdugo Trustee Service Corporation
Y2K  - Year 2000
XCF  - XCF Acceptance Corporation

                                    Page 88
<PAGE>

                                   SIGNATURES

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

Dated:  March 19, 2002

                                            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 19, 2002
---------------------------------------    Executive Officer and Director
         Gerald J. Ford                    (Principal Executive Officer)


      /s/Carl B. Webb                      President, Chief Operating Officer     March 19, 2002
---------------------------------------    and Director
         Carl B. Webb


      /s/Richard H. Terzian                Executive Vice President               March 19, 2002
---------------------------------------    and Chief Financial Officer
         Richard H. Terzian                (Principal Financial Officer)


      /s/Renee Nichols Tucei               Executive Vice President and           March 19, 2002
---------------------------------------    Controller
         Renee Nichols Tucei               (Principal Accounting Officer)


      /s/Paul M. Bass, Jr.                 Director                               March 19, 2002
---------------------------------------
         Paul M. Bass, Jr.


      /s/George W. Bramblett, Jr.          Director                               March 19, 2002
---------------------------------------
         George W. Bramblett, Jr.


      /s/Brian P. Dempsey                  Director                               March 19, 2002
---------------------------------------
         Brian P. Dempsey
</TABLE>

                                    Page 89

<PAGE>
<TABLE>
<CAPTION>

<S>                                        <C>                                    <C>
      /s/Howard Gittis                     Director                               March 19, 2002
---------------------------------------
         Howard Gittis


      /s/John F. King                      Director                               March 19, 2002
---------------------------------------
         John F. King


      /s/John F. Kooken                    Director                               March 19, 2002
---------------------------------------
         John F. Kooken


      /s/Gabrielle K. McDonald             Director                               March 19, 2002
---------------------------------------
         Gabrielle K. McDonald


                  *                        Director                               March 19, 2002
---------------------------------------
         John A. Moran


                  *                        Director                               March 19, 2002
---------------------------------------
         Ronald O. Perelman


      /s/B. M. Rankin, Jr.                 Director                               March 19, 2002
---------------------------------------
         B. M. Rankin, Jr.


      /s/Thomas S. Sayles                  Director                               March 19, 2002
---------------------------------------
         Thomas S. Sayles


      /s/Robert Setrakian                  Director                               March 19, 2002
---------------------------------------
         Robert Setrakian


                  *                        Director                               March 19, 2002
---------------------------------------
         Cora M. Tellez
</TABLE>

*  James R. Eller,  Jr., 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/James R. Eller, Jr.
                                          --------------------------------------
                                                   James R. Eller, Jr.
                                                    Attorney-in-fact


                                    Page 90
<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 as of December 31, 2001 and 2000, 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,
2001. 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 auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion, the 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, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2001, in conformity  with  accounting  principles  generally
accepted in the United States of America.

As discussed in Note 2(p) to the consolidated financial statements,  the Company
changed  its  method  of  accounting  for  derivative  instruments  and  hedging
activities  in 2001 with the  adoption  of  Statement  of  Financial  Accounting
Standards  No.  133,   "ACCOUNTING   FOR  DERIVATIVE   INSTRUMENTS  AND  HEDGING
ACTIVITIES."




                                              KPMG LLP



San Francisco, California
January 15, 2002

                                      F-1
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2001 AND 2000
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>

                                ASSETS                                                       2001            2000
                                ------                                                   -----------      ----------
<S>                                                                                      <C>              <C>
Cash and due from banks                                                                  $   709,169      $   697,513
Interest-bearing deposits in other banks                                                         103              123
Short-term investment securities                                                              95,929           85,510
                                                                                         -----------      -----------
     Cash and cash equivalents                                                               805,201          783,146

Securities available for sale, at fair value                                                 116,112          641,205
Securities held to maturity (fair value of $30,602 and $590,571 at December 31,
     2001 and 2000, respectively)                                                             30,602          587,503
Mortgage-backed securities available for sale, at fair value (includes securities
     pledged to creditors with the right to sell or repledge of $1,607,130 and $2,620,399
     at December 31, 2001 and 2000, respectively)                                          7,057,903        9,866,823
Mortgage-backed securities held to maturity (fair value $1,411,157 and $2,959,677
     at December 31, 2001 and 2000, respectively) (includes securities pledged
     to creditors with the right to sell or repledge of $763,438 and $2,053,070
     at December 31, 2001 and 2000, respectively)                                          1,385,113        2,886,612
Loans held for sale, net                                                                   2,608,365          845,763
Loans receivable, net                                                                     39,335,623       39,592,814
Investment in FHLB System                                                                  1,446,607        1,361,066
Premises and equipment, net                                                                  306,890          327,329
Foreclosed real estate, net                                                                   18,564           19,080
Accrued interest receivable                                                                  288,308          364,414
Intangible assets (net of accumulated amortization of $306,011 and $246,150
     at December 31, 2001 and 2000, respectively)                                            640,843          691,288
MSRs, net of valuation allowance                                                           1,623,947        1,559,323
Derivative assets                                                                            349,026               --
Other assets                                                                                 477,565          990,512
                                                                                         -----------      -----------
         Total assets                                                                    $56,490,669      $60,516,878
                                                                                         ===========      ===========
             LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' EQUITY
             -------------------------------------------------------

Deposits                                                                                 $25,134,078      $23,429,754
Securities sold under agreements to repurchase                                             2,363,945        4,511,309
Borrowings                                                                                24,444,541       28,800,557
Derivative liabilities                                                                       250,711               --
Other liabilities                                                                          1,227,959        1,124,524
                                                                                         -----------      -----------
         Total liabilities                                                                53,421,234       57,866,144
                                                                                         -----------      -----------

Commitments and contingencies                                                                     --               --

Minority interest                                                                            500,000          500,000

Stockholders' equity
     Common stock, $1.00 par value, (250,000,000 shares authorized; 152,164,166
         and 150,703,716 shares issued at December 31, 2001
         and 2000, respectively)                                                             152,164          150,704
     Issuable Shares                                                                         189,532          172,308
     Additional paid-in capital                                                            1,551,520        1,534,736
     Accumulated other comprehensive loss, net                                               (61,806)         (89,874)
     Retained earnings (substantially restricted)                                          1,054,511          698,597
     Treasury stock at cost (16,408,120 and 16,383,058 shares at
         December 31, 2001 and 2000, respectively)                                          (316,486)        (315,737)
                                                                                         -----------      -----------
     Total stockholders' equity                                                            2,569,435        2,150,734
                                                                                         -----------      -----------
         Total liabilities, minority interest and stockholders' equity                   $56,490,669      $60,516,878
                                                                                         ===========      ===========
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, 2001, 2000 AND 1999
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
                                                                                              2001         2000         1999
                                                                                           ----------   ----------   ----------
<S>                                                                                        <C>          <C>          <C>
Interest income:
     Loans receivable                                                                      $2,980,884   $2,852,971   $2,332,500
     Mortgage-backed securities available for sale                                            603,142      800,444      872,823
     Mortgage-backed securities held to maturity                                              124,117      206,469      177,644
     Loans held for sale                                                                      137,430       62,591      109,486
     Securities available for sale                                                             18,718       55,917       76,669
     Securities held to maturity                                                               23,899       29,499       11,459
     Interest-bearing deposits in other banks                                                     973        5,034       12,049
     Dividends on FHLB stock                                                                   79,485       92,872       59,639
                                                                                           ----------   ----------   ----------
         Total interest income                                                              3,968,648    4,105,797    3,652,269
                                                                                           ----------   ----------   ----------
Interest expense:
     Deposits                                                                                 831,538      928,407      888,286
     Securities sold under agreements to repurchase                                           196,425      352,100      265,467
     Borrowings                                                                             1,577,630    1,678,491    1,312,629
     Other                                                                                      1,565           --           --
                                                                                           ----------   ----------   ----------
         Total interest expense                                                             2,607,158    2,958,998    2,466,382
                                                                                           ----------   ----------   ----------
         Net interest income                                                                1,361,490    1,146,799    1,185,887
Provision for loan losses                                                                          --           --       10,000
                                                                                           ----------   ----------   ----------
         Net interest income after provision for loan losses                                1,361,490    1,146,799    1,175,887
                                                                                           ----------   ----------   ----------
Noninterest income:
     Loan servicing fees, net                                                                 (14,393)     176,159      127,834
     Customer banking fees and service charges                                                221,796      196,969      187,022
     Gain on sale, settlement and transfer of loans, net                                       78,440       49,730       32,885
     Gain (loss) on sale of assets, net                                                        17,525      (13,426)      24,042
     Other income                                                                              47,550       31,333       28,211
                                                                                           ----------   ----------   ----------
         Total noninterest income                                                             350,918      440,765      399,994
                                                                                           ----------   ----------   ----------
Noninterest expense:
     Compensation and employee benefits                                                       455,199      427,362      391,597
     Occupancy and equipment                                                                  173,269      160,820      148,411
     Professional fees                                                                         37,475       41,381       52,667
     Loan expense                                                                              16,828       17,018       17,200
     Foreclosed real estate operations, net                                                      (905)      (4,690)      (6,411)
     Amortization of intangible assets                                                         59,861       62,717       69,724
     Other expense                                                                            237,616      208,631      233,421
                                                                                           ----------   ----------   ----------
         Total noninterest expense                                                            979,343      913,239      906,609
                                                                                           ----------   ----------   ----------
Income before income taxes, minority interest, extraordinary items
     and cumulative effect of change in accounting principle                                  733,065      674,325      669,272
Income tax expense                                                                            291,995      136,781      186,483
Minority interest: provision in lieu of income tax expense                                      3,137      161,688      122,684
Minority interest: other                                                                       26,988       28,376       39,390
                                                                                           ----------   ----------   ----------
     Income before extraordinary items and cumulative effect of change in
          accounting principle                                                                410,945      347,480      320,715
Extraordinary items - gains on early extinguishment of debt, net of
     applicable taxes of $2,083 and $1,801 in 2000 and 1999, respectively                          --        3,014        2,472
Cumulative effect of change in accounting principle, net of applicable taxes of
     $1,072 in 2001                                                                            (1,552)          --           --
                                                                                           ----------   ----------   ----------
             Net income                                                                    $  409,393   $  350,494   $  323,187
                                                                                           ==========   ==========   ==========
Earnings per share:
Basic
     Income before extraordinary items and cumulative effect of change in accounting principle $ 2.88        $2.50        $2.45
     Extraordinary items                                                                           --         0.02         0.02
     Cumulative effect of change in accounting principle                                        (0.01)          --           --
                                                                                               ------        -----        -----
             Net income                                                                        $ 2.87        $2.52        $2.47
                                                                                               ======        =====        =====
Diluted
     Income before extraordinary items and cumulative effect of change in accounting principle $ 2.86        $2.44        $2.29
     Extraordinary items                                                                           --         0.02         0.02
     Cumulative effect of change in accounting principle                                        (0.01)          --           --
                                                                                               ------        -----        -----
             Net income                                                                        $ 2.85        $2.46        $2.31
                                                                                               ======        =====        =====
Dividends declared per common share                                                            $ 0.40        $0.20        $  --
                                                                                               ======        =====        =====
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, 2001, 2000 AND 1999
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                            2001               2000              1999
                                                                          --------           --------          ---------
<S>                                                                       <C>                <C>               <C>
Net income                                                                $409,393           $350,494          $ 323,187

 Other comprehensive income (loss), net of tax:
    Unrealized holding gain (loss) on securities available for sale:
        Unrealized holding gain (loss) arising during the period            131,966            170,729           (280,618)
        Less: reclassification adjustment for (gain) loss included
              in net income                                                 (13,517)             9,976               (742)
                                                                           --------           --------          ---------
                                                                            118,449            180,705           (281,360)
    Amortization of market adjustment for securities
        transferred from available-for-sale to held-to-maturity              28,998              4,630                 --

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

    Change in fair value of derivatives used for cash flow hedges,
        net of applicable taxes of $51,611                                  (74,732)                --                 --
                                                                           --------           --------          ---------

 Other comprehensive income (loss)                                           28,068            185,335           (281,360)
                                                                           --------           --------          ---------

 Comprehensive income                                                      $437,461           $535,829          $  41,827
                                                                           ========           ========          =========

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, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                              Accumulated
                                                                                                                 Other
                                                           Common Stock                      Additional       Comprehensive
                                                     ------------------------     Issuable    Paid-in         Income (Loss)
                                                       Shares         Amount       Shares     Capital      on Securities, Net
                                                       ------         ------       ------     -------      ------------------

<S>                                                  <C>             <C>         <C>         <C>              <C>
Balance at December 31, 1998                         128,687,763     $128,688    $     --    $1,392,155       $    6,151

Net income                                                    --          --           --            --               --
Golden State Acquisition - see note 3                         --          --           --       (12,380)              --
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                   --          --           --            --         (281,360)
Issuable Shares (1999 usage of pre-merger NOLs)               --          --      197,562            --               --
Issuable Shares (1998 tax benefits)                           --          --        2,665        (2,665)              --
Issuable Shares (interest on Old California
    Federal tax refund)                                       --          --        4,454            --               --
Distribution of Issuable Shares                        5,540,319       5,540           --        (5,540)              --
Impact of restricted stock                                56,908          57           --           420               --
Purchase of treasury stock                                    --          --           --            --               --
Exercise of stock options and warrants                   435,695         436           --         7,444               --
Sale of common stock in treasury                              --          --           --          (699)              --
                                                     -----------    --------     --------    ----------         --------

Balance at December 31, 1999                         134,720,685    $134,721     $204,681    $1,378,735        $(275,209)

                                                                                                              (Continued)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>


                                                         Retained            Common Stock
                                                         Earnings             in Treasury              Total
                                                      (Substantially     ---------------------      Stockholders'
                                                        Restricted)        Shares      Amount          Equity
                                                       -----------        ------      ------           ------

<S>                                                     <C>           <C>           <C>             <C>
Balance at December 31, 1998                            $  56,471         (89,994)  $   (1,687)     $1,581,778

Net income                                                323,187              --           --         323,187
Golden State Acquisition - see note 3                          --              --           --         (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)
Issuable Shares (1999 usage of pre-merger NOLs)                --              --           --         197,562
Issuable Shares (1998 tax benefits)                            --              --           --              --
Issuable Shares (interest on Old California
    Federal tax refund)                                        --              --           --           4,454
Distribution of Issuable Shares                                --              --           --              --
Impact of restricted stock                                     --              --           --             477
Purchase of treasury stock                                     --     (12,463,800)    (250,245)       (250,245)
Exercise of stock options and warrants                         --              --           --           7,880
Sale of common stock in treasury                               --          75,697        1,678             979
                                                         --------     -----------    ---------      ----------

Balance at December 31, 1999                             $371,096     (12,478,097)   $(252,241)     $1,561,783

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

                                      F-5
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                                                                              Accumulated
                                                                                                                 Other
                                                          Common Stock                       Additional       Comprehensive
                                                    ------------------------     Issuable     Paid-in         Income (Loss)
                                                      Shares         Amount       Shares      Capital      on Securities, Net
                                                      ------         ------       ------      -------      ------------------
<S>                                                 <C>            <C>          <C>          <C>               <C>
Balance at December 31, 1999                        134,720,685    $134,721     $ 204,681    $1,378,735        $(275,209)

Net income                                                   --          --            --            --               --
Adjustment to contribution receivable
    from GSB Investments and Hunter's Glen
    in respect of their proportionate ownership
    of the California Federal Goodwill
    Litigation Asset                                         --          --            --            --               --
Change in net unrealized holding loss
    on securities available for sale                         --          --            --            --          180,705
Amortization of unrealized holding loss
    on securities held to maturity                           --          --            --            --            4,630
Issuable Shares (1999 usage of pre-merger NOLs)              --          --         3,919            --               --
Issuable Shares (2000 usage of pre-merger NOLs)              --          --       162,565            --               --
Pro-rata adjustment to pre-merger tax
    benefits recorded as goodwill                            --          --            --       (39,305)              --
Issuable Shares adjustment for tax refund
    and related interest                                     --          --        39,455       (38,066)              --
Distribution of Issuable Shares                       4,882,904       4,883      (100,000)       95,117               --
Cancellation of restricted shares                        (2,025)         (2)           --             2               --
Impact of restricted common stock                       220,327         220            --         2,955               --
Purchase of treasury stock                                   --          --            --            --               --
Exercise of stock options and warrants               10,881,743      10,882            --       120,991               --
Sale of common stock in treasury                             --          --            --           (94)              --
Dividends on common stock                                    --          --            --            --               --
Issuance of common stock                                     82          --            --            --               --
Cash settlement resulting in the
    extinguishment of Issuable Shares                        --          --      (138,312)       14,401               --
                                                    -----------    --------     ---------    ----------        ---------

Balance at December 31, 2000                        150,703,716    $150,704     $ 172,308    $1,534,736        $ (89,874)

                                                                                                              (Continued)

See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                         Retained             Common Stock
                                                         Earnings              in Treasury              Total
                                                      (Substantially     -----------------------     Stockholders'
                                                        Restricted)         Shares       Amount         Equity
                                                       -----------         ------        ------         ------
<S>                                                     <C>              <C>           <C>            <C>
Balance at December 31, 1999                            $371,096         (12,478,097)  $(252,241)     $1,561,783

Net income                                               350,494                  --          --         350,494
Adjustment to contribution receivable
    from GSB Investments and Hunter's Glen
    in respect of their proportionate ownership
    of the California Federal Goodwill
    Litigation Asset                                       3,451                  --          --           3,451
Change in net unrealized holding loss
    on securities available for sale                          --                  --          --         180,705
Amortization of unrealized holding loss
    on securities held to maturity                            --                  --          --           4,630
Issuable Shares (1999 usage of pre-merger NOLs)               --                  --          --           3,919
Issuable Shares (2000 usage of pre-merger NOLs)               --                  --          --         162,565
Pro-rata adjustment to pre-merger tax
    benefits recorded as goodwill                             --                  --          --         (39,305)
Issuable Shares adjustment for tax refund
    and related interest                                      --                  --          --           1,389
Distribution of Issuable Shares                               --                  --          --              --
Cancellation of restricted shares                             --                  --          --              --
Impact of restricted common stock                             --                  --          --           3,175
Purchase of treasury stock                                    --          (3,916,411)    (63,724)        (63,724)
Exercise of stock options and warrants                        --                  --          --         131,873
Sale of common stock in treasury                              --              11,450         228             134
Dividends on common stock                                (26,444)                 --          --         (26,444)
Issuance of common stock                                      --                  --          --              --
Cash settlement resulting in the
    extinguishment of Issuable Shares                         --                  --          --        (123,911)
                                                        --------         -----------   ---------      ----------

Balance at December 31, 2000                            $698,597         (16,383,058)  $(315,737)     $2,150,734

                                                                                                      (Continued)

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

                                      F-6
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>

                                                      Common Stock                       Additional
                                                -------------------------    Issuable      Paid-in
                                                   Shares         Amount      Shares       Capital
                                                   ------         ------      ------       -------
<S>                                             <C>              <C>         <C>          <C>
Balance at December 31, 2000                    150,703,716      $150,704    $172,308     $1,534,736

Net income                                               --            --          --             --
Change in net unrealized holding gain (loss)
    on securities available for sale                     --            --          --             --
Amortization of unrealized holding
    loss on securities held to maturity                  --            --          --             --
Unrealized loss on securities reclassified
    to available-for-sale, net of tax                    --            --          --             --
Transition adjustment upon adoption of
    SFAS No. 133                                         --            --          --             --
Change in net unrealized holding loss
    on derivatives                                       --            --          --             --
Adjustment to contribution receivable from
    GSB Investments and Hunter's Glen
    in respect of their proportionate
    ownership of the California Federal
    Goodwill Litigation Asset                            --            --          --             --
Issuable Shares (pro-rata 2001 usage
    of pre-merger NOLs)                                  --            --      98,217             --
Pro-rata adjustment to pre-merger tax
    benefits recorded as goodwill                        --            --          --        (24,694)
Cash settlement resulting in the 2001
    extinguishment of Issuable Shares                    --            --     (75,000)        11,000
Capitalized costs related to the 2001
    extinguishment of Issuable Shares                    --            --          --           (700)
Adjustment to capitalized costs - 2000
    extinguishment of Issuable Shares                    --            --          --            998
Issuable Shares adjustment for changes
    in tax benefits                                      --            --      14,007            415
Distribution of Issuable Shares                   1,041,198         1,041     (20,000)        18,959
Impact of restricted common stock                    99,108            99          --          3,359
Exercise of stock options                           320,144           320          --          7,447
Purchase of treasury stock                               --            --          --             --
Dividends on common stock                                --            --          --             --
                                                -----------      --------    --------     ----------

Balance at December 31, 2001                    152,164,166      $152,164    $189,532     $1,551,520
                                                ===========      ========    ========     ==========
                                                                                          (Continued)

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

<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                              Accumulated
                                                                 Other
                                                    Comprehensive (Loss) Income, Net
                                                 ----------------------------------------
                                                 Securities      Derivatives      Total
                                                 ----------      -----------      -----
<S>                                               <C>            <C>             <C>
Balance at December 31, 2000                      $(89,874)      $      --       $(89,874)

Net income                                              --              --             --
Change in net unrealized holding gain (loss)
    on securities available for sale                88,075              --         88,075
Amortization of unrealized holding
    loss on securities held to maturity             28,998              --         28,998
Unrealized loss on securities reclassified
    to available-for-sale, net of tax               30,374              --         30,374
Transition adjustment upon adoption of
    SFAS No. 133                                        --         (44,647)       (44,647)
Change in net unrealized holding loss
    on derivatives                                      --         (74,732)       (74,732)
Adjustment to contribution receivable from
    GSB Investments and Hunter's Glen
    in respect of their proportionate
    ownership of the California Federal
    Goodwill Litigation Asset                           --              --             --
Issuable Shares (pro-rata 2001 usage
    of pre-merger NOLs)                                 --              --             --
Pro-rata adjustment to pre-merger tax
    benefits recorded as goodwill                       --              --             --
Cash settlement resulting in the 2001
    extinguishment of Issuable Shares                   --              --             --
Capitalized costs related to the 2001
    extinguishment of Issuable Shares                   --              --             --
Adjustment to capitalized costs - 2000
    extinguishment of Issuable Shares                   --              --             --
Issuable Shares adjustment for changes
    in tax benefits                                     --              --             --
Distribution of Issuable Shares                         --              --             --
Impact of restricted common stock                       --              --             --
Exercise of stock options                               --              --             --
Purchase of treasury stock                              --              --             --
Dividends on common stock                               --              --             --
                                                  --------       ---------       --------

Balance at December 31, 2001                      $ 57,573       $(119,379)      $(61,806)
                                                  ========       =========       ========

                                                                               (Continued)
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                                  Retained           Common Stock
                                                  Earnings            in Treasury                  Total
                                               (Substantially    -----------------------        Stockholders'
                                                 Restricted)       Shares         Amount           Equity
                                               --------------      ------         ------           ------
<S>                                             <C>              <C>             <C>             <C>
Balance at December 31, 2000                    $   698,597      (16,383,058)    $(315,737)      $2,150,734

Net income                                          409,393               --            --          409,393
Change in net unrealized holding gain (loss)
    on securities available for sale                     --               --            --           88,075
Amortization of unrealized holding
    loss on securities held to maturity                  --               --            --           28,998
Unrealized loss on securities reclassified
    to available-for-sale, net of tax                    --               --            --           30,374
Transition adjustment upon adoption of
    SFAS No. 133                                         --               --            --          (44,647)
Change in net unrealized holding loss
    on derivatives                                       --               --            --          (74,732)
Adjustment to contribution receivable from
    GSB Investments and Hunter's Glen
    in respect of their proportionate
    ownership of the California Federal
    Goodwill Litigation Asset                           658               --            --              658
Issuable Shares (pro-rata 2001 usage
    of pre-merger NOLs)                                  --               --            --           98,217
Pro-rata adjustment to pre-merger tax
    benefits recorded as goodwill                        --               --            --          (24,694)
Cash settlement resulting in the 2001
    extinguishment of Issuable Shares                    --               --            --          (64,000)
Capitalized costs related to the 2001
    extinguishment of Issuable Shares                    --               --            --             (700)
Adjustment to capitalized costs - 2000
    extinguishment of Issuable Shares                    --               --            --              998
Issuable Shares adjustment for changes
    in tax benefits                                      --               --            --           14,422
Distribution of Issuable Shares                          --               --            --               --
Impact of restricted common stock                        --               --            --            3,458
Exercise of stock options                                --               --            --            7,767
Purchase of treasury stock                               --          (25,062)         (749)            (749)
Dividends on common stock                           (54,137)              --            --          (54,137)
                                                 ----------      -----------     ---------       ----------

Balance at December 31, 2001                     $1,054,511      (16,408,120)    $(316,486)      $2,569,435
                                                 ==========      ===========     =========       ==========

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

                                      F-7
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                2001                2000             1999
                                                                             -----------         ----------       -----------
<S>                                                                          <C>                 <C>              <C>
Cash flows from operating activities:
Net income                                                                   $   409,393         $  350,494       $   323,187
Adjustments to reconcile net income to net cash (used in)
      provided by operating activities:
      Amortization of intangible assets                                           59,861             62,717            69,724
      Provision for deferred income taxes                                        109,783             39,131            94,780
      Accretion of discount on borrowings                                          1,041              1,093             1,018
      Amortization of purchase accounting premiums
          and discounts, net                                                      11,269                269             7,541
      Amortization of MSRs                                                       361,076            204,032           212,310
      Provision for loan losses                                                       --                 --            10,000
      (Gain) loss on sale of assets, net                                         (17,525)            13,426           (21,699)
      Gain on sale of branches, net                                                   --                 --            (2,343)
      Gain on sale of foreclosed real estate, net                                 (3,203)            (8,950)          (13,069)
      Loss on sale, settlement and transfer of loans, net                        291,074             76,918           152,657
      Capitalization of originated MSRs                                         (369,514)          (126,648)         (185,541)
      Extraordinary items - gains on early extinguishment of debt, net                --             (3,014)           (2,472)
      Depreciation and amortization of premises and equipment                     57,712             54,465            40,895
      Amortization of deferred debt issuance costs                                 6,773              7,354             7,295
      FHLB stock dividends                                                       (79,485)           (92,872)          (59,639)
      Purchases and originations of loans held for sale                      (17,934,105)        (5,344,219)       (8,345,470)
      Net proceeds from the sale of loans held for sale                       15,996,488          5,059,241         9,711,385
      Net gain on derivatives used to hedge MSRs                                 (79,948)                --                --
      Provision for loss on MSRs                                                 153,345                 --                --
      Decrease (increase) in other assets                                        194,712           (482,695)           47,793
      Decrease (increase) in accrued interest receivable                          76,106            (41,580)           (4,141)
      Increase (decrease) in other liabilities                                   390,704            305,850          (183,181)
      Amortization of deferred compensation expense -
          restricted common stock                                                  1,768              1,897               477
      Gain on non-monetary exchange of Star Systems common stock                 (20,671)                --                --
      Reduction in net accrued tax liability                                     (25,805)                --                --
      Minority interest: provision in lieu of income taxes                         3,137            161,688           122,684
      Minority interest: other                                                    26,988             28,376            39,390
      Dividends on restricted common stock                                            63                 36                --
                                                                             -----------         ----------       -----------
          Net cash (used in) provided by operating activities                   (378,963)           267,009         2,023,581
                                                                             -----------         ----------       -----------

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

                                      F-8
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                      2001              2000              1999
                                                                                  -------------     ------------      ------------
<S>                                                                               <C>               <C>               <C>
Cash flows from investing activities:
     Acquisitions and divestitures:
         Downey Acquisition                                                       $          --     $   (379,314)     $         --
         Nevada Purchase                                                                     --               --           458,943
     Purchases of securities available for sale                                         (90,967)         (54,789)         (807,690)
     Proceeds from maturities of securities available for sale                          700,563           58,022           431,934
     Purchases of securities held to maturity                                            (9,403)          (4,199)          (28,869)
     Principal payments and proceeds from maturities of securities
         held to maturity                                                               530,345           51,289            94,820
     Purchases of mortgage-backed securities available for sale                        (171,943)        (115,256)       (4,832,344)
     Principal payments on mortgage-backed securities available for sale              3,477,044        1,878,401         3,623,918
     Proceeds from sales of mortgage-backed securities available for sale               788,564        1,367,666           193,732
     Principal payments on mortgage-backed securities held to maturity                  433,575          428,067           621,179
     Proceeds from sales of loans                                                        83,829           98,894            18,528
     Loan originations and principal collections, net                                 4,277,725       (3,804,590)       (1,694,325)
     Purchases of loans receivable                                                   (4,298,594)      (1,648,599)       (2,197,573)
     Purchases of FHLB stock, net                                                       (23,193)        (107,570)         (110,477)
     Purchases of premises and equipment                                                (40,507)         (60,787)          (49,241)
     Proceeds from disposal of premises and equipment                                    16,448            4,170            14,549
     Proceeds from sales of foreclosed real estate                                       33,442           75,312           136,565
     Proceeds from sale of Concord EFS common stock                                      29,948               --                --
     Purchases of MSRs                                                                 (308,003)        (344,262)         (334,842)
     Hedge (payments) receipts                                                           (7,298)           5,593           (10,191)
     Purchases of derivatives                                                          (713,575)        (127,199)          (67,698)
     Proceeds from sales and settlements of derivatives                                 622,765          101,114            46,860
     Purchase of remaining 20% interest in Auto One                                      (9,000)              --                --
     Proceeds from sales of MSRs                                                             --              774            30,802
                                                                                  -------------     ------------      ------------
         Net cash provided by (used in) investing activities                          5,321,765       (2,577,263)       (4,461,420)
                                                                                  -------------     ------------      ------------
Cash flows from financing activities:
     Branch sales                                                                            --               --           (69,340)
     Net increase (decrease) in deposits                                              1,705,121          395,412        (2,052,128)
     Proceeds from additional borrowings                                            111,475,897       43,513,455        33,029,009
     Principal payments on borrowings                                              (115,466,294)     (40,367,906)      (29,717,967)
     Net (decrease) increase in securities sold under agreements
         to repurchase                                                               (2,147,364)        (970,438)        1,243,352
     Principal payment on GS Holdings Notes                                            (350,000)              --                --
     Bank Preferred Stock Tender Offers                                                      --               --           (97,621)
     Debt Tender Offers                                                                      --               --              (253)
     Dividends on common stock                                                          (54,137)         (26,444)               --
     Dividends paid to minority stockholders, net of taxes                              (26,988)         (26,987)          (30,752)
     Exercise of stock options and warrants                                               7,767          131,873             7,880
     Purchases of treasury stock                                                           (749)         (63,724)         (250,245)
     Sales of treasury stock                                                                 --              134               979
     Extinguishment of Issuable Shares                                                  (64,000)         (85,000)               --
                                                                                  -------------     ------------      ------------
         Net cash (used in) provided by financing activities                         (4,920,747)       2,500,375         2,062,914
                                                                                  -------------     ------------      ------------

Net change in cash and cash equivalents                                                  22,055          190,121          (374,925)
Cash and cash equivalents at beginning of year                                          783,146          593,025           967,950
                                                                                  -------------     ------------      ------------
Cash and cash equivalents at end of year                                          $     805,201     $    783,146      $    593,025
                                                                                  =============     ============      ============

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

                                      F-9
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)    ORGANIZATION
       ------------

       The Company 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 GS Holdings,  which owns all of the common and  preferred  stock of the Bank.
The Company's  principal  business  operations are conducted by the Bank and its
subsidiaries.

       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 operating  retail branches that provide deposit
products  (for  example  demand,  transaction  and savings  accounts),  and sell
investment  products (for example  mutual funds,  annuities and  insurance).  In
addition,  it engages in mortgage banking activities,  including originating and
purchasing 1-4 unit residential loans for sale or retention, and servicing loans
for itself and others. To a lesser extent,  the Bank originates and/or purchases
commercial  real estate,  commercial  banking and consumer loans for investment.
Revenues are derived  primarily  from interest  earned on loans and  securities,
gains on sales of loans and other  investments  and fees  received in connection
with  loan   servicing,   securities   brokerage  and  other  customer   service
transactions.  Expenses  primarily  consist  of  interest  on  customer  deposit
accounts  and  borrowings,  and general and  administrative  expenses  including
compensation and benefits, occupancy and equipment,  professional fees and other
general and administrative expenses.

(2)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       ------------------------------------------

       The accounting and reporting  policies of the Company conform to GAAP and
prevailing  practices  within the banking and thrift  industries.  The following
summarizes the more significant of these policies.

       A glossary of defined terms appears on page 84.

       (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 common and preferred stock of the Bank. 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  year's
presentation.

       (b) Cash and Cash Equivalents

       For purposes of the consolidated  statements of cash flows, cash and cash
equivalents include cash and 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, 2001 was $52.3 million,  which was met with vault cash of $112.2
million and cash  reserves  of $28.6  million.  In  addition,  the Company  held
restricted  cash related to escrows on loans held for sale of $63.5  million and
$43.4 million at December 31, 2001 and 2000, respectively.

       (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;  these 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 are
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. 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

                                      F-10
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

losses  on   securities   available   for  sale  are   computed  on  a  specific
identification basis and are accounted for on a trade-date basis.

       Securities  available  for sale  include  IO  strips,  some of which  are
accounted for as trading securities and reported at fair value and some of which
are  accounted  for in accordance  with EITF No. 99-20 with  impairment  charges
recorded to income.

       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.

       (d) Loans Held for Sale, Net

       One to four unit  residential  loans  originated and intended for sale in
the secondary market which qualify for fair value hedging under SFAS No. 133 are
carried at fair market value,  less the values  associated with  servicing.  Net
unrealized gains and losses are recognized as a component of income.

       One to four unit  residential  loans  originated and intended for sale in
the secondary  market which do not qualify for fair value hedging under SFAS No.
133 were  carried at the lower of  aggregate  cost or fair market value based on
quoted market prices for mortgage-backed securities backed by similar loans. Net
unrealized losses were recognized in a valuation allowance by charges to income.

       Loans  held for sale are  valued  based  upon  quoted  market  prices for
mortgage-backed securities backed by similar loans.

       (e) Loans Receivable, Net

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

       Interest  is  accrued  monthly  at the  loan's  stated  rate for loans on
accrual status. Discounts or premiums on 1-4 unit residential loans are accreted
or amortized to income using the interest  method,  generally over the remaining
contractual  loan period.  Discounts or premiums on consumer and other loans are
recognized over the lives of the loans using the interest method.

       Adjustable-rate mortgages comprise a significant portion of the Company's
real  estate  loan  portfolio.  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. When such limits are applied, negative amortization occurs
on certain adjustable-rate mortgages. See note 36.

       Charges  to  income   increase  the   allowance  for  loan  losses  while
charge-offs (net of recoveries) decrease it. Management  periodically  evaluates
the adequacy of the allowance  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  uses  assumptions  consistent  with  those  that  would  be  used by
unrelated  buyers and sellers.  For example,  in determining  the estimated fair
value of a loan's collateral, management would consider occupancy, rental rates,
and property  expenses  from  industry  sources.  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 and environmental  conditions,  management assumptions about
specific borrowers 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-11
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Loans that are  contractually  ninety days or more past due are placed on
nonaccrual  status,  and the  related  accrued  interest  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) Securitized Loan Sales

       When  the  Company  sells  residential   mortgage  loans  as  part  of  a
securitization transaction, it generally retains the servicing rights and one or
more  subordinated  tranches,  both  of  which  are  retained  interests  in the
securitized receivables. Gain or loss on sale of the receivables depends in part
on  the  previous  carrying  amount  of the  financial  assets  involved  in the
transfer,  allocated between the assets sold and the retained interests based on
their  relative  fair values at the date of  transfer.  To obtain  fair  values,
quoted market prices are used if  available.  However,  quotes are generally not
available for retained interests,  so the Company generally estimates fair value
based on the  present  value of  future  expected  cash  flows  estimated  using
management's  best estimates of the key assumptions  (credit losses,  prepayment
speeds and discount rates  commensurate  with the risks involved)  applied by an
independent company in its valuation analysis.

       (g) Auto One Loans

       The Company, through its subsidiary,  Auto One, originates loans and also
purchases loans individually and in groups. For loans purchased prior to July 1,
2001,  the 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 estimated the amount and
timing of undiscounted  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 recognized the excess of the Scheduled Contractual Cash
Flows over the Expected Cash Flows as Nonaccretable  Contractual Cash Flows. The
excess of the  Expected  Cash  Flows  over the  price  paid -  representing  the
Accretable  Yield - is accreted into interest  income over the remaining life of
each pool.

       Over the life of each pool of loans  purchased prior to July 1, 2001, 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.

       All Auto One originated loans, and Auto One loans purchased after July 1,
2001 are  recorded on a  gross-coupon  basis,  rather than on a  credit-adjusted
yield basis. Accordingly,  an allowance for loan losses is established for those
loans when an adverse  situation  has occurred  that will affect the  borrower's
ability to repay principal and interest.

       (h) 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

                                      F-12
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

loan-to-value  ratios,  low debt-coverage  ratios, or other indications that the
borrowers  are  experiencing  increased  levels of financial  difficulty.  Loans
collectively  reviewed for impairment by the Company  include all  single-family
loans,  consumer loans,  commercial  banking loans under $100,000 and performing
multi-family  and commercial real estate loans under  $500,000,  excluding loans
which have entered the workout process.

       Impairment  is measured  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 measures  collateral-dependent impaired loans based 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 applied to reduce the carrying value of the loan, unless the
Company  believes it will recover the remaining  principal  balance.  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.

       (i) Loan Origination and Commitment Fees and Related Costs

       Loan origination  fees, net of loan  origination  costs, are deferred and
amortized  to interest  income  using the interest  method,  generally  over the
contractual  term of the loan,  adjusted for actual loan prepayment  experience.
Unamortized  fees, net of loan origination  costs on loans sold or paid in full,
are recognized as income or expense, as appropriate.  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.

       Forward loan sale commitments and related commitment fees, which are paid
to  investors  for the  right to  deliver  residential  loans in the  future  at
specified  yield,  are  marked  to  market  through  earnings  and  included  in
derivative  assets and  liabilities.  Prior to the  adoption  of SFAS No. 133 on
January  1,  2001,  these  fees were  deferred.  Amounts  were  included  in the
recognition  of gain  (loss)  on sale of loans as loans  were  delivered  to the
investor in proportion to the percentage  relationship of loans delivered to the
total  commitment  amount.  Any unused fees were recognized as an expense at the
expiration  of  the  commitment  date,  or  earlier,  if it was  determined  the
commitment would 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.

       (j) Premises and Equipment, Net

       Land is carried at cost. Premises,  equipment and leasehold  improvements
are stated at cost,  less  accumulated  depreciation.  Premises,  equipment  and
leasehold   improvements   are   depreciated   to  their  residual  value  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.

                                      F-13
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       (k) Foreclosed Real Estate, Net

       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.

       (l) 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. See note 2(w),  "Recent  Accounting  Pronouncements  - Goodwill and Other
Intangible Assets."

       (m) Mortgage Servicing Rights

       The Company  purchases MSRs separately and acquires MSRs through the sale
of loans it purchases or originates.  Generally,  purchased MSRs are capitalized
at the cost to acquire the rights and are  carried at the lower of cost,  net of
accumulated  amortization,  or fair value,  in accordance  with SFAS No. 140 and
SFAS No. 65. Originated MSRs 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.  In addition,  the MSR  carrying  value is further
adjusted  for  changes in fair value  resulting  from the  application  of hedge
accounting,  in accordance with SFAS No. 133. Changes in fair value are recorded
in loan servicing fees.

       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 MSRs the Company uses market prices for comparable  mortgage  servicing
contracts,  when  available,  or  alternatively,  uses a  valuation  model  that
calculates the present value of estimated 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 to service, the discount rate, custodial earnings rate, an
inflation  rate,  ancillary  income,  prepayment  speeds and  default  rates and
losses. See note 39 for more information on the valuation of MSRs.

       MSRs are  amortized in proportion  to, and over the period of,  estimated
net servicing income. The amortization of the MSRs is analyzed  periodically and
is adjusted to reflect changes in prepayment rates and other estimates.

       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 MSRs and
stratifies them into tranches based on the predominant risk  characteristics  of
interest rate,  loan type and investor type. If impairment  exists,  a valuation
allowance is established  for any excess of amortized cost over the current fair
value, by risk  stratification  tranche,  by a charge to income.  If the Company
later  determines that all or a portion of the impairment no longer exists for a
particular  tranche, a reduction of the allowance may be recorded as an increase
to income.

       The Company employs hedging  techniques  through the use of interest rate
floors, interest rate swaptions, interest rate swaps and principal-only swaps to
reduce the  sensitivity  of its  earnings and value of its  servicing  rights to
changing  interest rates and borrower  prepayments as further  discussed in note
38. At the  inception  of the  hedge  and  throughout  the  hedge  period,  high
effectiveness of the hedge instruments is anticipated. Therefore, changes in the
market value of the hedge  instruments due to changes in the benchmark  interest
rate being hedged will substantially  offset changes in the market value of MSRs
due to these interest rate changes.  Both the changes in the market value of the
MSR and the offsetting  related hedge  instruments  are marked to market through
current income.

                                      F-14
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

If high  effectiveness  did not exist, the hedge instruments would be considered
speculative and would be marked to market with changes in market value reflected
in current income, and the MSR carrying value would not be adjusted,  except for
any LOCOM adjustments required in accordance with SFAS No. 140.

       Since the adoption of SFAS No. 133, the  Company's  derivative  contracts
are  carried at fair market  value with  changes in value  reflected  in income.
Amounts paid and received  under the terms of these  contracts are recognized as
income and expense when paid and received.

       Prior to the  adoption  of SFAS No. 133 on January 1, 2001,  the  premium
paid by the Company on the interest rate floors and swaptions was amortized over
the life of the  contract.  Amounts  received  or paid under the  interest  rate
swaps,  principal only swaps,  interest rate floors,  interest rate swaptions or
terminated hedges were included in the carrying value of MSRs and were amortized
as part of the basis in MSRs.

       (n) Gains/Losses on Sales, Settlement and Transfer of Loans, Net

       Mortgage loans are generally sold with the MSRs retained by the Company.
The carrying value of mortgage loans sold is reduced by the cost allocated to
the associated MSRs. 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.

       Unrealized  mark to market gains and losses on those loans held for sale,
forward loan sale commitments and interest rate lock  commitments  which qualify
as fair value hedges are recognized in income.

       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.

       (o) Servicing Fee Income

       Servicing fee income is recorded for fees earned for  servicing  mortgage
loans under  servicing  agreements  with FNMA,  FHLMC,  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 and valuation provisions for MSRs and Pass-through
Interest Expense are netted against servicing fee income.

       (p) Derivatives

       The Company  adopted SFAS No. 133 on January 1, 2001. In connection  with
the adoption of this  pronouncement,  the Company  reclassified  $1.2 billion in
securities from held-to-maturity to available-for-sale,  which had the effect of
improving the OCI component of stockholders' equity by $30.4 million. The effect
on pre-tax net income from the  adoption  was an  increase of $1.0  million.  In
accordance with the transition  provisions of SFAS No. 133, the Company recorded
a transition  adjustment of $44.6 million (net of $30.8 million in taxes), (as a
decrease  in equity)  in OCI in a manner  similar  to a  cumulative  effect of a
change in accounting principle. The transition adjustment was the initial amount
necessary to adjust the carrying values of certain derivative  instruments (that
qualified  as cash flow  hedges) to fair value to the  extent  that the  related
hedge transactions had not yet been recognized. In accordance with SFAS No. 133,
derivative  assets  represent  contracts  with a positive  fair value (where the
counterparty would owe the Company money) and derivative  liabilities  represent
contracts  with  a  negative  fair  value  (where  the  Company  would  owe  the
counterparty money).

                                      F-15
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The Company uses interest rate derivative financial instruments (interest
rate swaps,  interest rate floors,  interest rate  swaptions and principal  only
swaps) primarily to hedge against the change in value of the mortgage  servicing
portfolio due to expected prepayment risk assumption changes caused by declining
interest  rates  and to  hedge  against  the  interest  rate  risk  inherent  in
floating-rate FHLB advances and reverse repos. These instruments serve to reduce
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 effectiveness tests (i.e., over time the change in their fair
values due to the designated  hedge risk 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 due to the  designated
hedge risk 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 and settled or
classified as a trading activity.  For hedges of borrowings,  the net settlement
(upon close out or termination)  that offsets changes in the value of the hedged
borrowing is deferred and  amortized  into net interest  income over the life of
the hedged asset or  liability.  For hedges of MSRs,  the net  settlement  (upon
close out or termination)  that offsets changes in the value of the MSRs adjusts
the basis of the MSRs and is deferred  and  amortized to loan  servicing  income
over the life of the MSRs.  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.

       Beginning  January 1, 2001,  in accordance  with SFAS No. 133,  hedges of
FHLB advances and reverse repos are generally accounted for as cash flow hedges,
with changes in fair value recorded in derivative assets or liabilities and OCI.
MSR hedges are accounted  for as fair value  hedges,  with changes in fair value
recorded in derivative  assets or liabilities and loan servicing fees. Rate lock
commitments  and hedges of forward loan sales are  recorded at fair value,  with
changes in fair value  recorded in  derivative  assets or  liabilities  and gain
(loss) on sale of loans,  net.  MSR  hedging  instruments  are  marked to market
through  earnings and included in derivative  assets and  liabilities.  The fair
market value is recorded  based on the estimated  amounts that the Company would
receive or pay to  terminate  the  contracts  at the  reporting  date.  Prior to
January 1, 2001,  hedge-related  premiums  were  classified on the balance sheet
with the hedged  asset or  liability  at the time the  premium  was paid.  These
premiums  were  amortized to net loan  servicing fee income over the life of the
contract.

       Prior to January 1, 2001, interest rate swaps that hedged borrowings were
accounted  for under the "accrual  method."  Interest  rate  floors,  swaptions,
principal only swaps and interest rate swaps that hedged MSRs were accounted for
under the "deferral  method." Under the accrual method, the net interest payment
due or owed under the instrument was 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,  were reported
as adjustments to the carrying value of the hedged asset or liability. There was
no recognition  under either method on the balance sheet for changes in the fair
value of the derivatives.

       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.

                                      F-16
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       (q) 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 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.

       (r) Issuable Shares

       Golden  State  will  accrue  and  distribute   Issuable   Shares  to  GSB
Investments,  as successor to First  Gibraltar,  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
(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 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  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.

                                      F-17
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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 Litigation
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  pro-rata  use of tax  benefits  based upon the
Company's  net income,  adjusted for permanent  tax  differences.  The Company's
basic and diluted shares outstanding  include the effect of Issuable Shares. 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 temporary  differences),  as reported on the Company's
federal income tax returns and are subject to certain limitations.

       (s) Stock Compensation Plan

       SFAS No. 123  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 APB Opinion No. 25,
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.  Dividends on unvested
restricted  stock are  recorded as  compensation  expense  with a  corresponding
increase  to  additional  paid-in  capital.  The  Company  uses  the  accounting
methodology  prescribed in APB Opinion No. 25 and complies  with the  disclosure
requirements of SFAS No. 123.

       (t) Earnings per Common Share

       Basic earnings per common share includes the dilutive  effect of Issuable
Shares, but excludes the dilutive effect of stock options,  restricted stock and
warrants.  The dilutive effect of stock options,  restricted  stock 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),   stock  options,  restricted  stock  and  warrants  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.  Basic  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, restricted stock and warrants outstanding during the period.

       (u) Off-balance Sheet Activities

       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.

                                      F-18
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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.

       (v) Management's Use of Estimates

       The preparation of the  consolidated  financial  statements in conformity
with GAAP 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. On
an ongoing basis, the Company  evaluates its estimates,  including those related
to  investments,  allowances  for  loan  losses,  loans  held  for  sale,  MSRs,
intangible assets,  income taxes,  post-retirement  benefits,  contingencies and
litigation. Actual results could differ from those estimates. Material estimates
subject to change  include  the  allowance  for loan  losses and MSRs.  For more
information on the assumptions  used in making these  estimates,  refer to notes
2(e), 2(m), 16 and 38.

       (w) Recent Accounting Pronouncements

       BUSINESS COMBINATIONS

       On July 20, 2001,  the FASB issued SFAS No. 141 which  defines a business
combination  as a  transaction  through  which an  enterprise  acquires all or a
portion of the net assets that constitute a business or equity  interests of one
or more enterprises and obtains control over those enterprises.  This definition
is not substantively different from the APB Opinion No. 16 definition.

       SFAS No. 141 requires  that all business  combinations  be accounted  for
using the purchase method. Use of the pooling-of-interests method to account for
business combinations, which APB Opinion No. 16 required to be used when certain
criteria were met, is prohibited. SFAS No. 141 provides guidance for determining
the acquiror  versus the acquiree in an acquisition.  In addition,  SFAS No. 141
requires that  additional  information be disclosed  about business  combination
transactions.

       The accounting, disclosure and financial statement provisions of SFAS No.
141 became  effective for business  combinations  initiated after June 30, 2001,
and has not materially  impacted the Company's  current  financial  condition or
operating results.

       GOODWILL AND OTHER INTANGIBLE ASSETS

       On July 20,  2001,  the FASB  also  issued  SFAS No.  142.  SFAS No.  142
supersedes APB Opinion No. 17 and establishes new accounting  standards for both
identifiable  and  unidentifiable  intangible  assets  acquired  in  a  business
combination,  including  goodwill,  but does not  address  internally  developed
intangible  assets.  It would continue to require  recognition of goodwill as an
asset but would not permit amortization of goodwill as currently required by APB
Opinion No. 17.  Instead,  goodwill  would be tested for  impairment  at a level
referred to as a reporting  unit. A reporting  unit is the same level as, or one
level below, an operating segment (as that term is used in SFAS No. 131).

       Goodwill would be tested for impairment  annually and on an interim basis
if an event or  circumstance  occurs  between annual tests that might reduce the
fair value of a reporting unit below its carrying  value.  An example of such an
event or circumstance  may include an adverse change in the business  climate or
market, a legal factor, an action by regulators, an introduction of competition,
or a loss of key  personnel.  Goodwill would also be tested for impairment on an
interim  basis  when  (a)  a  more-likely-than-not  expectation  exists  that  a
reporting  unit or a  significant  portion of a  reporting  unit will be sold or
otherwise  disposed of, (b) a significant asset group within a reporting unit is
tested  for  recoverability  under SFAS No.  121,  or (c) a  subsidiary  of that
reporting unit has recognized a goodwill impairment loss. The fair value of each
reporting  unit would not have to be recomputed  every year if the components of
the reporting  unit had not changed  since the previous fair value  computation,
the previous  fair value amount  exceeded the carrying  amount of the  reporting
unit by a substantial margin, and no evidence exists indicating that the current
fair value of the reporting unit may be less than its current carrying amount.

                                      F-19
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

       An acquired  intangible asset other than goodwill would be amortized over
its useful economic life and reviewed for impairment in accordance with SFAS No.
144.

       The  aggregate  amount of goodwill  would be presented as a separate line
item in the balance sheet.  The aggregate amount of goodwill  impairment  losses
would be  presented  as a  separate  line item in the  operating  section of the
income  statement  unless  a  goodwill  impairment  loss  is  associated  with a
discontinued operation. At a minimum,  intangible assets would be aggregated and
presented  as a  separate  line item in the  statement  of  financial  position.
Amortization  expense and  impairment  losses for  intangible  assets other than
goodwill would be presented in income statement line items as deemed appropriate
for each entity.

       SFAS No. 142 is effective for the Company on January 1, 2002.

       Management   has  reviewed  the  records  from  the   Company's   various
acquisitions.  At December 31, 2001,  the Company's  $640.8  million  intangible
asset  includes $1.0 million  representing  a core deposit  intangible and $49.4
million  representing  goodwill generated pursuant to SFAS No. 72. The remaining
$590.4 million of this asset balance  represents  goodwill that will cease to be
amortized  as of January 1, 2002  pursuant  to SFAS No.  142. As a result of the
implementation of SFAS No. 142,  management expects GAAP earnings to increase by
$13.9 million per quarter in 2002.

       ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

       In June  2001,  the  FASB  issued  SFAS  No.  143,  which  addresses  the
recognition  and  measurement of obligations  associated  with the retirement of
tangible long-lived assets. SFAS No. 143 applies to legal obligations associated
with the  retirement  of  long-lived  assets  resulting  from  the  acquisition,
construction,  development or the normal operation of a long-lived  asset.  SFAS
No.  143  requires  that the fair  value of an asset  retirement  obligation  be
recognized  as a  liability  in the  period in which it is  incurred.  The asset
retirement obligation is to be capitalized as part of the carrying amount of the
long-lived asset and the expense is to be recognized over the useful life of the
long-lived asset. SFAS No. 143 is effective January 1, 2003, with early adoption
permitted. The Company plans to adopt SFAS No. 143 effective January 1, 2003 and
does not expect the adoption of the  statement to have a material  impact on the
Company's financial condition or operating results.

       ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

       On  October  3,  2001,  the FASB  issued  SFAS  No.  144.  SFAS  No.  144
establishes a single accounting model for the financial accounting and reporting
for  impairment  or disposal of  long-lived  assets.  The reason for issuing the
Statement stemmed from the failure of SFAS No. 121 to address the accounting for
the  disposal  of a  segment  of a  business  accounted  for  as a  discontinued
operation under APB Opinion No. 30. Thus, two accounting  models existed for the
disposal  of  long-lived  assets.  SFAS  No.  144  is  based  on  the  framework
established in SFAS No. 121.

       The accounting, disclosure and financial statement provisions of SFAS No.
144 are  effective  for financial  statements  issued for the Company  beginning
January 1, 2002.  The  provisions of the  Statement  generally are to be applied
prospectively.

       The  implementation  of SFAS No. 144 is not expected to materially impact
the Company's financial condition or operating results.

                                      F-20
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(3)    ACQUISITIONS AND DIVESTITURES
       -----------------------------

       GOLDEN STATE ACQUISITION

       On  September  11, 1998,  pursuant to the Golden State Merger  agreement,
Parent  Holdings and Hunter's Glen completed the Golden State Merger,  accounted
for under the purchase method of accounting.

       Pursuant to the Golden  State  Merger  agreement,  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 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,  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.  Excess cost over fair value of net assets  acquired
in the Golden  State  Acquisition  totalled  $354.8  million.  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
was $7.7 million for the year ended December 31, 1999,  including  severance for
terminated California Federal employees,  expenses for California Federal branch
closures, and conversion and consolidation costs, as well as transition expenses
for duplicate personnel,  facilities and computer systems during the integration
period. No such expenses were incurred during 2001 or 2000.

       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.

       During the year ended December 31, 2000, the Company recorded adjustments
to reduce  intangible assets by $2.3 million related to a tax refund for periods
prior to the Golden State Acquisition and to increase  intangible assets by $2.1
million to "true-up" the deferred tax asset.  No  adjustments  were made in 2001
for the Golden State Acquisition.

       AUTO ONE ACQUISITION

       On November 16, 2001,  the Bank  purchased  the remaining 20% interest in
its subsidiary, Auto One, for $9 million, which was recorded as goodwill.

       DOWNEY ACQUISITION

       On February 29, 2000, Auto One closed the Downey  Acquisition  with prime
auto loans of approximately $370 million. Intangible assets of $7.7 million were
recorded in connection with this acquisition.

       NEVADA BRANCH PURCHASE

       On April 16, 1999, the Bank consummated the Nevada Purchase with deposits
of  approximately  $543 million.  An  unidentifiable  intangible  asset of $50.7
million was recorded in connection with this acquisition.

                                      F-21
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       CAL FED ACQUISITION

       On January 3, 1997,  pursuant to the Merger  Agreement among FN Holdings,
Cal  Fed  and  Old  California  Federal,  FN  Holdings  completed  the  Cal  Fed
Acquisition.  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.  Excess cost over fair value of net assets
acquired in the Cal Fed Acquisition  totalled $397.6 million.  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.

       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,  related to a tax refund for periods  prior to January 3, 1997.  During
2000, the Company  recorded  adjustments to reduce other  liabilities and excess
cost over fair value of net assets  acquired  by $52.1  million as a result of a
"true-up" the deferred tax asset, $21.0 million related to the reversal of state
deferred taxes and $180 thousand  related to receipt of a tax refund for periods
prior to the Cal Fed Acquisition.  During 2001, the Company recorded adjustments
to  increase  other  liabilities  and excess  cost over fair value of net assets
acquired by $416 thousand for tax  deficiencies for periods prior to the Cal Fed
Acquisition.

       SERVICING SALE

       During April 1999, the Bank's  wholly-owned  mortgage banking subsidiary,
FNMC,  sold servicing  rights on  approximately  49,000 loans with a UPB of $2.0
billion, recognizing a pre-tax gain of $16.3 million.

       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.

                                      F-22
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4)    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
       ------------------------------------------------
<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                             -------------------------------------------
                                                                                2001            2000             1999
                                                                             ----------     ------------      ----------
                                                                                            (in thousands)
<S>                                                                          <C>             <C>              <C>
Cash paid (received) for:
     Interest                                                                $2,827,012      $2,881,704       $2,255,685
     Income taxes, net                                                          220,212         (37,858)           9,608

Non-cash activities:
     Reclassification of mortgage-backed securities from the
       available-for-sale portfolio to the held-to-maturity portfolio                --       1,055,611               --
     Reclassification of securities from the available-for-sale
       portfolio to the held-to-maturity portfolio                                   --         445,000               --
     Principal reductions to loans due to foreclosure                            30,990          47,175          101,692
     Loans made to facilitate the sale of real estate                             1,631           5,433           10,039
     Loans exchanged for mortgage-backed securities                                  --         116,517          227,099
     Reclassification of loans from loans held for sale
       to loans receivable                                                        6,542          77,913          110,313
     Reclassification of loans receivable to loans held for sale                160,999              --               --
     Reclassification of mortgage-backed securities
       to loans held for sale                                                        --           1,052               --
     Reduction of previously accrued severance
       and contract termination costs                                                --              --           18,908
     True-up of deferred tax asset                                                   --              --           18,146
     Reduction of valuation allowance of deferred tax asset                          --         211,738               --
     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                                 658           3,451          (24,081)
     Issuable Shares (usage of pre-merger NOLs)                                  98,217         166,484          197,562
     Adjustment to additional paid-in capital and Issuable Shares
       for changes to tax benefits                                               14,422              --               --
     Issuable Shares adjustment for tax refund and related interest                  --           1,389               --
     Adjustment to pre-merger tax benefits retained by previous
       owners of FN Holdings                                                    (24,694)        (39,305)              --
     Impact of restricted common stock                                            3,458           3,175              477
     Distribution of Issuable Shares                                            (20,000)       (100,000)          (5,540)
     Extinguishment of Issuable Shares:
       Reduction of Issuable Shares                                             (11,000)        (53,312)              --
       Increase to other liabilities                                                700          38,911               --
       Increase to additional paid-in capital                                    10,300          14,401               --
       Reversal of previously capitalized costs - 2000 extinguishment of
          Issuable Shares                                                           998              --               --
     Adjustment to Golden State Acquisition purchase price                           --              --          (12,380)
     Reclassification of mortgage-backed securities from the
       held-to-maturity portfolio to the available-for-sale portfolio
       upon the adoption of SFAS No. 133                                      1,067,933              --               --
     Reclassification of securities from the held-to-maturity
       portfolio to the available-for-sale portfolio upon the
       adoption of SFAS No. 133                                                  84,984              --               --
     Reclassification of derivative assets ($173.6 million) and
       derivative liabilities ($8.8 million) related to MSRs at fair value
       upon the adoption of SFAS No. 133                                        164,767              --               --
</TABLE>

                                      F-23
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5)    RECLASSIFICATION OF SECURITIES
       ------------------------------

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

       On April 30,  2000,  the  Company  reclassified  $1.1  billion and $445.0
million  carrying value of  mortgage-backed  securities and U.S.  government and
agency  securities,  respectively,  from securities  available for sale to their
respective   held-to-maturity   portfolios.   These  assets  primarily  comprise
securities  which  are  required  as part  of the  Bank's  regulatory  liquidity
portfolio. The net unrealized loss related to these securities of $64.0 million,
which is included  as a component  of equity  (accumulated  other  comprehensive
loss), is amortized to interest income over the remaining life of the securities
using the interest method. The effect of this amortization on interest income is
fully  offset by the effect of  amortization  of the related  discount  recorded
against the respective assets at the time of transfer.

(6)    SECURITIES AVAILABLE FOR SALE
       -----------------------------

       Securities  available  for sale and the related  unrealized  gain or loss
consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                            December 31, 2001
                                                  ---------------------------------------------------------------------
                                                                   Gross          Gross           Net
                                                  Amortized      Unrealized     Unrealized     Unrealized     Carrying
                                                    Cost           Gains          Losses         Gain           Value
                                                    ----           -----          ------         -----          -----
<S>                                                <C>             <C>            <C>            <C>           <C>
Marketable equity securities                       $    681        $  265         $  --          $ 265         $    946
U.S. government and agency obligations               29,190           180            --            180           29,370
Municipal securities                                 85,377           678          (259)           419           85,796
                                                   --------        ------         -----          -----         --------
         Total                                     $115,248        $1,123         $(259)           864         $116,112
                                                   ========        ======         =====                        ========
Estimated tax effect                                                                              (353)
                                                                                                 -----
     Net unrealized holding gain in
         stockholders' equity                                                                    $ 511
                                                                                                 =====
</TABLE>
<TABLE>
<CAPTION>

                                                                            December 31, 2000
                                                  ---------------------------------------------------------------------
                                                                   Gross          Gross          Net
                                                  Amortized      Unrealized     Unrealized    Unrealized      Carrying
                                                    Cost           Gains          Losses      Gain (Loss)       Value
                                                    ----           -----          ------      -----------       -----
<S>                                                <C>              <C>          <C>             <C>           <C>
Marketable equity securities                       $  4,779         $325         $    (4)        $   321       $  5,100
U.S. government and agency obligations              638,488           36          (2,419)         (2,383)       636,105
                                                   --------         ----         -------         -------       --------
         Total                                     $643,267         $361         $(2,423)         (2,062)      $641,205
                                                   ========         ====         =======                       ========
Estimated tax effect                                                                                 842
                                                                                                 -------
     Net unrealized holding loss in
         stockholders' equity                                                                    $(1,220)
                                                                                                 =======
</TABLE>

                                      F-24
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<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>

       The weighted  average stated  interest rates on securities  available for
sale  were  3.55%,  6.21%  and  6.24% at  December  31,  2001,  2000  and  1999,
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, 2001
                                                               ---------------------------------------------
                                                                                 Estimated          Weighted
                                                               Amortized           Fair             Average
                                                                 Cost              Value             Yield
                                                                 ----            ---------          --------
       <S>                                                      <C>               <C>                 <C>
       Marketable equity securities                             $    681          $    946            4.83%
       U.S. government and agency obligations:
           Maturing within 1 year                                 23,095            23,098            1.81
           Maturing after 1 year but within 5 years                6,095             6,272            4.76
       Municipal securities:
           Maturing after 5 years but within 10 years             19,828            19,869            4.79
           Maturing after 10 years                                65,549            65,927            5.12
                                                                --------          --------
              Total                                             $115,248          $116,112            4.38%
                                                                ========          ========
</TABLE>

       At December 31, 2001, U.S.  government and agency  obligations  available
for sale of $26.9  million were pledged as collateral  for various  obligations,
none of which were pledged to creditors with the right to sell or repledge.  See
note 36.

                                      F-25
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7)    SECURITIES HELD TO MATURITY
       ---------------------------

       Securities held to maturity consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                               December 31, 2001
                     ----------------------------------------------------------------------
                                                                     Net
                     Amortized      Unrealized     Unrealized     Unrealized     Estimated
                       Cost            Gains         Losses       Gain (Loss)    Fair Value
                     ---------      ----------     ----------     -----------    ----------
<S>                   <C>              <C>            <C>            <C>           <C>
Commercial paper      $30,602          $--            $--            $--           $30,602
                      =======          ===            ===            ===           =======
</TABLE>
<TABLE>
<CAPTION>
                                                                        December 31, 2000
                                               ----------------------------------------------------------------------
                                                                                              Net
                                               Amortized      Unrealized     Unrealized     Unrealized     Estimated
                                                 Cost            Gains         Losses       Gain (Loss)    Fair Value
                                               ---------      ----------     ----------     ----------     ----------
<S>                                             <C>            <C>           <C>            <C>            <C>
Municipal securities                            $511,532       $6,153        $ (3,085)      $  3,068       $514,600
Commercial paper                                  75,971           --              --             --         75,971
                                                --------       ------        --------       --------       --------
         Total                                  $587,503       $6,153        $ (3,085)      $  3,068       $590,571
                                                ========       ======        ========       ========       ========
Securities included above transferred
     from available-for-sale                    $497,894       $   --        $(52,894)      $(52,894)      $445,000
                                                ========       ======        ========                      ========
Estimated tax effect                                                                          21,607
Amortization of unrealized holding loss                                                        2,289
                                                                                            --------
     Net unrealized holding loss in
         stockholders' equity                                                               $(28,998)
                                                                                            ========
</TABLE>
<TABLE>
<CAPTION>
                                                       December 31, 1999
                             -----------------------------------------------------------------------
                                                                              Net
                             Amortized      Unrealized     Unrealized      Unrealized     Estimated
                               Cost            Gains         Losses        Gain (Loss)    Fair Value
                             ---------      ----------     ----------      -----------    ----------
<S>                          <C>               <C>          <C>             <C>            <C>
Municipal securities         $ 84,727          $415         $(5,323)        $(4,908)       $ 79,819
Commercial paper              100,630            --              --              --         100,630
                             --------          ----         --------        -------        --------
         Total               $185,357          $415         $(5,323)        $(4,908)       $180,449
                             ========          ====         =======         =======        ========
</TABLE>

       The weighted average stated interest rates on securities held to maturity
were 2.37%, 5.95% and 4.89% at December 2001, 2000 and 1999,  respectively.  The
entire balance of securities held to maturity at December 31, 2001,  which had a
weighted average yield of 2.37%, matures within one year.

       At December 31, 2001,  commercial paper investments of $30.3 million were
held in reserve with third-party  trustees to guarantee  credit  enhancements on
loans transferred as part of  securitization  transactions by the Bank. See note
36.

                                      F-26
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8)    MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
       ---------------------------------------------

       The following table provides details on MBS sales (in thousands):

                                                  Year Ended December 31,
                                           ------------------------------------
                                             2001          2000          1999
                                           --------     ----------     --------

       Proceeds from sales                 $788,564     $1,367,666     $193,732
       Carrying value                       771,230      1,385,802      193,732
                                           --------     ----------     --------
          Net gain (loss) on sales (a)     $ 17,334     $  (18,136)    $     --
                                           ========     ==========     ========
       ----------
       (a)    Net gain (loss) on sales  represents gross gains in 2001 and gross
              gains of $19.6 million and gross losses of $1.5 million in 2000.

       Mortgage-backed  securities available for sale and the related unrealized
gain or loss consisted of the following (in thousands):
<TABLE>
<CAPTION>

                                                                       December 31, 2001
                                           --------------------------------------------------------------------------
                                                                                              Net
                                           Amortized       Unrealized      Unrealized      Unrealized       Carrying
                                             Cost            Gains           Losses        Gain (Loss)        Value
                                             ----            -----           ------        -----------      --------
<S>                                        <C>              <C>             <C>            <C>              <C>
GNMA                                       $  388,888       $  3,991        $  (249)       $  3,742         $  392,630
FNMA                                        1,052,686         10,905         (2,254)          8,651          1,061,337
FHLMC                                         418,820          4,730           (518)          4,212            423,032
Other mortgage-backed securities              200,130            205         (2,110)         (1,905)           198,225
Collateralized mortgage
    obligations                             4,884,717         85,833         (4,062)         81,771          4,966,488
Other - trading securities (IO
    strips)                                    16,191             --             --              --             16,191
                                           ----------       --------        -------        --------         ----------
         Total                             $6,961,432       $105,664        $(9,193)         96,471         $7,057,903
                                           ==========       ========        =======                         ==========
Estimated tax effect                                                                        (39,409)
                                                                                           --------
    Net unrealized holding gain in
       stockholders' equity                                                                $ 57,062
                                                                                           ========
</TABLE>
<TABLE>
<CAPTION>
                                                                       December 31, 2000
                                            -------------------------------------------------------------------------
                                                                                             Net
                                            Amortized      Unrealized     Unrealized     Unrealized        Carrying
                                              Cost           Gains          Losses       Gain (Loss)         Value
                                              ----           -----          ------       -----------         -----
<S>                                         <C>             <C>            <C>             <C>             <C>
GNMA                                        $  385,906      $   152        $ (4,050)       $ (3,898)       $  382,008
FNMA                                         1,327,352        3,429          (7,648)         (4,219)        1,323,133
FHLMC                                          534,498        2,395            (467)          1,928           536,426
Other mortgage-backed securities               338,405        1,156          (2,053)           (897)          337,508
Collateralized mortgage obligations          7,330,167       11,679         (54,098)        (42,419)        7,287,748
                                            ----------      -------        --------        --------        ----------
         Total                              $9,916,328      $18,811        $(68,316)        (49,505)       $9,866,823
                                            ==========      =======        ========                        ==========
Estimated tax effect                                                                         20,223
                                                                                           --------
    Net unrealized holding loss in
       stockholders' equity                                                                $(29,282)
                                                                                           ========
</TABLE>

                                      F-27
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                       December 31, 1999
                                           --------------------------------------------------------------------------
                                                                                             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
                                            ===========     =======       =========                       ===========
Estimated tax effect                                                                       171,741
                                                                                         ---------
    Net unrealized holding loss in
       stockholders' equity                                                              $(235,712)
                                                                                         =========
</TABLE>


       The following  represents a summary of the amortized cost, estimated fair
value  (carrying  value),  weighted  average yield and weighted  average life of
mortgage-backed securities available for sale (dollars in thousands):
<TABLE>
<CAPTION>
                                                                        December 31, 2001
                                              --------------------------------------------------------------------
                                                                  Estimated           Weighted            Weighted
                                              Amortized             Fair               Average             Average
                                                Cost                Value               Yield               Life
                                                ----                -----               -----               ----
                                                                                                         (in years)
<S>                                           <C>                 <C>                   <C>                 <C>
GNMA                                          $  388,888          $  392,630             6.81%              22.8
FNMA                                           1,052,686           1,061,337             6.26               21.7
FHLMC                                            418,820             423,032             6.75               20.5
Other mortgage-backed securities                 200,130             198,225             6.64               20.0
Collateralized mortgage obligations            4,884,717           4,966,488             6.36               23.8
Other - trading securities (IO strips)            16,191              16,191            13.62               28.8
                                              ----------          ----------
         Total                                $6,961,432          $7,057,903             6.42%              23.2
                                              ==========          ==========
</TABLE>


       The weighted average stated interest rates on mortgage-backed  securities
available  for sale were 6.46%,  6.89% and 6.62% at December 31, 2001,  2000 and
1999,  respectively.  At  December  31,  2001,  2000 and  1999,  mortgage-backed
securities available for sale included securities  totalling $0.4 billion,  $0.7
billion and $0.9 billion,  respectively,  which resulted from the securitization
of certain qualifying mortgage loans from the Bank's, Old California  Federal's,
Glendale Federal's and San Francisco Federal's loan portfolios.

       At December 31, 2001, 2000 and 1999, mortgage-backed securities available
for sale included $1.8 billion, $3.0 billion and $4.3 billion,  respectively, of
variable-rate securities.

       At December 31, 2001,  mortgage-backed  securities  available for sale of
$3.9 billion were pledged as collateral  for FHLB advances and  securities  sold
under agreements to repurchase,  $1.6 billion of which were pledged to creditors
who have the right to sell or repledge the collateral.  See notes 18, 19 and 36.
Further,  at December 31, 2001,  mortgage-backed  securities  available for sale
with a  carrying  value  of  $776.8  million  were  pledged  for  various  other
obligations and include $127.0 million in securities  pledged to FNMA associated
with the sales of certain securitized multi-family loans as further discussed in
note 36.

                                      F-28
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9)    MORTGAGE-BACKED SECURITIES HELD TO MATURITY
       -------------------------------------------

       Mortgage-backed  securities  held to maturity  consisted of the following
(in thousands):
<TABLE>
<CAPTION>
                                                             December 31, 2001
                                         ------------------------------------------------------------------------------
                                                                                               Net
                                           Amortized       Unrealized      Unrealized       Unrealized       Estimated
                                             Cost            Gains           Losses        Gain (Loss)      Fair Value
                                             ----            -----           ------        -----------      ----------
<S>                                       <C>              <C>                <C>            <C>             <C>
FHLMC                                     $   86,504       $ 3,188            $--            $ 3,188         $   89,692
FNMA                                       1,297,948        22,862             --             22,862          1,320,810
Other mortgage-backed securities                 661           --              (6)                (6)               655
                                          ----------       ---- ---           ---            -------         ----------
         Total                            $1,385,113       $26,050            $(6)           $26,044         $1,411,157
                                          ==========       =======            ===            =======         ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              December 31, 2000
                                              -----------------------------------------------------------------------
                                                                                               Net
                                               Amortized      Unrealized     Unrealized    Unrealized      Estimated
                                                 Cost           Gains          Losses      Gain (Loss)     Fair Value
                                                 ----           -----          ------      -----------     ----------
<S>                                            <C>              <C>           <C>            <C>            <C>
GNMA                                           $  237,437       $ 6,309       $ (1,204)      $  5,105       $  242,542
FHLMC                                             234,969         7,785             (2)         7,783          242,752
FNMA                                            2,413,331        60,771           (589)        60,182        2,473,513
Other mortgage-backed securities                      875            --             (5)            (5)             870
                                               ----------       -------       --------       --------       ----------
         Total                                 $2,886,612       $74,865       $ (1,800)      $ 73,065       $2,959,677
                                               ==========       =======       ========       ========       ==========
Securities included above transferred
     from available-for-sale                   $1,110,920       $   628       $(55,937)      $(55,309)      $1,055,611
                                               ==========       =======       ========                      ==========
Estimated tax effect                                                                           22,594
Amortization of unrealized holding loss                                                         2,341
                                                                                             --------
    Net unrealized holding loss in
         stockholders' equity                                                                $(30,374)
                                                                                             ========
</TABLE>

<TABLE>
<CAPTION>
                                                             December 31, 1999
                                               -----------------------------------------------------------------------
                                                                                                Net
                                               Amortized      Unrealized     Unrealized     Unrealized      Estimated
                                                 Cost           Gains          Losses       Gain (Loss)     Fair Value
                                                 ----           -----          ------       -----------     ----------
<S>                                            <C>              <C>           <C>             <C>           <C>
FHLMC                                          $  161,129       $ 3,801       $     --        $ 3,801       $  164,930
FNMA                                            1,987,428        16,687        (20,170)        (3,483)       1,983,945
Other mortgage-backed securities                    1,139            --             --             --            1,139
                                               ----------       -------       --------         ------       ----------
         Total                                 $2,149,696       $20,488       $(20,170)       $   318       $2,150,014
                                               ==========       =======       ========        =======       ==========
</TABLE>



















       The  following  represents  a summary  of the  amortized  cost  (carrying
value),  estimated fair value,  weighted average yield and weighted average life
of mortgage-backed securities held to maturity (dollars in thousands):
<TABLE>
<CAPTION>
                                                              December 31, 2001
                                                 -------------------------------------------------------------------
                                                                    Estimated           Weighted           Weighted
                                                 Amortized            Fair              Average            Average
                                                   Cost               Value              Yield              Life
                                                   ----               -----              -----              ----
                                                                                                          (in years)
<S>                                              <C>               <C>                   <C>                 <C>
FHLMC                                            $   86,504        $   89,692             7.24%              19.7
FNMA                                              1,297,948         1,320,810             6.46               15.3
Other mortgage-backed securities                        661               655            12.61               13.8
                                                 ----------        ----------
         Total                                   $1,385,113        $1,411,157             6.51%              15.5
                                                 ==========        ==========
</TABLE>
                                      F-29
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The weighted average stated interest rates on mortgage-backed  securities
held to maturity  were 6.46%,  7.45% and 6.92% at December  31,  2001,  2000 and
1999,  respectively.  At  December  31,  2001,  2000 and  1999,  mortgage-backed
securities held to maturity  included  securities with carrying values totalling
$1.4 billion, $1.8 billion and $2.1 billion,  respectively,  which resulted from
the securitization with FNMA and FHLMC of certain qualifying mortgage loans from
the Bank's,  Old  California  Federal's,  Glendale  Federal's  and San Francisco
Federal's loan portfolio with full recourse to the Bank.

       At December 31, 2001, 2000 and 1999,  mortgage-backed  securities held to
maturity included $1.3 billion, $1.8 billion and $2.1 billion,  respectively, of
variable-rate securities.

       At December 31, 2001, mortgage-backed securities held to maturity of $0.9
billion  were pledged as  collateral  for various  obligations,  $0.8 billion of
which  were  pledged to  creditors  who have the right to sell or  repledge  the
collateral.   See  notes  18,  19  and  36.  Further,   at  December  31,  2001,
mortgage-backed  securities  held to  maturity  with a carrying  value of $146.8
million were pledged for various other obligations. See note 36.

(10)   LOANS RECEIVABLE, NET
       ---------------------

       Loans receivable, net, included the following (in thousands):
<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                                ---------------------------------
                                                                                   2001                  2000
                                                                                -----------           -----------
       <S>                                                                      <C>                   <C>
       Real estate loans:
          1-4 unit residential                                                  $29,546,035           $30,828,368
          Multi-family residential                                                4,130,287             3,569,228
          Commercial real estate                                                  2,354,919             2,487,093
          Land                                                                       14,055                22,384
          Construction                                                                2,495                 7,416
                                                                                -----------           -----------
             Total real estate loans                                             36,047,791            36,914,489
                                                                                -----------           -----------
       Equity-line                                                                  639,297               538,524
       Other consumer loans                                                         283,434               302,559
       Auto loans, net (a)                                                        1,917,591             1,567,257
       Commercial loans                                                             693,114               557,796
                                                                                -----------           -----------
             Total consumer and other loans                                       3,533,436             2,966,136
                                                                                -----------           -----------
             Total loans receivable                                              39,581,227            39,880,625
       Deferred loan fees, costs, discounts and premiums, net                       243,120               229,962
       Allowance for loan losses                                                   (497,298)             (526,308)
       Purchase accounting adjustments, net                                           8,574                 8,535
                                                                                -----------           -----------
             Total loans receivable, net                                        $39,335,623           $39,592,814
                                                                                ===========           ===========
</TABLE>
       ------------
       (a)    $766.0  million and $632.4  million of this  portfolio  represents
              prime product as of December 31, 2001 and 2000, respectively.  The
              prime product is 40% of the total portfolio balance at each date.

       At December 31, 2001, $27.1 billion in residential loans, $3.6 billion in
multi-family loans and $1.6 billion in commercial real estate loans were pledged
as collateral for FHLB advances as discussed in notes 19 and 36.

       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, 2001 totalled $2.0 billion.
No loans were sold with recourse  during the years ended December 31, 2001, 2000
and 1999. 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,  2001,  such
liability totalled $23.7 million.

                                      F-30
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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,
                                                                               --------------------------
                                                                                  2001            2000
                                                                               ----------      ----------
       <S>                                                                     <C>             <C>
       Auto loans:  contractual payments receivable                            $1,885,168      $2,124,182
       Accretable Yield                                                          (136,515)       (232,635)
       Nonaccretable Contractual Cash Flows                                      (336,073)       (334,878)
                                                                               ----------      ----------

       Loans purchased at a discount relating to credit quality, net           $1,412,580      $1,556,669
                                                                               ==========      ==========
</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 decrease in Accretable Yield in 2001
is primarily due to fewer loan additions using the accretable yield methodology,
offset in part by higher payments and payoffs.
<TABLE>
<CAPTION>

                                                                                    Nonaccretable
                                                                 Accretable          Contractual
                                                                   Yield             Cash Flows
                                                                 ----------         -------------
                                                                        (in thousands)
       <S>                                                       <C>                 <C>
       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)
          Addition - purchases                                    (266,800)           (267,155)
          Accretion                                                145,942                  --
          Reclassification                                          18,565             (18,565)
          Charge-offs                                               (6,398)                 --
          Eliminations                                                  --             153,843
                                                                 ---------           ---------
       Balance at December 31, 2000                               (232,635)           (334,878)
          Addition - purchases                                    (125,394)           (154,346)
          Accretion                                                202,861                  --
          Reclassification                                          30,472             (30,472)
          Charge-offs                                              (11,819)                 --
          Eliminations                                                  --             183,623
                                                                 ---------           ---------
       Balance at December 31, 2001                              $(136,515)          $(336,073)
                                                                 =========           =========
</TABLE>

       During the year ended  December 31, 2001 and 2000,  the Company  incurred
losses  totalling  $11.8  million  and  $6.4  million,  respectively,  on  loans
purchased  at a  discount  as a result  of pool  impairment.  These  losses  are
reflected  as  charge-offs.  During the  fourth  quarter  of 1999,  the  Company
incurred  losses of $7.3 million on loans  purchased at a discount by increasing
the  allocated  allowance  for  loan  losses  relative  to such  loans.  No loss
allowance  was acquired from  predecessor  institutions  in connection  with the
Downey Acquisition. No loss accruals were reversed in 2001, 2000 or 1999.

                                      F-31
<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):

                                                         December 31,
                                                   ------------------------
                                                     2001            2000
                                                   --------        --------

       Nonaccrual loans:
            Real estate loans:
               1-4 unit residential                $ 75,078        $ 88,650
               Multi-family residential                 491           3,253
               Commercial and other                   3,786           1,509
               Land                                      --              84
               Construction                              --              68
                                                   --------        --------
                  Total real estate                  79,355          93,564
            Non-real estate:
               Auto One                              10,878           5,721
               Commercial banking                     9,759          14,986
               Consumer                                 600             768
                                                   --------        --------
                  Total non-real estate              21,237          21,475
                                                   --------        --------
                      Total nonaccrual loans       $100,592        $115,039
                                                   ========        ========

       For loans on  nonaccrual  status,  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") (in thousands):
<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                         -------------------------------------------------------------------------------------------
                                    2001                            2000                           1999
                         -------------------------       --------------------------      ---------------------------
                         Recognized    Contractual       Recognized     Contractual      Recognized      Contractual
<S>                       <C>             <C>              <C>              <C>            <C>             <C>
Nonaccrual loans          $6,177          $9,968           $4,743           $7,385         $6,410          $10,864
</TABLE>

       Activity in the  allowance  for loan losses is  summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                                 December 31,
                                                                 ---------------------------------------------
                                                                   2001              2000               1999
                                                                 --------          --------           --------
       <S>                                                       <C>               <C>                <C>
       Balance - beginning of year                               $526,308          $554,893           $588,533
       Provision for loan losses                                       --                --             10,000
       Charge-offs                                                (32,002)          (33,477)           (40,312)
       Recoveries                                                   3,122             4,892              4,681
       Reclassifications (a)                                         (130)               --               (670)
       Allocation to Nonaccretable Contractual
          Cash Flows of purchased auto loan portfolio                  --                --             (7,339)
                                                                 --------          --------           --------
       Balance - end of year                                     $497,298          $526,308           $554,893
                                                                 ========          ========           ========
</TABLE>
       -----------
       (a)    The  reclassification of $130 thousand for the year ended December
              31,  2001  relates  to  loans  transferred  to  the  held-for-sale
              portfolio.  The  reclassification  of $670  thousand  for the year
              ended  December 31, 1999  represents an adjustment  resulting from
              the acquisition of loans from GSAC.

       At December 31, 2001,  $29.0  billion,  or 80.3%,  of the Company's  real
estate loan portfolio was  collateralized  by properties  located in California.
The  financial  condition of the Company is affected by interest  rates and real
estate  market  conditions,  both of which are  volatile.  Any  downturn  in the
economy  could reduce real estate  values.  An increase in the general  level of
interest  rates may  adversely  affect the ability of certain  borrowers  to pay
their  obligations.  Accordingly,  if interest  rates rise or real estate market
values decline, particularly in California, the

                                      F-32
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company  may find it  difficult  to maintain  its asset  quality and may require
additional  allowances  for  loss  above  the  amounts  currently  estimated  by
management.

(11)   SECURITIZED LOAN SALES
       ----------------------

       In years prior to 2000, the Company  entered into certain  securitization
transactions,  which  resulted in the  recording  of residual  interests  on the
Company's  books.  The Company has  securitized  interests in  residential  real
estate loans. When the Company  securitized  assets,  it retained  interest-only
strips, subordinated tranches and, in some cases, a cash reserve account, all of
which are considered  retained interests in the securitized  assets.  Gains upon
sale of the assets depend, in part, on the Company's  allocation of the previous
carrying  amount of the  assets to the  retained  interests.  Previous  carrying
amounts are  allocated in  proportion  to the relative fair values of the assets
sold and interests retained.

       At December 31, 2001,  key economic  assumptions  and  sensitivity of the
current fair value of residual cash flows to immediate 10 percent and 20 percent
adverse changes in those assumptions are as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                  Residential Adjustable-Rate
                                                                                         Mortgage Loans
                                                                                  ---------------------------
       <S>                                                                                <C>
       Fair value of retained interests (a)                                               $146,782
       Weighted average life (in years)                                                       4.01

       Prepayment speed assumption (annual rate)                                             17.63%
          Impact on fair value of 10% adverse change                                      $    (46)
          Impact on fair value of 20% adverse change                                      $    (91)

       Expected credit losses (annual rate)                                                  (0.25)%
          Impact on fair value of 10% adverse change                                      $    (37)
          Impact on fair value of 20% adverse change                                      $    (74)

       Bond equivalent effective yield discount rate (semi-annual compounding)                4.75%
          Impact on fair value of 10% adverse change                                      $   (734)
          Impact on fair value of 20% adverse change                                      $ (1,469)
</TABLE>
       -----------
       (a)    Excludes cash reserve accounts of $11.2 million.

       The following table presents quantitative information about delinquencies
and net credit losses for  securitized  financial  assets managed by the Company
(in thousands):
<TABLE>
<CAPTION>
                                                              Principal Amount of
                                        Total Principal        Loans 60 Days or                 Net Credit
                                       Amount of Loans        More Past Due (a)                 Losses (b)
                                     -------------------      -------------------     ----------------------------------
                                                     December 31,                    During the Year Ended December 31,
                                     --------------------------------------------     ----------------------------------
                                       2001         2000        2001       2000            2001               2000
                                       ----         ----        ----       ----            ----               ----
<S>                                  <C>          <C>          <C>        <C>               <C>                <C>
Carrying value of residential
    adjustable-rate mortgage loans
    managed or securitized (c):
    Loans held by the Company
      in portfolio                   $148,236     $223,632     $  953     $ 7,643           --                 --
    Loans held by others but
      serviced by the Company          13,179       80,734         84       2,759
                                     --------     --------     ------     -------
      Total                          $161,415     $304,366     $1,037     $10,402           --                 --
                                     ========     ========     ======     =======

                                                                                                          (Continued)
</TABLE>

                                      F-33
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

------------
(a)    Loans 60 days or more past due are based on end-of-period total loans.

(b)    Net  credit  losses  are   charge-offs  and  are  based  on  total  loans
       outstanding.

(c)    Owned and  securitized  loans are mortgage  loans in which the transferor
       retains a subordinate interest or retains any risk of loss.

(12)   IMPAIRED LOANS
       --------------

       At December 31, 2001 and 2000,  loans that are  considered to be impaired
totalled $59.1 million and $97.2 million,  respectively  (of which $14.1 million
and  $19.5  million,  respectively,  were on  nonaccrual  status).  The  average
recorded  investment in impaired loans during the years ended December 31, 2001,
2000 and 1999 was approximately $60.5 million, $91.3 million and $139.3 million,
respectively.  For the years ended December 31, 2001, 2000 and 1999, the Company
recognized interest income on those impaired loans of $4.6 million, $8.3 million
and $9.5 million,  respectively,  which included $0.5 million,  $1.6 million and
$2.7 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.

(13)   INVESTMENT IN FHLB
       ------------------

       The  Company  carries  FHLB  stock 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 FHLB capital  stock in an amount equal to the greater of
(a) 1% of the Bank's  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. The Bank was in
compliance  with this  requirement  at  December  31,  2001,  2000 and 1999.  At
December 31, 2001,  the Bank pledged FHLB stock as collateral  for FHLB advances
as further discussed in note 19.

(14)   PREMISES AND EQUIPMENT, NET
       ---------------------------

       The following table  summarizes  premises and equipment,  net (dollars in
thousands):
<TABLE>
<CAPTION>

                                                                 December 31,                        Estimated
                                                          ----------------------------          Depreciable Lives at
                                                             2001               2000              December 31, 2001
                                                          ----------         ---------          --------------------
       <S>                                                <C>                <C>                      <C>
       Land                                               $  45,689          $  46,155                    --
       Buildings and leasehold improvements                 164,119            157,893                1 - 39
       Furniture and equipment                              278,942            250,771                1 - 7
       Construction in progress                              10,261             12,169                    --
                                                          ---------          ---------
                                                            499,011            466,988
       Accumulated depreciation and amortization           (192,121)          (139,659)
                                                          ---------          ---------
           Total premises and equipment, net              $ 306,890          $ 327,329
                                                          =========          =========
</TABLE>

       Depreciation and  amortization  expense related to premises and equipment
for the years ended  December 31, 2001,  2000 and 1999 totalled  $57.7  million,
$54.5 million and $40.9 million, respectively.

                                      F-34
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The  Company  rents  certain  premises  and  equipment  under  long-term,
noncancellable operating leases expiring at various dates through the year 2034.
Such  rental  expenses  are  included in  occupancy  and  equipment  expense and
totalled  $40.3 million,  $39.1 million and $41.5  million,  for the years ended
December 31, 2001,  2000 and 1999,  respectively.  Rental  income from  sublease
agreements  for the years ended  December 31, 2001,  2000 and 1999 totalled $4.9
million, $5.1 million and $5.6 million,  respectively. At December 31, 2001, 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
       -----------
       2002                         $ 48,233               $ 28,530
       2003                           45,862                 27,127
       2004                           41,282                 24,418
       2005                           36,096                 21,351
       2006                           25,058                 14,822
       Thereafter                     54,299                 32,118
                                    --------               --------
          Total                     $250,830               $148,366
                                    ========               ========

       On October 4, 2001,  the Bank sold a  property  complex  consisting  of a
retail branch and a lending facility totalling approximately 17,088 square feet,
resulting in a gain of $2.0  million.  As part of the sale  agreement,  the Bank
agreed to lease back 6,363 square feet,  under two  separate  lease  agreements.
Approximately $0.9 million of the gain was deferred and is being recognized over
the life of the respective  leases. The lease covering the lending facility is a
month-to-month  lease.  The lease  covering the branch office is  non-cancelable
with a  termination  date of October,  2008.  It is the Bank's  intent to occupy
these facilities until lease termination.

       At December 31, 2001, the projected minimum rental  commitments under the
terms of the leases were as follows (in thousands):

                              Lending Facility       Branch           Total
                              ----------------       ------           -----
       Year Ending
       -----------
       2002                        $17               $  150           $  167
       2003                         --                  150              150
       2004                         --                  150              150
       2005                         --                  150              150
       2006                         --                  150              150
       Thereafter                   --                  264              264
                                   ---               ------           ------
              Total                $17               $1,014           $1,031
                                   ===               ======           ======

       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, resulting in a gain of $5.3 million. As part of the sale agreement,
the Bank  agreed to lease  back  16,253  square  feet under two  separate  lease
agreements.  Approximately  $1.8  million of the gain was  deferred  and will be
recognized over the life of the respective leases. The lease covering the branch
and parking lot is cancelable  with six months' notice with a final  termination
date of  November,  2009.  The lease  covering  the  administrative  offices  is
non-cancelable  with a  termination  date of  November,  2004.  It is the Bank's
intent to occupy these facilities until lease termination.

                                      F-35
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       At December 31, 2001, 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
       -----------
       2002                 $116                  $205                 $  321
       2003                  116                   205                    321
       2004                  116                   188                    304
       2005                  116                    --                    116
       2006                  116                    --                    116
       Thereafter            337                    --                    337
                            ----                  ----                 ------
             Total          $917                  $598                 $1,515
                            ====                  ====                 ======

(15)   ACCRUED INTEREST RECEIVABLE
       ---------------------------

       The  following  table   summarizes   accrued   interest   receivable  (in
thousands):

                                                            December 31,
                                                      ------------------------
                                                        2001            2000
                                                      --------        --------

       Cash and cash equivalents and securities       $ 26,990        $ 54,637
       Mortgage-backed securities                       21,185          38,858
       Loans receivable and loans held for sale        240,133         270,919
                                                      --------        --------
          Total accrued interest receivable           $288,308        $364,414
                                                      ========        ========

                                      F-36
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16)   MORTGAGE SERVICING RIGHTS
       -------------------------

       The following table  summarizes  activity for MSRs and the MSR hedges for
the years ended December 31, 2001,  2000 and 1999 (in  thousands).  Prior to the
adoption  of SFAS No. 133 on January 1, 2001,  the MSR hedges  were  included in
MSRs on the balance sheet.  Since the adoption of SFAS No. 133, MSR hedges are a
component of derivative assets and derivative liabilities on the balance sheet.
<TABLE>
<CAPTION>

                                                                                          MSR
                                                                        MSR             Hedge            Total
                                                                     ----------        ---------       ----------
<S>                                                                  <C>               <C>             <C>
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)
     Premiums 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
     Additions - purchases                                              344,262               --          344,262
     Originated servicing                                               126,648               --          126,648
     Sales                                                                 (440)              --             (440)
     Swaption sales                                                     (20,088)         (30,417)         (50,505)
     Interest rate floor sales                                          (25,675)         (24,934)         (50,609)
     Interest rate floor receipts                                          (224)              --             (224)
     Premiums paid                                                           --          127,199          127,199
     Payments received from counterparties, net                          (5,369)              --           (5,369)
     Amortization                                                      (187,040)         (16,992)        (204,032)
                                                                     -----------       ---------       ----------
Balance at December 31, 2000                                          1,464,310           95,013        1,559,323
     SFAS No. 133 transition adjustment                                 (69,754)              --          (69,754)
     Additions - purchases                                              308,003               --          308,003
     Originated servicing                                               369,514               --          369,514
     Swaption sales                                                          --         (488,143)        (488,143)
     Interest rate floor sales                                               --         (151,715)        (151,715)
     Interest rate floor receipts                                          (121)          (5,074)          (5,195)
     Interest rate swap sales                                                --           17,228           17,228
     Interest rate swap payments                                             --           18,688           18,688
     Premiums paid                                                           --          713,576          713,576
     PO swap sale/matured                                                    --             (135)            (135)
     Payments received from counterparties, net                              --           (6,195)          (6,195)
     SFAS No. 133 current year fair value adjustments                    66,416           83,287          149,703
     Provision for loss in fair value                                  (153,345)              --         (153,345)
     Amortization                                                      (361,076)                         (361,076)
                                                                     ----------       ----------       ----------
                                                                                              --
Balance at December 31, 2001                                         $1,623,947       $  276,530       $1,900,477
                                                                     ==========       ==========       ==========
</TABLE>

       Aggregate  1-4 unit  residential  loan  participations,  whole  loans and
mortgage pass-through securities serviced for other investors (not including the
Bank) by FNMC  totalled  $85.2  billion,  $84.1  billion and $72.9  billion,  at
December  31, 2001,  2000 and 1999,  respectively.  In addition,  FNMC had $13.8
billion,  $11.1  billion and $10.4  billion of master  servicing at December 31,
2001, 2000 and 1999, respectively.

       The Company's loans serviced for others, secured by properties located in
California, Texas, and Florida was 45%, 7% and 6%, respectively, at December 31,
2001 and 46%, 7% and 6%, respectively, at December 31, 2000.

                                      F-37
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       MSR fair value  totalled  $1.6  billion and $1.5  billion at December 31,
2001 and 2000, respectively. See discussion of valuation assumptions at note 39.

       A  recent  decline  in  long-term  interest  rates  has  resulted  in the
acceleration  of  mortgage  loan  prepayments.   Higher  levels  of  prepayments
accelerate amortization of MSRs and result in a reduction in the market value of
MSRs and  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 the benchmark  interest  rate. The Company
does not hedge certain components of its portfolio,  notably ARMs and loans with
prepayment penalties. In addition, the Company hedges only certain components of
risk, which have not generally included the mortgage rate spread to other market
interest rates.

       MSRs are amortized  over the period of estimated  net  servicing  income.
SFAS No. 140 requires enterprises to measure the impairment of MSRs based on the
difference  between the carrying amount of the MSRs and their current  estimated
fair value.  At December 31, 2000, no allowance  for  impairment of the MSRs was
necessary. During the year ended December 31, 2001, the Company recorded pre-tax
valuation  provisions on its MSRs of $153.3  million.  The provision for 2001 is
due in large part to the  significant  decline in interest rates during 2001. On
an aggregate  basis,  at December 31, 2001, the estimated fair value of the MSRs
was $15.3 million higher than book value (net of a valuation allowance of $153.3
million).  To the  extent  there is  recovery  of fair  values  of the  impaired
tranches in future quarters, the valuation allowance will be reduced.

       The Company owned several  derivative  instruments  at December 31, 2001,
which were used to hedge  against the change in value of the mortgage  servicing
portfolio due to expected prepayment risk assumption  changes.  These derivative
instruments  included  interest  rate swap  agreements,  Constant  Maturity Swap
interest  rate  floor  contracts,   swaptions  and  principal  only  swaps.  MSR
derivatives  at December  31, 2001 are  comprised of the  following  (dollars in
thousands):
<TABLE>
<CAPTION>
                                     Notional                                                                   Fair Value at
          Derivative                  Amount            Contract Provisions                 Maturity          December 31, 2001
          ----------                  ------            -------------------                 --------       ----------------------
                                                                                                            Assets    Liabilities
                                                                                                            ------    -----------
<S>                                <C>             <C>                                     <C>             <C>          <C>
Interest rate swap agreements      $ 2,462,000     Weighted average pay rate of 1.9%       2010 - 2011     $ 42,102     $(34,541)
                                                   Receive rates between 4.8% and 6.2%

Interest rate floor contracts (a)    3,054,000     Strike rates between 6.0% and 6.7%      2006              78,917           --

Swaption contracts (b)               4,111,000     Strike rates between 5.5% and 6.9%      2002 - 2004      183,641           --

Principal only swap agreements         378,928     Index tied to LIBOR from a PO strip     2002 - 2029        7,487       (1,076)
                                   -----------                                                             --------     --------
                                   $10,005,928                                                             $312,147     $(35,617)
                                   ===========                                                             ========     ========
</TABLE>
--------------
(a)    Premiums paid to counterparties in exchange for the right to receive cash
       payments  when the 10-year  Constant  Maturity  Swap rate falls below the
       strike  rate  are  recorded  as part of the MSR  derivative  asset on the
       balance sheet.

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

       The  estimated  market value of interest rate floor  contracts,  interest
rate swaps, principal only swaps and swaptions designated as hedges against MSRs
at December 31, 2000 were $52.8 million,  $5.1 million,  $1.2 million and $105.6
million, respectively. Beginning January 1, 2001, the derivative instruments are
carried at fair value in  accordance  with SFAS No. 133. See note 38 for further
discussion.

                                      F-38
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The  following   summarizes  servicing  advances  and  other  receivables
(included in other assets) related to 1-4 unit residential  loan servicing,  net
of valuation  allowances  of $16.3  million and $16.1  million in 2001 and 2000,
respectively, (in thousands):

                                                          December 31,
                                                    ------------------------
                                                      2001            2000
                                                    --------        --------

       Servicing advances                           $108,682        $106,120
       Checks in process of collection                 1,215             745
       Other                                           5,501           6,287
                                                    --------        --------
                                                    $115,398        $113,152
                                                    ========        ========
(17)   DEPOSITS
       --------

       A  summary  of  the  carrying  value  of  deposits  follows  (dollars  in
thousands):
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                       ----------------------------------
                                                                          2001                   2000
                                                                       -----------            -----------
       <S>                                                             <C>                    <C>
       Transaction Accounts:
            Non-interest checking                                      $ 2,000,413            $ 1,716,741
            Interest-bearing checking                                    2,139,674              2,063,185
                                                                       -----------            -----------
               Subtotal checking                                         4,140,087              3,779,926

            Money market                                                 4,614,223              2,948,853
            Passbook savings                                             3,055,766              3,086,852
                                                                       -----------            -----------
               Total transaction accounts                               11,810,076              9,815,631

       Certificates of deposit                                          10,618,260             12,241,809
                                                                       -----------            -----------
               Subtotal retail deposits                                 22,428,336             22,057,440

       Custodial accounts                                                2,512,684                825,438
       Accrued interest payable                                             46,184                 80,225
       Purchase accounting                                                     329                  1,009
                                                                       -----------            -----------
               Total retail deposits                                    24,987,533             22,964,112

       Brokered Deposits:
            Certificates of deposit                                         60,692                369,581
            Money market                                                    84,993                 84,155
            Accrued interest payable                                           723                 11,653
            Purchase accounting                                                137                    253
                                                                       -----------            -----------
               Total brokered deposits                                     146,545                465,642
                                                                       -----------            -----------
               Total deposits                                          $25,134,078            $23,429,754
                                                                       ===========            ===========

       Checking deposits as a %
            of retail deposits (including custodials)                         26.7%                  20.1%
       Transaction accounts as a %
            of retail deposits (including custodials)                         57.4%                  46.5%
       Checking deposits as a %
            of retail deposits (excluding custodials)                         18.5%                  17.1%
       Transaction accounts as a %
            of retail deposits (excluding custodials)                         52.7%                  44.5%
</TABLE>

                                      F-39
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The aggregate  amount of jumbo  certificates  of deposit (term  deposits)
with a minimum  denomination of $100,000 was approximately $2.8 billion and $3.3
billion at December 31, 2001 and 2000, respectively.

       The  following  summarizes  interest  expense  by  deposit  category  (in
thousands):

                                                      December 31,
                                            --------------------------------
                                              2001        2000        1999
                                            --------    --------    --------

       Passbook savings                     $ 76,702    $116,321    $124,618
       Interest-bearing demand deposits        9,903      13,914      17,772
       Money market deposit accounts         129,796     120,683     124,368
       Term accounts                         615,137     677,489     621,528
                                            --------    --------    --------
          Total                             $831,538    $928,407    $888,286
                                            ========    ========    ========

       At December 31, 2001, term accounts were scheduled to mature as follows
(in thousands):

       Year Ending
       -----------
       2002                         $ 9,141,546
       2003                           1,029,717
       2004                             139,747
       2005                             191,974
       2006                             174,959
       Thereafter                         1,009
                                    -----------
          Total                     $10,678,952
                                    ===========

(18)   SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
       ----------------------------------------------

       The following  summarizes  securities sold under agreements to repurchase
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                          December 31, 2001
                                                  ------------------------------------------------------------------
                                                      Underlying Collateral                   Repurchase Liability
                                                  -----------------------------             ------------------------
                                                  Recorded             Market                             Interest
                                                  Value (a)            Value                  Amount        Rate
                                                  ---------            ------                 ------        ----
       <S>                                        <C>                <C>                    <C>              <C>
       Maturing in 30 to 90 days                  $  251,830         $  250,619             $  200,000       4.16%
       Maturing after 90 days to 1 year              221,859            220,736                200,000       3.10
       Maturing over 1 year                        1,925,644          1,914,635              1,950,000       3.11
                                                  ----------         ----------             ----------
          Total (b)                                2,399,333          2,385,990              2,350,000       3.20%
       Accrued interest payable                           --                 --                 13,945
                                                  ----------         ----------             ----------
                                                  $2,399,333         $2,385,990             $2,363,945
                                                  ==========         ==========             ==========
</TABLE>

                                      F-40
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                          December 31, 2000
                                                  -----------------------------------------------------------------
                                                      Underlying Collateral                  Repurchase Liability
                                                  ----------------------------              -----------------------
                                                  Recorded             Market                              Interest
                                                  Value (a)            Value                  Amount         Rate
                                                  ---------            -----                  ------         ----
       <S>                                        <C>                <C>                    <C>              <C>
       Maturing within 30 days                    $  980,736         $  981,379             $  888,748       6.61%
       Maturing in 30 to 90 days                     477,528            481,113                423,597       6.63
       Maturing after 90 days to 1 year            1,315,377          1,317,242              1,284,115       6.74
       Maturing over 1 year                        1,931,155          1,943,241              1,850,000       7.28
                                                  ----------         ----------             ----------
          Total (b)                                4,704,796          4,722,975              4,446,460       6.93%
       Accrued interest payable                           --                 --                 64,849
                                                  ----------         ----------             ----------
                                                  $4,704,796         $4,722,975             $4,511,309
                                                  ==========         ==========             ==========
</TABLE>
       -------------
       (a)    Recorded value includes  accrued interest at December 31, 2001 and
              2000.  In addition,  the recorded  values at December 31, 2001 and
              2000  include  adjustments  for  the  unrealized  gain  or loss on
              mortgage-backed securities available for sale.

       (b)    Total  mortgage-backed  securities collateral at December 31, 2001
              and 2000 includes $0.8 billion and $1.7 billion,  respectively, in
              outstanding  balances of loans  securitized  with full recourse to
              the Bank. The market value of such collateral was $0.8 billion and
              $1.7 billion at December 31, 2001 and 2000, respectively.

       At December 31, 2001 and 2000,  these  agreements  had  weighted  average
stated interest rates of 3.20% and 6.93%,  respectively.  Third party securities
dealers  hold the  underlying  securities.  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 $3.6 billion,  $5.4 billion
and $5.1 billion during 2001, 2000 and 1999, respectively;  the weighted average
rate was 5.41%,  6.45% and 5.18% during 2001, 2000 and 1999,  respectively;  and
the maximum amount  outstanding  at any month-end  during these periods was $4.7
billion, $8.5 billion and $6.2 billion, respectively.

       At December 31, 2001, securities sold under agreements to repurchase were
collateralized  with $1.6 billion of  mortgage-backed  securities  available for
sale and $0.8 billion of mortgage-backed securities held to maturity.

                                      F-41
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(19)   BORROWINGS
       ----------

       Borrowings are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
                                                                                December 31,
                                                         ---------------------------------------------------------
                                                                 2001                            2000
                                                         --------------------------      -------------------------
                                                           Carrying         Average       Carrying         Average
                                                            Value            Rate          Value            Rate
                                                            -----            ----          -----            ----
       <S>                                               <C>                <C>          <C>                <C>
       Fixed-rate borrowings from FHLB                   $17,487,045         5.13%       $21,337,878         6.08%
       Variable-rate borrowings from FHLB                  4,836,000         2.23          5,090,000         6.71
       10% Subordinated Debentures due 2006                   92,100        10.00             92,100        10.00
       FN Holdings 10 5/8% Senior Subordinated
          Notes due 2003                                         250        10.63                250        10.63
       6 1/2% Convertible  Subordinated
          Debentures due 2001                                     --           --                160         6.50
       10% Subordinated Debentures due 2003                       --           --              4,299        10.00
       Floating Rate Notes due 2003                          250,000         3.23            250,000         7.76
       6 3/4% Senior Notes due 2001                               --           --            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                               225,000         1.63                 --           --
       Other borrowings                                           55         9.22                406         7.57
                                                         -----------                     -----------
             Total borrowings                             24,290,450         4.63         28,525,093         6.28
       Discount on borrowings                                 (5,580)                         (8,564)
       Purchase accounting adjustments, net                    2,524                           7,420
                                                         -----------                     -----------
             Subtotal                                     24,287,394         4.63%        28,523,949         6.28%
       Accrued interest payable                              157,147                         276,608
                                                         -----------                     -----------
                                                         $24,444,541                     $28,800,557
                                                         ===========                     ===========
</TABLE>

       The following summarizes  maturities and weighted average stated interest
rates on  borrowings  at December 31, 2001,  not  including  discounts,  accrued
interest payable or purchase accounting adjustments (dollars in thousands):
<TABLE>
<CAPTION>

                                                                            Weighted
                                               Balances  Maturing         Average Rates
         Maturities during the Years        -------------------------     -------------
             Ending December 31,              FHLB            Other       FHLB    Other
          ---------------------------         ----            -----       ----    -----
              <S>                           <C>             <C>           <C>     <C>
              2002                          $10,231,000     $ 225,018     4.20%    1.63%
              2003                            7,990,000       850,000     4.73     5.89
              2004                            3,450,000            --     5.24       --
              2005                              651,625       800,250     2.58     7.13
              2006                                   --        92,100       --    10.00
              Thereafter                            420            37     7.74     9.54
                                            -----------    ----------
                  Total                     $22,323,045    $1,967,405     4.50%    6.10%
                                            ===========    ==========
</TABLE>

                                      F-42
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The following  summarizes  interest  expense on borrowings  for the years
ended December 31, 2001, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>
                                                                                Year Ended December 31,
                                                                     ---------------------------------------------
                                                                        2001             2000              1999
                                                                     ----------       ----------        ----------
       <S>                                                           <C>              <C>               <C>
       FHLB advances                                                 $1,366,607       $1,521,806        $1,165,010
       Interest rate swap agreements                                     67,279            7,188             5,940
       10% Subordinated Debentures due 2006                               9,210            9,210             9,210
       11.20% Senior Notes due 2004                                          --               --               651
       FN Holdings 10 5/8% Senior Subordinated Notes
          due 2003                                                           27               27                26
       6 1/2% Convertible Subordinated Debentures due 2001                    1               32               172
       10% Subordinated Debentures due 2003                                 333              430               430
       Floating Rate Notes due 2003                                      13,455           18,942            15,931
       6 3/4% Senior Notes due 2001                                      13,781           23,625            23,625
       7% Senior Notes due 2003                                          42,000           42,000            42,000
       7 1/8% Senior Notes due 2005                                      57,000           57,000            57,000
       Federal funds purchased                                           11,661            4,747             2,750
       Other borrowings                                                     130               53                25
       Discount accretion                                                 1,042            2,060             1,031
       Purchase accounting adjustments                                   (4,896)          (8,629)          (11,172)
                                                                     ----------       ----------        ----------

           Total                                                     $1,577,630       $1,678,491        $1,312,629
                                                                     ==========       ==========        ==========
</TABLE>

       The  following  summarizes  the  carrying  value  of  assets  pledged  as
collateral for FHLB advances (in thousands):

                                                            December 31, 2001
                                                            -----------------
       Loans receivable                                        $32,332,761
       Mortgage-backed securities available for sale             2,338,317
       FHLB stock                                                1,446,607
                                                               -----------
           Total                                               $36,117,685
                                                               ===========

       FHLB ADVANCES

       During  2000,  the FHLB called and the Bank  prepaid $400 million in FHLB
advances,  resulting in extraordinary gains of $3.0 million, net of income taxes
of $2.1 million, on the early extinguishment of such borrowings.

       10% SUBORDINATED DEBENTURES DUE 2006

       As part of the FN Acquisition,  California  Federal assumed $92.1 million
principal amount of the 10% Subordinated Debentures Due 2006.

       Events  of  default  under the Old FNB  Indenture  include,  among  other
things:  (a) a 30-day  default  in the  payment  of  interest,  (b) a default in
principal  payment when due, (c) the failure to comply with covenants in the Old
FNB  Indenture,  provided that the Bank does not cure the default within 60 days
of  receipt of notice by the  trustee  or  holders of at least 25% in  principal
amount of the  outstanding  10%  Subordinated  Debentures  Due 2006, (d) certain
events of bankruptcy,  insolvency or  reorganization  of the Bank, (e) the FSLIC
(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 of receipt of notice of such

                                      F-43
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

failure 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 the SFFed Acquisition,  California Federal assumed $50 million
principal  amount of 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 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 the FN Holdings
10 5/8% Notes and assumed FN Escrow's  obligations under the FN Holdings 10 5/8%
Notes and  indenture.  At December 31, 2001,  $0.3 million of the FN Holdings 10
5/8% Notes remained outstanding.

       GS Holdings  had the right to redeem the FN Holdings 10 5/8% Notes at its
option, in whole or in part, during the twelve-month period beginning January 1,
2002 at a 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.  The $0.3  million of  remaining  FN Holdings 10 5/8% Notes were
redeemed in January, 2002.

       As a result  of the Cal Fed  Acquisition,  the Bank  was  obligated  with
respect to the following two outstanding securities of Old California Federal.

       6 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001

       In 1986, Cal Fed Inc., Old California  Federal's  former parent  company,
issued $125  million of 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,  a  subsidiary  of  Old  California  Federal.  The 6  1/2%
Convertible Subordinated Debentures were 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.  During the first
quarter of 2000, the Bank repurchased $2.5 million outstanding  principal amount
of the 6 1/2% Convertible Subordinated Debentures, resulting in an extraordinary
gain  of $41  thousand,  net  of  income  taxes  of $30  thousand  on the  early
extinguishment  debt.  The  remaining  balance of $160 thousand was paid in full
during the first quarter of 2001.

       10% SUBORDINATED DEBENTURES DUE 2003

       On December 16, 1992, Old California  Federal issued $13.6 million of the
10% Subordinated  Debentures.  The remaining balance of $4.3 million was paid in
full during the fourth quarter of 2001.

       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, 2001,  the interest rate on the Floating Rate
Notes Due 2003 was 3.23%.  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.

                                      F-44
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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. The 2001 Notes matured and were paid in
full on August 1, 2001. 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 using the  interest
method.

       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.

(20)   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 DP systems 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  summarizes  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, 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
       Additional liabilities recorded            2,504                    --                 --            2,504
       Charges to liability account             (10,511)                 (241)               (25)         (10,777)
                                               --------              --------            -------         --------
Balance at December 31, 2000                     16,044                12,529                 --           28,573
       Charges to liability account              (1,836)                   --                 --           (1,836)
       Reversal of accrual                           --                   (29)                --              (29)
                                               --------              --------            -------         --------
Balance at December 31, 2001                   $ 14,208              $ 12,500            $    --         $ 26,708
                                               ========              ========            =======         ========
</TABLE>


                                      F-45
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The Bank had identified  certain of its retail  banking  facilities to 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.  The final  closure was in June 2000.  The  balance  relating to
accrued  costs  for  branch  consolidations   remaining  at  December  31,  2001
represents remaining lease obligations, net of sub-lease income.

       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  spanned all areas
and business  units of the Bank. As of December 31, 2000, all positions had been
eliminated.  The balance relating to accrued severance and termination  benefits
remaining at December  31, 2001  primarily  represents  a liability  for annuity
benefits contractually payable to former senior officers of Golden State.

       The  Bank  had  also  established  additional  liabilities  for  contract
termination costs with outside service  providers.  As of December 31, 2000, all
such contracts have been terminated.

       The table  below  provides  detail of the initial  liability  recorded in
1998,  additional  liabilities  recorded and subsequent  reversals of the excess
liability (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)
                                                            --------              -------            --------
       Balance at December 31, 1999                           62,829               20,363              83,192
       Additional liability recorded in 2000                      --                2,504               2,504
                                                            --------              -------            --------
       Balance at December 31, 2000                           62,829               22,867              85,696
       Excess liability reversed in 2001                         (29)                  --                 (29)
                                                            --------              -------            --------
          Net liability recorded from
              Golden State Acquisition                      $ 62,800              $22,867            $ 85,667
                                                            ========              =======            ========
</TABLE>

(21)   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 provides  retail  consumer and small  businesses
with: (a) deposit products (including demand, transaction and savings accounts),
(b) investment  products  (including mutual funds,  annuities and insurance) 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 and services  loans for itself and 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 interest income after
provision for loan losses,  noninterest  income,  and noninterest  expense.  The
total  of  these  three  items  is  the   reportable   segment's  net  (pre-tax)
contribution.


                                      F-46
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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.
<TABLE>
<CAPTION>
                                                                   Community          Mortgage
                                                                    Banking            Banking             Total
                                                                    -------            -------             -----
                                                                          (in thousands)
<S>                                                               <C>                <C>                <C>
      Net interest income after provision for loan losses: (a)
      2001                                                        $ 1,378,070        $  112,788         $ 1,490,858
      2000                                                          1,249,638             7,585           1,257,223
      1999                                                          1,237,672            47,814           1,285,486

      Noninterest income: (b)
      2001                                                        $   341,136        $   51,160         $   392,296
      2000                                                            245,127           242,034             487,161
      1999                                                            226,116           220,509             446,625

      Noninterest expense: (c)
      2001                                                        $   825,857        $  158,126         $   983,983
      2000                                                            767,507           150,372             917,879
      1999                                                            733,342           177,907             911,249

      Pre-tax contribution:
      2001                                                        $   893,349        $    5,822         $   899,171
      2000                                                            727,258            99,247             826,505
      1999                                                            730,446            90,416             820,862

      Segment assets:  (d)
      2001                                                        $56,289,242        $5,876,410 (e)     $62,165,652
      2000                                                         60,151,543         3,498,106 (e)      63,649,649
      1999                                                         56,784,582         3,459,880 (e)      60,244,462
</TABLE>
      ------------
      (a)    Includes  $129.4  million,  $110.4  million  and $109.6 million for
             2001, 2000 and 1999, respectively,  in earnings  credit provided to
             FNMC by the Bank,  primarily  for custodial  bank account  balances
             generated by FNMC.  Also includes  $237.0  million,  $253.2 million
             and  $235.6  million  for 2001,  2000  and 1999,  respectively,  in
             interest income and expense on intercompany loans.

      (b)    Includes  $41.4 million,  $46.4 million and $46.6 million for 2001,
             2000 and 1999, respectively, in intercompany servicing fees.

      (c)    Includes  $4.6 million for 2001,  2000 and 1999,  respectively,  in
             intercompany noninterest expense.

      (d)    Includes  $5.6  billion,  $3.1  billion  and $3.2 billion for 2001,
             2000 and 1999, respectively,  in  intercompany borrowings and $57.7
             million,  $43.6 million and  $30.2 million for 2001, 2000 and 1999,
             respectively, in intercompany deposits maintained with the Bank.

      (e)    Includes  $1.9  billion,  $1.6  billion  and $1.3 billion for 2001,
             2000 and 1999, respectively, in MSRs and the related hedge.


                                      F-47
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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>
                                                                    2001              2000             1999
                                                                 -----------       -----------      -----------
<S>                                                              <C>               <C>              <C>
      Net interest income after provision for loan losses:
      Total net interest income for reportable segments          $ 1,490,858       $ 1,257,223      $ 1,285,486
      Elimination of intersegment net interest income               (129,368)         (110,424)        (109,599)
                                                                 -----------       -----------      -----------
         Total                                                   $ 1,361,490       $ 1,146,799      $ 1,175,887
                                                                 ===========       ===========      ===========

      Noninterest income:
      Total noninterest income for reportable segments           $   392,296       $   487,161      $   446,625
      Elimination of intersegment servicing fees                     (41,378)          (46,396)         (46,631)
                                                                 -----------       -----------      -----------
         Total                                                   $   350,918       $   440,765      $   399,994
                                                                 ===========       ===========      ===========

      Noninterest expense:
      Total noninterest expense for reportable segments          $   983,983       $   917,879      $   911,249
      Elimination of intersegment expense                             (4,640)           (4,640)          (4,640)
                                                                 -----------       -----------      -----------
         Total                                                   $   979,343       $   913,239      $   906,609
                                                                 ===========       ===========      ===========

      Pre-tax contribution:
      Total contributions for reportable segments                $   899,171       $   826,505      $   820,862
      Elimination of intersegment contributions                     (166,106)         (152,180)        (151,590)
                                                                 -----------       -----------      -----------
         Total                                                   $   733,065       $   674,325      $   669,272
                                                                 ===========       ===========      ===========

      Total assets:
      Total assets for reportable segments                       $62,165,652       $63,649,649      $60,244,462
      Elimination of intersegment borrowings                      (5,617,314)       (3,089,139)      (3,195,180)
      Elimination of intersegment deposits                           (57,669)          (43,632)         (30,222)
                                                                 -----------       -----------      -----------
         Total                                                   $56,490,669       $60,516,878      $57,019,060
                                                                 ===========       ===========      ===========
</TABLE>


                                      F-48
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(22) COMPREHENSIVE INCOME
     --------------------

     Comprehensive income includes certain revenue, expenses, gains, and losses,
such as unrealized gains and losses on available-for-sale  securities, which are
required  to be reported as a separate  component  of the equity  section of the
balance sheet rather than in net income.

       The tax effect  associated  with unrealized gain (loss) on securities for
the years ended  December 31, 2001,  2000 and 1999 is  summarized as follows (in
thousands):
<TABLE>
<CAPTION>
                                                                             Before-tax      Tax benefit      Net-of-tax
                                                                               amount         (expense)         amount
                                                                             ----------      -----------      ----------
<S>                                                                          <C>              <C>             <C>
  2001
  ----
  Unrealized gain on securities:
      Unrealized holding gain arising during the period                      $ 223,104        $ (91,138)      $ 131,966
      Less: reclassification adjustment for gain in net income                 (22,852)           9,335         (13,517)
  Amortization of market adjustment for securities transferred
      from available-for-sale to held-to-maturity                               49,025          (20,027)         28,998
  Transition adjustment upon adoption of SFAS No. 133                          (75,481)          30,834         (44,647)
  Change in fair value of derivatives used for cash flow hedges               (126,343)          51,611         (74,732)
                                                                             ---------        ---------       ---------
          OCI                                                                $  47,453        $ (19,385)      $  28,068
                                                                             =========        =========       =========

  2000
  ----
  Unrealized gain on securities:
      Unrealized holding gain arising during the period                      $ 299,092        $(128,363)      $ 170,729
      Less: reclassification adjustments for losses in net income               16,866           (6,890)          9,976
  Amortization of market adjustment for securities transferred
      from available-for-sale to held-to-maturity                                7,826           (3,196)          4,630
                                                                             ---------        ---------       ---------
          OCI                                                                $ 323,784        $(138,449)      $ 185,335
                                                                             =========        =========       =========

  1999
  ----
  Unrealized loss on securities:
      Unrealized holding loss 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                                           $(486,149)       $ 204,789       $(281,360)
                                                                             =========        =========       =========
</TABLE>

(23) MINORITY INTEREST
     -----------------

     REIT PREFERRED STOCK

     In November 1996, the Bank formed  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 REIT for federal
income tax purposes.  All of Preferred  Capital Corp.'s common stock is owned by
the Bank. FNMC services  Preferred Capital Corp.'s mortgage assets pursuant to a
subservicing agreement.

     On January 31, 1997,  Preferred Capital Corp.  publicly issued $500 million
of its 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
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 2001,
2000 and 1999 were $27.0 million, $27.0 million and $26.4 million, respectively,
net of the income tax benefit.


                                      F-49
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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 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.

     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.  During 2001, the Bank purchased the remaining 20% interest in Auto One for
$9 million, which was recorded as goodwill.

     11 1/2% BANK PREFERRED STOCK

     During the year ended  December  31,  1999,  all of the  remaining  318,341
outstanding  shares of 11 1/2% Bank Preferred Stock were redeemed by GS Holdings
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.

     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% Bank
Preferred  Stock for each year ended  December 31, 2001,  2000 and 1999 totalled
$34.6 million,  of which $1.8 million was included in minority  interest expense
in 1999.

     10 5/8% BANK PREFERRED STOCK

     During the year ended  December  31,  1999,  all of the  remaining  607,299
outstanding  shares of 10 5/8% Bank Preferred Stock were redeemed by GS Holdings
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.


                                      F-50
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Cash dividends on the 10 5/8% Bank 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% Bank Preferred
Stock for each year  ended  December  31,  2001,  2000 and 1999  totalled  $18.3
million.

     PRE-MERGER TAX BENEFITS

     During  2001,  a  provision  in lieu of income  taxes of $3.2  million  was
recorded due to the  utilization  of net operating  losses of a subsidiary  made
available as a result of the subsidiary's  liquidation  into California  Federal
Bank.  These net  operating  losses are tax  benefits  retained by the  previous
owners  of FN  Holdings  pursuant  to the  Golden  State  Merger  agreement.  In
addition,  during 2001,  minority  interest income of $110 thousand was recorded
representing  post-merger  interest  expense  resulting  from a tax audit of Old
California Federal. As a result of this transaction, Issuable Shares was reduced
by $110 thousand.

     During  2000 and 1999,  minority  interest  expense of $161.7  million  and
$122.7  million,  respectively,  was  recorded  based upon  changes to estimated
pre-merger tax benefits  retained by GSB  Investments  and Hunter's Glen.  These
amounts  were fully  offset by income tax  benefits to Golden  State in the same
periods. See note 28.

(24) STOCKHOLDERS' EQUITY
     --------------------

     COMMON STOCK

     The Company has 250 million  shares of common stock  authorized  with a par
value of $1.00 per share.  At December 31, 2001,  GSB  Investments  beneficially
owned  42,949,525  shares or 31.64% of Golden  State,  and Gerald J.  Ford,  the
Chairman of the Board,  Chief Executive  Officer and a director of Golden State,
individually  and  through  Hunter's  Glen/Ford,  Ltd.,  a  limited  partnership
controlled by Mr. Ford, beneficially owned 19,961,408 shares or 14.68% of Golden
State.

     Golden State common shares were issued  during 2001,  2000 and 1999 for the
exercise of stock options and warrants,  and for restricted  stock. See note 29.
In  2001,  2000 and  1999,  Golden  State  common  shares  were  distributed  in
settlement of Issuable Shares. See "Issuable Shares."

     Holders of Golden  State  Common  Stock are  entitled to receive  dividends
when,  as and if declared by the Board of Directors of the Company.  During 2001
and 2000, cash dividends on Golden State Common Stock totalled $54.1 million and
$26.4 million, respectively. No dividends were paid in 1999.

     At December 31, 2001, 2000 and 1999,  there were  135,756,046,  134,320,658
and 122,242,588  shares,  respectively,  of Golden State Common Stock issued and
outstanding (net of treasury stock), which included 202,365,  246,756 and 56,908
shares, respectively, of restricted stock. The effect of these restricted shares
is included in the calculation of diluted  earnings per share.  See notes 29 and
35.

     ISSUABLE SHARES

     In accordance with the Golden State Merger agreement,  on January 21, 1999,
a total of  5,540,319  shares  of  Golden  State  Common  Stock,  valued at $100
million,  were issued  (4,432,255  shares to a subsidiary of Mafco  Holdings and
1,108,064  shares to Hunter's Glen) as a result of net tax benefits  realized by
California Federal with respect to its gain from the Florida Branch Sale and the
receipt of federal  income tax refunds in excess of the amount  reflected on the
Company's consolidated balance sheets. The value of the remaining 147,677 shares
totalling $2.7 million was reflected in additional  paid-in capital prior to its
reclassification in 1999 to Issuable Shares.

     Based upon the Company's 1999 taxable income as filed in its federal income
tax  return,   shares  valued  at  $101.3   million   (4,928,901   shares)  were
contractually   issuable  during  the  year  ended  December  31,  1999  to  GSB
Investments  and  Hunter's  Glen.  The  number of shares was based on the use of
pre-merger  net operating  losses and other net deferred tax assets,  based upon
actual taxable  earnings and the average share price during the year. On May 22,
2000, the remaining 147,677 common shares from 1998, valued at $2.7 million, and
a portion of the 1999

                                      F-51
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

contractually  Issuable Shares of Golden State common stock (4,735,227  shares),
valued at $97.3 million, were issued (in total, 3,906,323 shares to a subsidiary
of Mafco  Holdings and 976,581  shares to Hunter's  Glen) as a result of net tax
benefits realized by California  Federal.  The remaining shares allocable to GSB
Investments,   consisting  of  154,939  shares  valued  at  $3.2  million,  were
extinguished  and 38,734  shares due to Hunter's  Glen,  valued at $0.8 million,
were issued in January 2001 (as discussed below).

     During the  fourth  quarter  of 1999 and the  second  quarter of 2000,  the
Company recorded $4.5 million and $1.4 million, respectively, 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.  These  transactions
were recorded as charges to minority interest expense.

     On  August  22,  2000,  the  Company  paid GSB  Investments  $85.0  million
resulting in the  extinguishment  of GSB  Investments'  right to receive  $100.0
million of Issuable Shares calculated in accordance with the Golden State Merger
agreement.  These  Issuable  Shares  related  to tax  benefits  retained  by GSB
Investments  for  pre-merger  net operating  losses to be utilized in respect of
2000 by the  Company.  In  addition,  the  Company  paid  $36.0  million  to GSB
Investments  in  January  2001  in  exchange  for  the   extinguishment  of  GSB
Investments'  right to receive  $38.3 million of Issuable  Shares  calculated in
accordance with the Golden State Merger agreement.  These Issuable Shares relate
to 1999 carryover  benefits and the federal tax refund and interest  received by
the Company in April  2000.  A discount  of $1.1  million  was  recorded on this
liability and was  recognized in interest  income  ratably  through  January 16,
2001,  using  the  interest  method.   Expenses   totalling  $4.0  million  were
capitalized   during  the  third  quarter  of  2000  in  connection   with  this
transaction;  $1.0 million of this amount was not utilized and was added back to
stockholders' equity during 2001.

     Based upon the Company's 2000 taxable income as filed in its federal income
tax  return,   shares  valued  at  $204.7  million   (10,683,148   shares)  were
contractually   issuable  during  the  year  ended  December  31,  2000  to  GSB
Investments  and  Hunter's  Glen.  The  number of shares was based on the use of
pre-merger  net operating  losses and other net deferred tax assets,  based upon
actual taxable earnings and the average share price during the year.

     On January  23,  2001,  458,647  and 38,734  common  shares  valued at $8.8
million and $0.8 million, respectively,  were issued to Hunter's Glen for an Old
California  Federal  tax  refund  and  related  interests  and for tax  benefits
utilized for the year ended  December 31, 1999.  In addition,  on July 17, 2001,
543,817  common shares valued at $10.4 million were issued to Hunter's Glen as a
result of net tax benefits  realized by the Company for the year ended  December
31, 2000.

     During 2001, the Company  recorded $14.0 million in Issuable Shares related
to  additional  pre-merger  tax benefits  retained by the previous  owners of FN
Holdings,  GSB Investments and Hunter's Glen. These additional benefits resulted
from  imputed  interest  deductions  on benefits  payable to the former  owners,
additional   operating  losses  made  available  as  a  result  of  a  corporate
dissolution   and  also  included   adjustments   for  prior  years'  tax  audit
settlements.

     On July 27, 2001, the Company paid GSB Investments  $64.0 million resulting
in the  extinguishment  of GSB  Investments'  right to receive  $75.0 million of
Issuable Shares calculated in accordance with the Golden State Merger agreement.
These Issuable  Shares related to tax benefits  retained by GSB  Investments for
pre-merger  net  operating  losses  to be  utilized  in  respect  of 2001 by the
Company.  Expenses  totalling  $0.7  million were  capitalized  during the third
quarter of 2001 in connection with this transaction.

     During  2001 and 2000,  the  Company  recorded  $98.2  million  and  $162.6
million,  respectively,  of Issuable  Shares  related to the Company's  pro-rata
usage in 2001 and 2000 of  pre-merger  tax  benefits  retained  by the  previous
owners of FN Holdings.  Consistent with the Golden State Merger agreement, these
amounts are payable to GSB Investments and Hunter's Glen as Issuable Shares.

     Issuable Shares are included,  as appropriate,  in the calculation of basic
and diluted earnings per share. See note 35.


                                      F-52
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     ADDITIONAL PAID-IN CAPITAL

     During 2001, the Company recorded  reductions to additional paid-in capital
of $24.7 million  representing  pro-rata  adjustments to pre-merger tax benefits
retained by the previous  owners of FN Holdings.  In addition,  during 2001, the
Company  recorded $19.0 million  related to the  distribution of Issuable Shares
and  additional  paid-in  capital also  increased by $11.0 million  representing
Issuable Shares extinguished in excess of consideration  paid,  partially offset
by $0.7  million in  capitalized  transaction  expenses.  Also during  2001,  an
increase  of $0.4  million  was  made to  Issuable  Shares  as a  result  of the
finalization of Old Cal Fed tax liabilities  for the years  1993-1996.  Activity
during 2001 also included  increases of $7.4 million recorded in connection with
the exercise of 320,144 stock  options and $3.4 million  recorded to reflect the
impact of restricted common stock.

     During 2000, the Company recorded  reductions to additional paid-in capital
of $38.1 million  representing  Issuable Shares for interest on a tax refund and
$29.6 million  representing  pro-rata  adjustments  to  pre-merger  tax benefits
retained by the previous owners of FN Holdings. The tax benefits were originally
recorded as an adjustment to goodwill  related to the Cal Fed  Acquisition.  See
note 28. In addition,  additional  paid-in  capital  increased by $18.4  million
during  2000,   representing   Issuable   Shares   extinguished   in  excess  of
consideration paid, partially offset by $4.0 million in capitalized  transaction
expenses.

     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

     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 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
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,
recorded as a contribution  receivable,  increased  retained earnings during the
year ended December 31, 1998 and  fluctuates  based upon the market value of the
LTWTMs.  At December 31, 1999, the  equalization  adjustment was written down to
its fair value of $17.1 million but was subsequently  increased to $20.6 million
at December 31, 2000. At December 31, 2001,  the inherent value of the amount to
be contributed  by GSB  Investments  and Hunter's Glen was $21.2 million,  which
resulted in increases in retained  earnings and the  contribution  receivable of
$0.7 million.

     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 28.

     TREASURY STOCK

     At December 31, 2001, the Company had 16,408,120 shares of its common stock
in treasury at an aggregate cost of $19.29 per share.

     During the fourth  quarter of 2001,  the board of  directors of the Company
authorized  the  repurchase  during 2002 of up to $250  million of all  publicly
traded securities issued or issuable by the Company and any of its subsidiaries.

     During the fourth  quarter of 2000,  the board of  directors of the Company
authorized  a share  repurchase  program for 2001.  The program  authorized  the
repurchase of up to $250 million of all publicly traded securities issued by the
Company and any of its subsidiaries  beginning  January 2, 2001 through December
31, 2001.


                                      F-53
<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 share  repurchase  program for 2000.  The program  authorized  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 years  ended  December  31,  2001,  2000 and 1999,  the  Company
repurchased  25,062,  3,916,411 and 12,463,800 shares,  respectively,  of common
stock at an aggregate  purchase  price of $0.7  million,  $63.7 million and $250
million,  respectively,  or an average  of $29.87,  $16.27 and $20.08 per share,
respectively. During the year ended December 31, 2001, no shares were issued out
of treasury. During the years ended December 31, 2000 and 1999, shares totalling
11,450 and 75,697, 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 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 of the Bank is at least equal to the
Minimum Common Equity Amount. The Federal thrift laws and regulations of 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.

     On March 1, June 1,  September 4 and  December 3, 2001,  Golden  State paid
dividends of $0.10 per common share  totalling  $13.5  million,  $13.6  million,
$13.5 million and $13.5 million on each date,  to  stockholders  of record as of
February 2, May 7, August 6 and November 5, 2001, respectively.

     On September 1 and December 1, 2000,  Golden State paid  dividends of $0.10
per common share  totalling  $13.0 million and $13.4 million,  respectively,  to
stockholders of record as of July 31 and November 3, 2000,  respectively.  There
were no dividends on the common stock of Golden State during 1999.

     As of December 31,  2001,  the Bank could pay  dividends of $501.2  million
without the consent of the OTS and it could pay dividends of $896.6  million and
still be  "well-capitalized."  As of December  31, 2001,  GS Holdings  could pay
dividends,  in  addition  to those  already  paid,  of  $666.3  million  without
violating the most restrictive terms of the GS Escrow Notes indenture.

     WARRANTS

     The Company had  Warrants  outstanding  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) 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 had also issued  transferable  Standby  Warrants.  Each Standby
Warrant  entitled  the holder  thereof to purchase one share of common stock and
one LTW(TM) for the purchase price of $12.00 per share prior to their expiration
on August 21, 2000. The Standby  Warrants  traded on the NASDAQ  national market
system under the ticker symbol "GSBNW." During 2000, 10,753,859 Standby Warrants
were  exercised and 14,294  expired,  resulting in an increase in  stockholders'
equity of $129.0 million.


                                      F-54
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(25) LITIGATION TRACKING WARRANTS
     ----------------------------

     In  connection  with  the  Glendale  Goodwill   Litigation,   Golden  State
distributed  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.

     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, 2001, 83,616,460 LTW(TM)s were issued.

     The LTW(TM)s  trade on the NASDAQ  national  market system under the ticker
symbol "GSBNZ."

(26) 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 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, 2001,  that the Bank meets all capital  adequacy  requirements  to
which it is subject.

     As of December 31, 2001 and 2000, 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-55
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     The Bank's  actual  capital  amounts and ratios as of December 31, 2001 and
2000 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
             2001                        Amount         Assets       Amount       Assets        Amount        Assets
------------------------------------     ------         ------       ------       ------        ------        ------
<S>                                    <C>              <C>        <C>            <C>         <C>             <C>
Stockholder's equity of the Bank
    per financial statements           $4,124,022
Minority interest                         500,000
Net unrealized holding gain
    on securities                         (57,564)
Net unrealized holding loss
    on derivative instruments             119,379
                                       ----------
                                        4,685,837
Adjustments for tangible and
    leverage capital:
    Goodwill litigation assets           (158,834)
    Non-qualifying MSRs                  (148,617)
    Intangible assets                    (640,843)
    Non-includable subsidiaries           (68,108)
                                       ----------
Total tangible capital                 $3,669,435        6.62%     $  831,857      1.50%             N/A        N/A
                                       ==========                  ==========
Total leverage capital                 $3,669,435        6.62%     $2,218,285      4.00%      $2,772,857       5.00%
                                       ==========                  ==========                 ==========
Tier 1 risk-based capital              $3,669,435       11.54%            N/A       N/A       $1,902,470       6.00%
                                       ==========                                             ==========

Adjustments for risk-based
    capital:
    Qualifying subordinated
              debt                         73,091
    General loan loss allowance           397,409
    Qualifying portion of
              unrealized holding gains        111
    Low level recourse                     (9,301)
    Assets required to be
              deducted                    (16,130)
                                       ----------
    Total risk-based capital           $4,114,615       12.98%     $2,536,627      8.00%      $3,170,784      10.00%
                                       ==========                  ==========                 ==========
</TABLE>


                                      F-56
<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
             2000                        Amount         Assets       Amount       Assets        Amount        Assets
------------------------------------     ------         ------       ------       ------        ------        ------
<S>                                    <C>              <C>        <C>            <C>         <C>             <C>
Stockholder's equity of the Bank
        per financial statements       $4,165,973
Minority interest                         500,000
Net unrealized holding loss
      on securities                        89,874
                                       ----------
                                        4,755,847
Adjustments for tangible and
        leverage capital:
        Goodwill litigation assets       (158,809)
        Non-qualifying MSRs               (83,941)
        Intangible assets                (691,288)
        Non-includable subsidiaries       (62,592)
                                       -----------
Total tangible capital                 $3,759,217        6.30%     $  894,475      1.50%             N/A        N/A
                                       ==========                  ==========
Total leverage capital                 $3,759,217        6.30%     $2,385,268      4.00%      $2,981,585       5.00%
                                       ==========                  ==========                 ==========
Tier 1 risk-based capital              $3,759,217       11.58%            N/A       N/A       $1,942,330       6.00%
                                       ==========                                             ==========

Adjustments for risk-based
        capital:
        Qualifying subordinated
              debt                         91,985
        General loan loss allowance       405,857
        Qualifying portion of
              unrealized holding gains        145
        Low level recourse                 (9,994)
        Assets required to be
              deducted                    (11,770)
                                       ----------
        Total risk-based capital       $4,235,440       13.08%     $2,589,773      8.00%      $3,237,216      10.00%
                                       ==========                  ==========                 ==========
</TABLE>

(27)   OTHER NONINTEREST EXPENSE
       -------------------------

     Other noninterest expense amounts are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                        Year ended December 31,
                                                                                  ----------------------------------
                                                                                    2001         2000         1999
                                                                                  --------     --------     --------
<S>                                                                               <C>          <C>          <C>
      Other noninterest expense:
          Telephone                                                               $ 27,614     $ 24,574     $ 26,088
          Marketing                                                                 37,550       35,426       31,994
          DP systems expense                                                        25,600       24,864       23,443
          Savings Association Insurance Fund deposit insurance premium               4,521        4,792       14,230
          Insurance and surety bonds                                                 8,072        7,198        7,412
          Postage                                                                   14,638       13,116       13,021
          Printing, copying and office supplies                                     15,205       13,541       12,968
          Employee travel                                                           14,191       15,183       13,855
          Other losses                                                              14,592        8,672       18,703
          Merger and integration costs                                                  --           --        7,747
          Other expense                                                             75,633       61,265       63,960
                                                                                  --------     --------     --------
                                                                                  $237,616     $208,631     $233,421
                                                                                  ========     ========     ========
</TABLE>


                                      F-57
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(28) INCOME TAXES
     ------------

     Total income tax expense was allocated as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                       Year ended December 31,
                                                                                  ----------------------------------
                                                                                    2001         2000         1999
                                                                                  --------     --------     --------
<S>                                                                               <C>          <C>         <C>
  Income before income taxes, minority interest, extraordinary items
       and cumulative effect of change in accounting principle                    $291,995     $136,781    $ 186,483
  Extraordinary items and cumulative effect of change in accounting
       principle                                                                    (1,072)       2,083        1,801
  Net unrealized holding gain (loss) on securities available for sale               19,385      138,449     (204,789)
  Stockholders' equity, for compensation expense for tax purposes
       in excess of amounts recognized for financial reporting purposes              1,310          526        2,246
  Provision in lieu of income taxes - minority interest                              3,137      161,688      122,684
                                                                                  --------     --------    ---------
                                                                                  $314,755     $439,527    $ 108,425
                                                                                  ========     ========    =========
</TABLE>

     Income tax expense  attributable  to income before  income taxes,  minority
interest,  extraordinary  items and  cumulative  effect of change in  accounting
principle consisted of (in thousands):
<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                            ----------------------------------
                                                              2001         2000         1999
                                                            --------     --------     --------
<S>                                                         <C>          <C>          <C>
      Federal
          Current                                           $151,181     $ 48,867     $ 31,013
          Deferred                                           109,716       22,114       74,722
                                                            --------     --------     --------
                                                             260,897       70,981      105,735

      State and local
          Current                                             31,031       48,783       60,690
          Deferred                                                67       17,017       20,058
                                                            --------     --------     --------
                                                              31,098       65,800       80,748
                                                            --------     --------     --------

      Income tax expense before
          provision in lieu of income taxes                  291,995      136,781      186,483
      Provision in lieu of income taxes -
          minority interest                                    3,137      161,688      122,684
                                                            --------     --------     --------
      Total income tax expense                              $295,132     $298,469     $309,167
                                                            ========     ========     ========
</TABLE>

     The  consolidated  income tax expense differs from the amounts  computed by
applying the statutory federal corporate tax rate of 35% for 2001, 2000 and 1999
to income  before  income  taxes,  minority  interest,  extraordinary  items and
cumulative effect of change in accounting principle as follows (in thousands):
<TABLE>
<CAPTION>
                                                                         Year ended December 31,
                                                                    ----------------------------------
                                                                      2001         2000         1999
                                                                    --------     --------     --------
<S>                                                                 <C>          <C>          <C>
      Computed "expected" income tax expense                        $256,573     $236,014     $234,245
      Increase in taxes resulting from:
          State income taxes, net of federal income
                tax benefit                                           20,214       42,770       52,486
          Tax exempt income                                           (1,014)        (966)      (1,010)
          Amortization of excess cost over fair
                value of net assets acquired                          18,395       19,460       22,355
          Other                                                          964        1,191        1,091
                                                                    --------     --------     --------
                                                                    $295,132     $298,469     $309,167
                                                                    ========     ========     ========
</TABLE>


                                      F-58
<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):
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                          ------------------------------
                                                                            2001                  2000
                                                                          --------              --------
<S>                                                                       <C>                   <C>
      Deferred tax assets:
          Net operating loss carryforwards                                $    972              $140,381
          Foreclosed real estate                                                 9                   445
          Loans receivable                                                 154,758               151,555
          Miscellaneous accruals                                            36,040                48,497
          Accrued liabilities                                               74,894                39,002
          State taxes                                                       53,895                73,431
          Purchased MSRs                                                    75,301                93,723
          Alternative minimum tax credit and other tax
              credit carryforwards                                         135,324               108,087
          Unrealized losses on securities available for sale                42,684                62,069
          Other                                                              9,157                10,537
                                                                          --------              --------
               Total gross deferred tax assets                             583,034               727,727
               Less valuation allowance                                    (44,031)              (39,496)
                                                                          --------              --------
               Net deferred tax assets                                     539,003               688,231
                                                                          --------              --------

      Deferred tax liabilities:
          MSRs                                                             137,311               177,600
          Purchase accounting adjustments                                    1,708                 7,684
          FHLB stock                                                       208,311               173,338
          Deferred interest                                                  1,461                   322
          Goodwill litigation                                               43,171                43,171
          Contractual obligations                                           19,250                19,250
          Deferred loan fees                                               192,298               198,934
          Other                                                              4,175                 7,446
                                                                          --------              --------
               Net deferred tax liabilities                                607,685               627,745
                                                                          --------              --------
               Total deferred tax (liabilities) and assets                $(68,682)             $ 60,486
                                                                          ========              ========
</TABLE>

     Subsequently  recognized tax benefits  relating to the valuation  allowance
for deferred tax assets as of December 31, 2001 will be allocated as  follows(in
thousands):
<TABLE>
<CAPTION>
<S>                                                                               <C>
     Income tax benefit that would be reported in the consolidated statement
        of earnings as minority interest:  provision in lieu of income taxes      $28,226
     Goodwill and other noncurrent intangible assets                               15,805
                                                                                  -------
                                                                                  $44,031
                                                                                  =======
</TABLE>

     The net change in the total valuation allowance for the year ended December
31,  2001  was an  increase  of $4.5  million.  The  increase  in the  valuation
allowance is  attributable  to additional net operating  losses not likely to be
realized.

     Based  on  favorable  resolutions  of  federal  income  tax  audits  of Old
California  Federal and Glendale Federal,  and the status of Mafco's,  including
the Company's,  audits for the years 1991 through 1995,  management  changed its
judgment about the realizability of the Company's deferred tax asset and reduced
its valuation  allowance by $211.7  million during 2000. As a result of reducing
the valuation  allowance,  income tax expense was reduced by $161.7  million and
goodwill was reduced by $50.0 million.  Because these tax benefits accrue to the
previous owners of FN Holdings under the Golden State Merger agreement, minority
interest:  provision  in lieu of income  tax  expense  was  increased  by $161.7
million,  an  amount  equal  to the  reduction  in  income  tax  expense.  These
adjustments had no impact on net income available to common shareholders.


                                      F-59
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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.

     At December 31, 2001, the Company had regular NOL carryforwards for federal
income tax purposes of approximately  $2.8 million which are available to offset
future federal taxable income,  if any,  through 2007. In addition,  the Company
had alternative minimum tax credit carryforwards of approximately $126.6 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.

     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, 2001, the amount of
those  reserves was $305 million.  The amount of the  unrecognized  deferred tax
liability  at  December  31,  2001  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 the greater of current or  accumulated  earnings
and profits, and other distributions,  dissolution, liquidation or redemption of
stock, excluding preferred stock meeting certain conditions.

(29) 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.

     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, 2001 and 2000 (in thousands):
<TABLE>
<CAPTION>
                                                                           Non-Qualified Plans          Qualified Plan
                                             Postretirement Benefits        Pension Benefits           Pension Benefits
                                             ----------------------      ----------------------     --------------------
                                                2001         2000          2001          2000         2001        2000
                                                ----         ----          ----          ----         ----        ----
<S>                                          <C>           <C>           <C>           <C>          <C>         <C>
CHANGE IN BENEFIT OBLIGATION
----------------------------
Benefit obligation at beginning of year      $ 10,370      $  8,248      $ 15,732      $ 15,355     $103,591    $111,923
Service cost                                      365           601            --            --           --          --
Interest cost                                     788           624         1,155         1,041        7,956       7,933
Actuarial (gain) loss                            (105)        1,279         1,065         1,229       14,452      (7,769)
Benefits paid                                    (407)         (382)       (1,646)       (1,893)      (7,600)     (8,496)
                                             --------      --------      --------      --------     --------    --------
Benefit obligation at end of year            $ 11,011      $ 10,370      $ 16,306      $ 15,732     $118,399    $103,591
                                             ========      ========      ========      ========     ========    ========

CHANGE IN PLAN ASSETS
---------------------
Fair value at beginning of year              $     --      $     --      $     --      $     --     $133,312    $145,777
Actual return on plan assets                       --            --            --            --       (5,590)     (3,969)
Employer contribution                             407           382         1,647         1,893           --          --
Benefits paid                                    (407)         (382)       (1,647)       (1,893)      (7,600)     (8,496)
                                             --------      --------      --------      --------     --------    --------
Fair value at end of year                    $     --      $     --            --      $     --     $120,122    $133,312
                                             ========      ========      ========      ========     ========    ========

Funded status                                $(11,011)     $(10,370)     $(16,306)     $(15,732)    $  1,723    $ 29,721
Unrecognized actuarial loss                        --            --            --            --       30,138      (1,565)
                                             --------      --------      --------      --------     --------    --------
Prepaid (accrued) benefit cost
        recognized in the consolidated
        balance sheet                        $(11,011)     $(10,370)     $(16,306)     $(15,732)    $ 31,861    $ 28,156
                                             ========      ========      ========      ========     ========    ========
</TABLE>


                                      F-60
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     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,                           2001         2000        2001         2000         2001        2000
----------------------------------              ----         ----        ----         ----         ----        ----
<S>                                             <C>          <C>         <C>          <C>          <C>
Discount rate                                   7.00%        7.75%       7.00%        7.75%        7.00%       7.50%
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 2002 is
assumed to be 9%, the  average  trend rate is assumed to be 7% and the  ultimate
trend rate is assumed to be 5%, which will be reached in 9 years.

     At December 31, 2001,  an increase of 1% in the health care cost trend rate
would cause the  accumulated  postretirement  benefit  obligation to increase by
$1.2  million,  and the service and interest  cost to increase by less than $0.2
million.  At December  31,  2001, a decrease of 1% in the health care cost trend
rate would cause the accumulated  postretirement  benefit obligation to decrease
by $1.0 million and the service and interest costs to decrease by $0.1 million.

     The net periodic  benefit cost for the years ended December 31, 2001,  2000
and 1999 included the following components (in thousands):
<TABLE>
<CAPTION>
                                                                                         Qualified and
                                                                                         Non-Qualified
                                                   Postretirement Benefits              Pension Benefits
                                                 ---------------------------      ------------------------------
                                                  2001       2000      1999         2001       2000       1999
                                                  ----       ----      ----         ----       ----       ----
<S>                                              <C>        <C>       <C>         <C>        <C>        <C>
      Service cost                               $  365     $  601    $ 612       $     --   $     --   $     --
      Interest cost                                 788        624      539          9,111      8,974      9,059
      Expected return on plan assets                 --         --       --        (11,661)   (12,895)   (12,320)
      Recognized net actuarial (gain) loss         (105)     1,279     (717)         1,065      1,228      1,164
                                                 ------     ------    -----       --------   --------   --------
         Net periodic cost (income)              $1,048     $2,504    $ 434       $ (1,485)  $ (2,693)  $ (2,097)
                                                 ======     ======    =====       ========   ========   ========
</TABLE>

     DEFINED CONTRIBUTION PLAN

     The Bank offers a defined contribution plan, 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 IRS.
The Bank's matching  contribution  provides for 100% of the first 3% of employee
deferrals  and  beginning  in  January  2000,  50% of the  next  2% of  employee
deferrals.  The annual  discretionary  employer profit sharing contribution is a
maximum of 2.5% of eligible compensation. It can be declared at any level in the
range from 0% to 2.5%.  Prior to January  2000,  the  maximum was 3% of employee
deferrals.  Employees vest immediately in their own deferrals, employer matching
contributions and employer profit sharing contributions.  Prior to January 2000,
employer matching  contributions vested based on completed years of service. The
Bank's  contributions  to such plan totalled  $19.3  million,  $16.7 million and
$14.6  million  for  the  years  ended   December  31,  2001,   2000  and  1999,
respectively.

     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 221,315 shares for $6.2 million
in 2001,  343,026  shares for $6.3  million in 2000 and 341,024  shares for $6.9
million in 1999.  Sales by the plan of Golden  State common  shares  during 2001
were 153,179  shares for $4.4 million;  217,166  shares for $4.5 million in 2000
and 52,126  shares  for $1.1  million  were sold by the plan in 1999.  Effective
March 1, 1999, the plan was also amended to reduce the


                                      F-61
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

     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. In the second quarter of 2000, Glendale Federal's plan was merged with the
Bank's plan. The fair value of the assets transferred was $40 million.

     STOCK PLANS

     At December 31, 2001,  2000 and 1999, the Bank  administered  the following
stock-based  compensation  plans:  pre-merger stock option plans and the Omnibus
Stock Plan.

     In connection with the Glen Fed Merger,  the Bank administered 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 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
       Granted                                          1,350,850         $12.94 - $21.31         $14.04
       Cancelled or expired                              (101,200)        $14.00 - $28.50         $21.49
       Exercised                                         (139,334)        $ 9.00 - $28.50         $17.84
                                                        ---------
       Outstanding at December 31, 2000                 3,671,398         $ 9.00 - $35.00         $19.06
       Granted                                          1,416,100         $24.15 - $30.80         $28.09
       Cancelled or expired                               (51,755)        $14.00 - $35.00         $22.59
       Exercised                                         (320,144)        $ 9.00 - $28.50         $19.22
                                                        ---------
       Outstanding at December 31, 2001                 4,715,599         $ 9.00 - $35.00         $21.59
                                                        =========
</TABLE>


                                      F-62
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Information  about stock  options  outstanding  at December 31, 2001 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               247,750               2.8                $11.27           247,750            $11.27
   $12.94 - $17.75             1,553,334               7.3                $14.54           717,709            $15.16
   $18.75 - $23.50             1,251,665               7.4                $23.48           834,167            $23.49
   $24.15 - $35.00             1,662,850               8.6                $28.31           318,700            $28.89
</TABLE>

     At December 31, 2001,  2000 and 1999,  2,118,326,  1,504,098  and 1,231,082
options  were  exercisable,  respectively,  and  the  related  weighted  average
exercise prices were $20.05, $20.95 and $19.83, respectively.

       No  compensation  cost was  recognized  by the Company for stock  options
granted  during 2001,  2000 and 1999,  in accordance  with the  intrinsic  value
accounting  methodology  prescribed in APB Opinion No. 25, whereby  compensation
expense to employees is determined based upon the excess,  if any, of the market
price of Golden State's common stock at the  measurement  date over the exercise
price of the award. At December 31, 2001,  2000 and 1999,  options to acquire an
equivalent of 861,916,  1,038,416 and 1,231,082  LTW(TM)s were outstanding under
all plans.

     If compensation  cost during 2001, 2000 and 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 $401.5  million,  $346.3 million and $321.3  million,
respectively,  basic earnings per common share would have been $2.82,  $2.49 and
$2.46,  respectively,  and  diluted  earnings  per common  share would have been
$2.80,  $2.43 and  $2.29,  respectively.  The fair  values of the  options  were
estimated at the grant date using the Black-Scholes  option pricing model, which
includes the following  assumptions  used for the stock options  awarded  during
2001,  2000 and  1999:  risk-free  interest  rate of  5.05%,  6.60%  and  5.60%,
respectively;  expected  option  life of seven  years in  2001,  2000 and  1999;
expected  volatility of 52.83%,  52.54% and 41.30%,  respectively;  and expected
dividend yield of 1.43% in 2001,  .01% in 2000 and no dividends in 1999.

     The weighted  average grant date fair value of the options  granted  during
2001, 2000 and 1999 were $14.61, $8.68 and $12.45 per share,  respectively.  The
exercise  price of each option equals the market price of Golden  State's Common
Stock on the date of the grant.

     On January  22,  2001,  January  24,  2000 and July 19,  1999,  the Company
awarded  99,108,   220,327  and  56,908  shares  of  restricted   common  stock,
respectively,  to certain of its employees. The market value on the date of each
award was $26.38, $14.00 and $22.38 per share,  respectively.  These shares vest
over two years in 50%  increments on the  anniversary  of the grant date,  based
upon the continued  service of the employee.  The compensation  expense based on
the stock price on the date of these awards was  recognized  on a straight  line
basis over the vesting period for each tranche of the award with a corresponding
increase to additional  paid-in  capital.  In addition,  dividends on restricted
stock are  recorded as  compensation  expense with a  corresponding  increase to
additional  paid-in  capital.  During 2001,  2000 and 1999,  $1.8 million,  $1.9
million and $0.5 million,  respectively,  in compensation expense was recognized
related to such awards.  At December 31, 2001, 2000 and 1999,  202,365,  246,756
and 56,908 restricted shares, respectively,  were outstanding, of which 143,499,
28,454 and zero shares, respectively,  were vested. These restricted shares have
full voting and dividend  rights and are included in common  shares  outstanding
and in the calculation of diluted earnings per share. See note 35.


                                      F-63
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(30) INCENTIVE PLANS
     ---------------

     On May 17, 1999, the Golden State Bancorp Inc. 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 29.
Compensation  expense  totalling  $10.0  million,  $8.7 million and $9.1 million
relating to the ECP was recorded  during the years ended December 31, 2001, 2000
and 1999, respectively.

       Pursuant to the ECP, the Golden State  Bancorp  Inc.  LTIP was  approved,
providing  incentive awards to senior  executives of the Company based solely on
the performance of the Company's Common Stock over a three-year  period.  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 29. Compensation  expense
totalling $5.7 million,  $4.1 million and $2.0 million  relating to the LTIP was
recorded during the years ended December 31, 2001, 2000 and 1999,  respectively.
During the year ended December 31, 2001, $6.0 million in expense relating to the
LTIP was also reversed due to specific  stock  performance  triggers of the plan
not being met during the prescribed period.

       The DECP of the Bank provided for certain payments to participants in the
DECP for annual incentives and in the event of a change of control of California
Federal.  The annual  incentive  feature of the DECP was terminated in 1998 upon
the consummation of the merger of California  Federal and Glendale Federal,  and
all  amounts  were paid out.  No  payment  was made  under the change of control
provision because the Compensation  Committee of California  Federal  determined
that the merger of California  Federal and Glendale  Federal was not a change of
control within the meaning of the DECP.  California Federal subsequently entered
into a  replacement  change of control  agreement  in 1999 with  certain  former
participants in the DECP, so that amounts that would have been payable under the
change  of  control  provisions  of  the  DECP  would  be  paid  to  the  former
participants  in the DECP who remain  employed by  California  Federal  upon the
earlier to occur of (1) a change of control of California  Federal subsequent to
September 11, 1998 or (2) December 31, 2002. Compensation expense totalling $2.3
million  relating to the DECP was recognized in each of the years ended December
31, 2001, 2000 and 1999.

(31)   EXTRAORDINARY ITEMS
       -------------------

       During  2000,  the FHLB called and the Bank  prepaid $400 million in FHLB
advances,  resulting in extraordinary gains of $3.0 million, net of income taxes
of $2.1 million, on the early  extinguishment of such borrowings.  Also in 2000,
the Bank  repurchased  $2.5 million  outstanding  principal amount of the 6 1/2%
Convertible Subordinated  Debentures,  resulting in an extraordinary gain of $41
thousand,  net of income taxes of $30 thousand,  on the early  extinguishment of
debt.

       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 of $1.9 million,  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 of $0.1 million, on the early extinguishment of debt.

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

       On  September  21,  2000,  the EITF  issued  EITF No.  99-20,  which  was
effective  on April  1,  2001.  EITF  No.  99-20  establishes  guidance  for (1)
recognizing interest income (including amortization of premiums or discounts) on
(a) all  credit-sensitive  mortgage and asset-backed  securities and (b) certain
prepayment-sensitive  securities  including agency  interest-only strips and (2)
determining  when these securities must be written down to fair value because of
impairment.  Existing GAAP did not provide  interest  recognition and impairment
guidance  for  securities  on  which  cash  flows  change  as a  result  of both
prepayments and credit losses and, in some cases, interest rate adjustments.


                                      F-64
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       On April 1, 2001, the Company identified a portfolio of securities with a
total book value of $80.7 million which are subject to the impairment provisions
of EITF No.  99-20.  All of these  securities  had  previously  been reported as
available-for-sale securities, with changes in fair value reflected in OCI. As a
result of its implementation of EITF No. 99-20 during 2001, the Company recorded
a loss of $1.6 million, net of income tax credits of $1.1 million,  representing
the cumulative effect of change in accounting principle.  Subsequent declines in
the fair value of these  securities,  totalling $7.5 million on a pre-tax basis,
were recorded in gain (loss) on sale of assets.

(33)   LEGAL PROCEEDINGS
       -----------------

       CALIFORNIA FEDERAL GOODWILL LITIGATION

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

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

       On April 16,  1999,  the Claims  Court issued its decision on the damages
claim against the  Government in the  California  Federal  Goodwill  Litigation,
ruling that the Government must compensate the Bank in the sum of $23.4 million.
The summary  judgment  liability  decision by the first  Claims  Court Judge was
appealed by the  Government,  and the damage  award by the second  Claims  Court
Judge was appealed by the Bank.

       On April 3, 2001, the Court of Appeals for the Federal Circuit upheld the
summary judgment liability decision and ruled that California Federal be allowed
to present  evidence  regarding  damages incurred under the lost profits theory.
The case has been  remanded  back to the Claims Court for a damages  trial under
the lost profits theory. The Bank intends to vigorously pursue its claim against
the Government.

       GLENDALE GOODWILL LITIGATION

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

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

       On  February  16,  2001,  the Court of Appeals  for the  Federal  Circuit
vacated the trial  court's  award of damages and  remanded  the case back to the
trial court for  determination of total reliance damages to which the Bank might
be entitled.  Oral  argument  before the trial court on that issue took place on
June 26, 2001 and the Bank is awaiting  the Claims  Court's  decision.  The Bank
continues to vigorously pursue its case for damages against the Government.

                                      F-65
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       BARTOLD V. GLENDALE FEDERAL BANK ET AL.

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

       In  October  1997,  the trial  court  granted  summary  judgment  for the
defendants.  In September  2000, the California  Court of Appeals  reversed this
decision and remanded for further proceedings,  including further development of
class  certification  issues.  On March 2,  2001,  the trial  court  held that a
California class had been certified.  On June 7, 2001, the trial court dismissed
two of the  four  causes  of  action  against  the  Bank,  holding  that the OTS
pre-empted  the  California  courts from  regulating  the Bank's  procedures for
reconveying deeds. The Bank believes that it has additional meritorious defenses
to plaintiffs' claims and intends to continue to contest the remaining claims in
the lawsuit vigorously.

       OTHER LITIGATION

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

(34)   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
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 LTW(TM)s. 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 24.


                                      F-66
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(35)   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 EPS is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
                                                           2001                      2000                       1999
                                                   -----------------------   -----------------------    -----------------------
                                                     Basic       Diluted       Basic       Diluted        Basic       Diluted
                                                      EPS          EPS          EPS          EPS           EPS           EPS
                                                      ---          ---          ---          ---           ---           ---
        <S>                                        <C>          <C>          <C>          <C>           <C>          <C>
        Income before extraordinary items
             and cumulative effect of
             change in accounting principle        $410,945     $410,945     $347,480     $347,480      $320,715     $320,715
        Extraordinary items                              --           --        3,014        3,014         2,472        2,472
         Cumulative effect of change in
             accounting principle                    (1,552)      (1,552)          --           --            --           --
                                                   --------     --------     --------     --------      --------
             Net income                            $409,393     $409,393     $350,494     $350,494      $323,187     $323,187
                                                   ========     ========     ========     ========      ========     ========

        Weighted average common
             shares outstanding (a)                 135,070      135,070      127,153      127,153       130,299      130,299
        Issuable Shares (b)                           7,457        7,457       11,875       11,875           482          482
                                                   --------     --------     --------     --------      --------     --------
        Total weighted average basic
             common shares outstanding              142,527      142,527      139,028      139,028       130,781      130,781
        Effect of dilutive securities:
             Options and warrants (c)                    --          745           --        2,220            --        5,249
             Issuable Shares (b)                         --           --           --        1,117            --        4,143
             Restricted stock (a)                        --          150           --          105            --            5
                                                   --------     --------     --------     --------      --------     --------
        Total weighted average diluted
             common shares outstanding (b)          142,527      143,422      139,028      142,470       130,781      140,178
                                                   ========     ========     ========     ========      ========     ========

        Income before extraordinary items
             and cumulative effect of
             change in accounting principle          $ 2.88       $ 2.86        $2.50        $2.44         $2.45        $2.29
        Extraordinary items                              --           --         0.02         0.02          0.02         0.02
         Cumulative effect of change in
             accounting principle                     (0.01)       (0.01)          --           --            --           --
                                                     ------       ------        -----        -----         -----        -----
        Earnings per common share                    $ 2.87       $ 2.85        $2.52        $2.46         $2.47        $2.31
                                                     ======       ======        =====        =====         =====        =====
</TABLE>
--------------

(a)    Basic weighted  average common shares  outstanding  exclude the effect of
       unvested restricted common stock awarded to employees of the Company.

(b)    2001 total basic and diluted weighted  average common shares  outstanding
       include, as appropriate,  the effect of the following shares estimated to
       be issuable to GSB  Investments  and Hunter's Glen: (i) 3,018,256  shares
       based on the use of pre-merger tax benefits  during 2001;  (ii) 4,066,472
       shares based on the use of pre-merger tax benefits during 2000 and prior;
       (iii) the effect of 497,381 shares issued to Hunter's Glen on January 23,
       2001 for net tax  benefits  realized  during  1999 and for a Federal  tax
       refund and related  interest  associated with Old California  Federal for
       periods  prior to the  Golden  State  Acquisition,  (iv)  692,811  shares
       related to the extinguishment of Issuable Shares in July 2001 and (v) the
       effect of 543,817 shares issued to Hunter's Glen on July 17, 2001 for net
       tax benefits realized during 2000.


                                              (Footnotes continued on next page)


                                      F-67
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       2000 total basic and diluted weighted  average common shares  outstanding
       include the effect,  as appropriate,  of: (i) 4,735,227  shares issued on
       May 22, 2000 to GSB Investments and Hunter's Glen, (ii) 1,084,471  shares
       issuable to Hunter's  Glen,  and (iii)  2,754,968  shares  related to the
       extinguishment of Issuable Shares in August 2000; all based on the use of
       pre-merger tax benefits during 1999. See note 24, "--Issuable Shares" for
       a discussion on extinguishment of Issuable Shares.

       2000 and 1999 total basic and diluted weighted average shares outstanding
       include  the effect of  5,540,319  shares  issued on January 21, 1999 and
       147,677  shares  issued on May 22, 2000 to GSB  Investments  and Hunter's
       Glen for net tax benefits realized by the Bank during 1998.

       2000 total basic and diluted weighted  average common shares  outstanding
       include the effect,  as appropriate,  of 458,407 shares issued in January
       2001 to Hunter's Glen and 1,169,276 shares related to the  extinguishment
       of Issuable  Shares  distributed in August 2000; all related to a Federal
       tax refund and related interest received in 1999 and 2000 associated with
       Old California Federal for periods prior to the Golden State Acquisition.

       2000 and 1999 total basic and diluted weighted average shares outstanding
       include  the effect,  as  appropriate,  of an  additional  7,448,870  and
       9,609,054  shares,   respectively,   estimated  to  be  issuable  to  GSB
       Investments and Hunter's Glen based on the use of pre-merger tax benefits
       during 2000 and 1999. See note 24.

(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.

       Golden State's diluted shares outstanding were 143,799 thousand,  143,798
       thousand  and  138,693  thousand  at December  31,  2001,  2000 and 1999,
       respectively.

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

       CREDIT RELATED FINANCIAL INSTRUMENTS

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

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

       Listed below are unfunded  financial  instruments  whose contract amounts
represent credit risk (in thousands):
<TABLE>
<CAPTION>
                                                      Contract Amount at December 31,
                                                      -------------------------------
                                                         2001                 2000
                                                      ----------           ----------
           Commitments to extend credit
           ----------------------------
       <S>                                            <C>                  <C>
       Unutilized consumer lines                      $1,467,625           $1,225,572
       Unutilized commercial lines of credit             263,682              219,219
       Commercial and standby letters of credit           24,953                2,112
</TABLE>


                                      F-68
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The contracts for the  Company's  commitments  to extend credit expire as
follows (in thousands):
<TABLE>
<CAPTION>
                                                                       2001
                                    --------------------------------------------------------------------------------
                                                              Contract Amount Expiring in
                                    --------------------------------------------------------------------------------
Commitments to extend credit          Total       Less Than 1 Year     1-3 Years      4-5 Years    More Than 5 Years
----------------------------          -----       ----------------     ---------      ---------    -----------------
<S>                                 <C>               <C>               <C>            <C>             <C>
Unutilized consumer lines           $1,467,625        $511,135          $39,181        $13,115         $904,194
Unutilized commercial
     lines of credit                   263,682         159,705           75,013         15,601           13,363
Commercial and standby
     letters of credit                  24,953          18,272            6,681             --               --
</TABLE>

       The fair value of  commitments  to extend credit were not  significant at
either December 31, 2001 or 2000.

       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.  All letters of credit issued have  expiration
dates within three years.  The credit risk involved in issuing letters of credit
is  essentially  the same as that  involved  in  extending  loan  facilities  to
customers.  The Company generally holds collateral  supporting those commitments
in an amount deemed to be necessary.

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

       The following is a summary of the Company's  pipeline of loans in process
and mandatory  forward  commitments  to sell loans at December 31, 2001 and 2000
that have not been recorded in the  Company's  balance sheet as they do not meet
the  definition of a derivative  financial  instrument.  These  amounts  exclude
commitments to extend credit which are summarized above. For more information on
derivative instruments, see note 37.

                                               Contract Amount at December 31,
                                               -------------------------------
                                                    2001             2000
                                                 ----------       ----------
                                                        (in thousands)

       Commitments to originate loans            $3,937,422       $1,186,393
       Commitments to purchase loans              3,791,436          867,867
       Mandatory commitments to sell loans          679,182          442,117

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


                                      F-69
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       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.

       OFF-BALANCE SHEET EMBEDDED DERIVATIVE OPTIONS

       The Company also has off-balance  sheet embedded options in borrowings as
shown in the table below (in thousands):
<TABLE>
<CAPTION>
                                                     2001                                       2000
                                      --------------------------------------    --------------------------------------
         Instruments                  Notional Amount   Estimated Fair Value    Notional Amount   Estimated Fair Value
         -----------                  ---------------   --------------------    ---------------   --------------------
       <S>                              <C>                  <C>                  <C>                    <C>
       Interest rate caps               $2,000,000           $52,163              $1,800,000             $ 6,552
       Interest rate swaptions           1,250,000             9,448               1,150,000              12,892
</TABLE>

       The off-balance sheet embedded options in borrowings at December 31, 2001
are scheduled to expire as shown in the table below (in thousands):
<TABLE>
<CAPTION>
                                                     Contract Amount Expiring in:
                                       -------------------------------------------------------
           Instruments                 2002      2003        2004         2005        Total
           -----------                 ----      ----        ----         ----        -----
         <S>                           <C>     <C>         <C>         <C>          <C>
         Interest rate caps            $--     $400,000    $350,000    $1,250,000   $2,000,000
         Interest rate swaptions        --      150,000          --     1,100,000    1,250,000
</TABLE>


                                      F-70
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       COMMITMENTS AND CONTINGENCIES

       At December 31, 2001,  the Bank had pledged as collateral  the securities
as detailed below (in thousands):
<TABLE>
<CAPTION>
                                                                     Mortgage-backed        Mortgage-backed      Commercial
                                                 Securities              Securities            Securities           Paper
                                             Available for Sale     Available for Sale      Held to Maturity     Investments
                                             ------------------     ------------------      ----------------     -----------
<S>                                                <C>                <C>                       <C>                <C>
Provide credit enhancements for certain
    bond-financed real estate projects
    originated by Old FNB                          $23,098            $   12,479                $  8,137           $    --

Pledged securities for principal and
    interest on Bank loan securitization                --               172,117                   7,802                --

Guarantee credit enhancements on
    multi-family bond issues and loans
    securitized by FNMA and FHLMC                    1,044               132,368                  23,816                --

Guarantee credit enhancements on
    loans transferred as part of
    securitization transactions by the Bank             --                    --                      --            30,320

Guarantee state and local agency
    deposits, and certain deposits with the
    Federal Reserve Bank                             2,717               289,771                  40,172                --

Cover the margin on interest rate swap
    agreements                                          --               170,107                  66,853                --

Secure various obligations as discussed
    in notes 8, 9, 18 and 19 at
    December 31, 2001                                   --             3,945,448                 763,438                --
</TABLE>

       At December 31, 2000,  securities  available for sale and mortgage-backed
securities  available  for sale  and held to  maturity  of $20.0  million,  $6.5
billion and $2.1 billion,  respectively,  were pledged as collateral for various
obligations.

       At December 31, 2001, $27.1 billion in residential loans, $3.6 billion in
multifamily  loans and $1.6 billion in commercial real estate loans were pledged
as collateral for FHLB advances.

       At December 31, 2001 and 2000,  loans receivable  included  approximately
$5.5 billion and $7.9 billion,  respectively, of loans that had the potential to
experience negative amortization.

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

       DERIVATIVE FINANCIAL INSTRUMENTS

       Stand alone  derivative  financial  instruments  include swaps,  futures,
forwards, and option contracts,  all of which derive their value from underlying
interest rates.  Embedded derivative financial instruments include interest rate
caps and  swaptions in  borrowings,  which are not  reflected  on the  Company's
balance  sheet,  and are discussed in note 36. 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. Such
difference,  which represents the fair value of the derivative  instruments,  is
reflected on the


                                      F-71
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Company's  balance sheet as derivative  assets and  derivative  liabilities  for
stand alone derivative financial instruments.

       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,  and does not  expect any  counterparties  to fail their
obligations. The Company deals only with primary dealers and the FHLB.

       Derivative  instruments are generally either  negotiated 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.

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

       The primary focus of the Company's asset/liability  management program is
to monitor the  sensitivity of the Company's net portfolio  value and net income
under varying  interest rate scenarios to take steps to control its risks.  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 the levels of
interest-earning  assets  and  interest-bearing   liabilities  and  on  mortgage
prepayment  speeds (which affect the MSR asset) during the  measurement  period.
Based upon the outcome of the simulation analysis, the Company considers 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.

       INTEREST RATE RISK  MANAGEMENT - CASH FLOW HEDGING  INSTRUMENTS - BALANCE
       SHEET HEDGES

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

       The Company uses  variable  rate debt as a source of funds for use in the
Company's lending and investment activities and other general business purposes.
It has received  short-term  variable-rate  FHLB advances and Repos.  These debt
obligations  expose the  Company to  variability  in  interest  payments  due to
changes  in  interest  rates.  If  interest  rates  increase,  interest  expense
increases. Conversely, if interest rates decrease, interest expense decreases.

       Management  believes it is prudent to limit the  variability of a portion
of its interest payments and, therefore,  generally hedges a significant portion
of its variable-rate interest payments.

       STRATEGIES
       ----------

       To meet this  objective,  management  enters into  derivative  instrument
agreements to manage  fluctuations  in cash flows  resulting  from interest rate
risk. These instruments include interest rate swaps.

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


                                      F-72
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       RESULTS
       -------

       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.
The following table details the terms of interest rate swap agreements  (dollars
in thousands):
<TABLE>
<CAPTION>
                                                                             December 31,
                                                                       -----------------------
                                                                          2001         2000
                                                                       ----------   ----------
       <S>                                                             <C>          <C>
       Notional amounts outstanding to hedge borrowings                $4,089,670   $3,219,670
       Weighted average maturities (in years)                                 2.8          4.1
</TABLE>

       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 (dollars in thousands):

                                                                December 31,
                                                           ---------------------
                                                             2001         2000
                                                           ---------    --------

       Weighted average pay rates                              5.98%       6.76%
       Weighted average receive rates                          2.16%       6.73%
       Unrealized loss relating to interest rate swaps     $201,825     $75,482

       No interest rate swap  agreements  were  terminated  prior to maturity in
2001 or 2000. At December 31, 2001, an unrealized loss relating to interest rate
swaps was recorded in derivative  liabilities  in accordance  with SFAS No. 133.
These losses will be recognized over the life of the FHLB advances or securities
sold under agreements to repurchase, as appropriate.

       Risk  management  results for the year ended December 31, 2001 related to
the balance sheet  hedging of FHLB  advances and Repos  indicate that the hedges
were  100%  effective  and  that  there  was  no  component  of  the  derivative
instruments'  gain or loss  which  was  excluded  from the  assessment  of hedge
effectiveness.

       Changes in the fair value of interest  rate swaps  designated  as hedging
instruments of the  variability of cash flows  associated with FHLB advances and
Repos are reported in OCI.  These amounts  subsequently  are  reclassified  into
interest  expense as a yield  adjustment in the same period in which the related
interest on the FHLB advances and Repos affects earnings.  The net amount of OCI
reclassified  into interest  expense during the year ended December 31, 2001 was
$75.5 million.

       As of December 31, 2001,  approximately  $72.0 million of losses reported
in OCI related to the interest rate swaps were expected to be reclassified  into
interest  expense as a yield  adjustment  of the hedged FHLB  advances and Repos
during the twelve month period ending December 31, 2002.

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

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

       The  Company  either  purchases  or  originates  MSRs as a source  of fee
income.  These  mortgage-servicing  rights expose the Company to  variability in
their fair value due to changes in the level of prepayments and other variables.
Since the  adoption of SFAS No. 133 on January 1, 2001,  the  carrying  value of
MSRs have been first adjusted  upwards or downwards by the calculated  change in
the fair value of the MSRs being  hedged and are then  recorded at the lesser of
their  amortized  cost or fair  value.  Prior to  January  1,  2001,  MSRs  were
generally recorded in the financial  statements at the lesser of their amortized
cost or their fair value.


                                      F-73
<PAGE>
                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       Management  believes that it is prudent to limit the  variability  in the
fair value of a portion of its MSR asset. It is the Company's objective to hedge
the change in fair value of the  servicing  rights asset  associated  with fixed
rate,  non-prepayment  penalty loans for which it has recorded MSRs, at coverage
levels that are appropriate,  given anticipated or existing interest rate levels
and other market  considerations,  as well as the relationship of change in this
asset to other assets of the Company.

       STRATEGIES
       ----------

       To meet  this  objective,  the  Company  utilizes  interest  rate  swaps,
principal only swaps,  interest rate floors, and swaptions as an asset/liability
management  strategy  to hedge  the  change in value of the  mortgage  servicing
portfolio  due to expected  prepayment  risk  assumption  changes.  Although the
Company  hedges the change in value of its MSRs,  its hedge  coverage ratio does
not equate to 100%.  The  Company  believes it is  economically  prudent to keep
hedge  coverage  ratios at acceptable  risk levels,  which may vary depending on
current and expected interest rate movement.

       INTEREST RATE SWAPS
       -------------------

       The Company utilizes interest rate swaps as an asset/liability management
strategy  to  hedge  against  the  change  in value  of the  mortgage  servicing
portfolio due to expected  prepayment  risk assumption  changes.  These interest
rate swap agreements are contracts to make a series of floating rate payments in
exchange for receiving a series of fixed rate payments. Payments related to swap
contracts  are made  either  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 interest rate swaps are the ability of the  counterparties
to meet the terms of the  contract and the  possibility  that swap rates may not
move in an inverse manner or in an amount equal to mortgage rate movements.

       The following  table  details the terms of interest rate swap  agreements
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                   December 31,
                                                            --------------------------
                                                               2001            2000
                                                            ----------      ----------
       <S>                                                  <C>             <C>
       Notional amount outstanding                          $2,462,000      $1,345,000
       Weighted average maturity outstanding (in years)            9.5              10
</TABLE>

       These  agreements  provided  for  the  Company  to  make  payments  at  a
variable-rate  determined by a specified index  (three-month  LIBOR) in exchange
for receiving payments at a fixed-rate (dollars in thousands):
<TABLE>
<CAPTION>
                                                                            December 31,
                                                                        --------------------
                                                                         2001          2000
                                                                        ------       -------
       <S>                                                              <C>          <C>
       Weighted average pay rate                                         1.88%         6.40%
       Weighted average receive rate                                     5.68%         6.21%
       Unrealized gain relating to use of interest rate swaps          $7,561        $5,099
</TABLE>

       No interest rate swap  agreements  were  terminated  prior to maturity in
2001 and 2000.  At December 31, 2001,  the  unrealized  gain  relating to use of
interest  rate swaps was recorded in derivative  assets in accordance  with SFAS
No. 133.


                                      F-74
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       PRINCIPAL ONLY SWAPS

       The Company  utilizes PO swap  agreements  to hedge against the change in
value of the  mortgage  servicing  portfolio  due to  expected  prepayment  risk
assumption changes. PO swap agreements simulate the ownership of a PO strip, the
value of which is affected directly by prepayment rates themselves in an inverse
manner to the  servicing  rights,  which act in a manner  similar  to IO strips.
Under 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  executed
prior to December 31, 1998 call for the Company to pay floating  interest to the
counterparty  based  on:  (a) an  index  tied  to one  month  LIBOR  and (b) the
amortized  notional  balance of the swap.  The contracts call for the Company to
receive cash from the counterparty  based on the cash flows received from the PO
strip.  For PO swap  agreements  executed after December 31, 1998, the agreement
also requires the PO swap to be marked to market value. A decrease in the market
value of the PO swap  requires  the Company to  increase  the amount paid to the
counterparty  and an increase in the market value requires the  counterparty  to
increase their payment to the Company. The amounts to be paid and to be received
are then netted together each month.  The nature of this  instrument  results in
increased  cash flows and positive  changes in the value of the PO swap during a
declining interest rate environment. This positive change in the value of the PO
swap is highly  correlated to prepayment  activity.  PO swap agreements  present
yield curve risk to the extent that short term interest  rates (which impact the
cash amount that the Company pays on the PO swap to the counterparty) rise while
long term rates  (which drive  prepayment  rates) stay the same. A third type of
risk associated with PO swaps is the ability of the  counterparties  to meet the
terms of the contract.

       The  following  table  details  the  terms  of  PO  swap  agreements  (in
thousands):
<TABLE>
<CAPTION>
                                                                    December 31,
                                                                --------------------
                                                                  2001         2000
                                                                --------     -------
       <S>                                                      <C>          <C>
       Notional amounts outstanding - PO swap assets            $288,941     $89,323
       Fair market value - PO swap assets                          7,487       6,384
       Notional amounts outstanding - PO swap liabilities         89,987     103,776
       Fair market value - PO swap liabilities                    (1,076)     (5,182)
</TABLE>

       No PO swap agreements were terminated prior to maturity in 2001 or 2000.

       INTEREST RATE FLOORS

       The Company  currently  uses  interest  rate floors to hedge  against the
change in value of the mortgage servicing  portfolio due to expected  prepayment
risk  assumption  changes.  Interest  rate floors are interest  rate  protection
instruments  that  involve  payment  from the seller to the buyer of an interest
differential.  This  differential  is the  difference  between a long-term  rate
(e.g.,  10-year  Constant  Maturity  Swaps in 2001 and 2000) and an  agreed-upon
rate, the strike rate,  applied to a notional  principal amount. By purchasing a
floor,  the  Company  will be paid  the  differential  on a  monthly  basis by a
counterparty,  when the current  long-term  rate falls below the strike level of
the agreement.  The fair value of interest rate floor  agreements is included in
derivative assets or liabilities. Interest rate floors are subject to basis risk
because  of  differences  in  movements  of  mortgage  and LIBOR  rates,  market
volatility and the impact of changes in the yield curve.  In addition,  a credit
risk associated with purchased  interest rate floor agreements is the ability of
the counterparties to meet the terms of the contract.


                                      F-75
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The Company was party to interest rate floor  contracts as detailed below
(dollars in thousands):
<TABLE>
<CAPTION>
                                                                                December 31,
                                                                       ------------------------------
                                                                           2001              2000
                                                                       -----------        -----------
       <S>                                                             <C>                <C>
       Weighted average maturity (in years)                                   4.9                4.9
       Notional amount of remaining interest rate floor contracts      $3,054,000         $2,338,000
       Weighted average strike rate                                          6.36%              6.25%
       Monthly floating rate                                                 5.82%              6.15%
       Strike rate exceeded floating rate                                    0.54%              0.10%
       Cash received from interest rate floor contracts                $    5,194         $      224
       Proceeds from sales of interest rate floor contracts            $  151,715         $   50,608
       Fair value amount                                               $   78,917         $   52,839
</TABLE>

       INTEREST RATE SWAPTIONS

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

       At  December  31,  2001 and 2000,  the  Company  was a party to  swaption
contracts  with  a  weighted  average  maturity  of 2.4  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.

       The Company was a party to swaption contracts with details below (dollars
in thousands):
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                            -----------------------------
                                                                               2001             2000
                                                                            -----------       -----------
       <S>                                                                  <C>               <C>
       Notional amount of underlying interest rate swap contracts           $4,111,000        $2,178,000
       Weighted average strike rate                                               6.39%             6.44%
       Three-month LIBOR rate                                                     1.88%             6.40%
       Strike rate exceeded floating rate                                         4.51%             0.04%
       Proceeds received from sales of swaption contracts                   $  488,143        $   50,505
       Fair market value                                                    $  183,641        $  105,626
</TABLE>

       RESULTS
       -------

       Risk  management  results  related to the hedging of MSRs are  summarized
below and are included in the caption entitled "Loan servicing fees, net" in the
accompanying consolidated statements of income for 2001 (in thousands):

       Gain on designated derivative contracts            $83,286
       Decrease in value of designated MSRs                (3,338)
                                                          -------

       Net gain on derivatives used to hedge MSRs         $79,948
                                                          =======


                                      F-76
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       MSR HEDGES
       ----------

       At  December  31,  2001 and 2000,  the Bank held cash  collateral  in the
amount of $95.2 million and $20 million, respectively,  related to interest rate
derivatives used to hedge MSRs.

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

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

       The Company,  as part of its traditional real estate lending  activities,
originates  fixed-rate  1-4 unit  residential  loans  for sale in the  secondary
market.  At the  time of  origination,  management  identifies  loans  that  are
expected  to be sold in the  near  future.  These  warehoused  loans  have  been
classified as loans held for sale,  net, in the  consolidated  balance sheet and
are carried at fair market value, less the values associated with servicing (for
those loans which  qualify for fair value  hedging under SFAS No. 133) or at the
lower of aggregate amortized cost or fair market value (for those loans which do
not qualify for fair value hedging  under SFAS No. 133).  These loans expose the
Company to variability in their fair value due to changes in interest  rates. If
interest  rates  increase,  the value of the  loans  decreases.  Conversely,  if
interest rates decrease, the value of the loans increases.

       Management  believes  it is prudent to limit the  variability  of a major
portion  of the  change  in fair  value of its loans  held for  sale.  It is the
Company's objective to hedge primarily all of its warehoused loans held for sale
to third parties.

       STRATEGIES
       ----------

       To meet this  objective,  management  employs  forward  loan sale hedging
techniques to minimize the interest rate and pricing risks  associated  with the
origination and sale of such warehoused loans.

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

       RESULTS
       -------

       Risk  management  results  related to the hedging of warehouse  loans are
summarized  below  and are  included  in the  caption  entitled  "Gain  on sale,
settlement  and  transfer  of  loans,  net"  in  the  accompanying  consolidated
statements of income for 2001 (in thousands):
<TABLE>
<CAPTION>
       <S>                                                                        <C>
       Unrealized gain on designated forward loan sale commitments recognized     $ 25,406
       Decrease in value of warehouse loans                                        (29,728)
                                                                                  --------

       Net hedge ineffectiveness                                                  $ (4,322)
                                                                                  ========
</TABLE>

       DERIVATIVE INSTRUMENTS NOT DESIGNATED AS HEDGING INSTRUMENTS

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

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


                                      F-77
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

       Risk management  results related to the undesignated  hedging of interest
rate lock  commitments  with  undesignated  forward  loan sale  commitments  are
summarized  below  and are  included  in the  caption  entitled  "Gain  on sale,
settlement and transfer of loans, net" in the consolidated  statements of income
for 2001 (in thousands):
<TABLE>
<CAPTION>
       <S>                                                                                        <C>
       Unrealized gain on undesignated forward loan sale commitments recognized  to income        $ 11,473
       Loss on undesignated interest rate loan commitments  recognized to income (a)               (13,269)
                                                                                                  --------

       Net loss on derivatives                                                                    $ (1,796)
                                                                                                  =========
</TABLE>
       ----------
       (a)    The fair value of interest rate loan commitments  excludes the net
              servicing value of $9.2 million.

       NOTIONAL AMOUNTS OF DERIVATIVES
       -------------------------------

       Information   pertaining  to  the  notional   amounts  of  the  Company's
derivative financial  instruments utilized in both MSR and balance sheet hedging
is as follows  (in  thousands).  In 2001,  the fair  values of these  derivative
financial instruments were recorded in the Company's balance sheet in accordance
with SFAS No. 133.
<TABLE>
<CAPTION>

                                                        December 31, 2001                    December 31, 2000
                                                 -------------------------------      -------------------------------
                                                  Notional                             Notional
                                                   Amount        Credit Risk (1)        Amount        Credit Risk (1)
                                                   -------       ---------------        ------        ---------------
<S>                                             <C>                 <C>                <C>               <C>
Interest rate swaps -  borrowings               $ 4,089,670         $     --           $ 3,219,670       $     --
Interest rate swaps hedging MSRs                  2,462,000            7,561             1,345,000          5,099
Principal only swaps                                378,928            6,411               193,099          1,202
Interest rate floors                              3,054,000           78,917             2,338,000         52,839
Interest rate swaptions                           4,111,000          183,641             2,178,000        105,626
Forward loan sale commitments                     3,980,863           36,879               679,487             --
Interest rate lock commitments                    1,870,852               --               270,442             --
                                                -----------         --------           -----------       --------
            Total                               $19,947,313         $313,409           $10,223,698       $164,766
                                                ===========         ========           ===========       ========
</TABLE>
-------------
(1)    Credit  risk  represents  the  amount  of  unrealized  gain  included  in
       derivative  assets  which is  subject to  counterparty  credit  risk.  It
       reflects  the effect of master  netting  agreements  and  excludes  $95.2
       million and $20 million cash  collateral held by the Bank at December 31,
       2001 and 2000, respectively.

                                      F-78
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Derivative financial instruments used for other-than-trading  purposes at
December 31, 2001 are scheduled to mature as follows (in thousands):
<TABLE>
<CAPTION>
                                                                   Notional Amounts
                            -----------------------------------------------------------------------------------------
                               2002         2003         2004         2005         2006      Thereafter      Total
                               ----         ----         ----         ----         ----      ----------      -----
<S>                         <C>          <C>          <C>           <C>         <C>          <C>          <C>
Interest rate swaps -
     borrowings             $  400,000   $  715,000   $1,685,000    $519,670    $  750,000   $   20,000   $ 4,089,670
Interest rate swaps
     hedging MSRs                   --           --           --          --            --    2,462,000     2,462,000
Principal only swaps           204,286           --       44,896          --            --      129,746       378,928
Interest rate floors                --           --           --          --     3,054,000           --     3,054,000
Interest rate swaptions        110,000    2,049,000    1,952,000          --            --           --     4,111,000
Forward loan sale
     commitments             3,980,863           --           --          --            --           --     3,980,863
Interest rate lock
     commitments             1,870,852           --           --          --            --           --     1,870,852
                            ----------   ----------   ----------    --------    ----------   ----------   -----------
                Total       $6,566,001   $2,764,000   $3,681,896    $519,670    $3,804,000   $2,611,746   $19,947,313
                            ==========   ==========   ==========    ========    ==========   ==========   ===========
</TABLE>

       For year-end fair values of  derivative  financial  instruments  used for
other-than-trading purposes at December 31, 2001 and 2000, see note 38.


                                      F-79
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(38)   FAIR VALUE OF FINANCIAL INSTRUMENTS
       -----------------------------------

       The following table presents the carrying  amounts and fair values of the
Company's financial instruments (in thousands):
<TABLE>
<CAPTION>
                                                                                December 31,
                                                       -------------------------------------------------------------
                                                                  2001                              2000
                                                        ---------------------------     ----------------------------
                                                         Carrying          Fair          Carrying           Fair
                                                           Value           Value           Value            Value
                                                           -----           -----           -----            -----
<S>                                                     <C>             <C>             <C>              <C>
Financial Assets:
      Cash and cash equivalents                         $   805,201     $   805,201     $   783,146      $   783,146
      Securities available for sale                         116,112         116,112         641,205          641,205
      Securities held to maturity                            30,602          30,602         587,503          590,571
      Mortgage-backed securities
          available for sale                              7,057,903       7,057,903       9,866,823        9,866,823
      Mortgage-backed securities
          held to maturity                                1,385,113       1,411,157       2,886,612        2,959,677
      Loans held for sale                                 2,608,365       2,617,435         845,763          851,856
      Loans receivable, net                              39,335,623      39,743,756      39,592,814       39,262,610
      Investment in FHLB                                  1,446,607       1,446,607       1,361,066        1,361,066
      Accrued interest receivable                           288,308         288,308         364,414          364,414
      MSRs (a)                                            1,623,947       1,639,255       1,559,323        1,474,096

Financial Liabilities:
      Deposits                                           25,134,078      25,226,867      23,429,754       23,422,173
      Securities sold under agreements
          to repurchase                                   2,363,945       2,365,311       4,511,309        4,555,425
      Borrowings                                         24,444,541      24,886,860      28,800,557       28,802,601

On-balance Sheet Derivatives:
      Interest rate swaps hedging borrowings               (201,825)       (201,825)             --               --
      Interest rate swaps hedging MSRs                        7,561           7,561              --               --
      Principal only swaps                                    6,411           6,411              --               --
      Interest rate floors                                   78,917          78,917              --               --
      Interest rate swaptions                               183,641         183,641              --               --
      Interest rate lock commitments (b)                    (13,269)         (4,028)             --               --
      Forward loan sale commitments                          36,879          36,879              --               --
                                                        -----------     -----------
         Total derivative assets and liabilities             98,315         107,556

Off-balance Sheet Financial Instruments:
      Interest rate swaps hedging borrowings                     --              --              --          (75,482)
      Interest rate swaps hedging MSRs                           --              --              --            5,099
      Principal only swaps                                       --              --              --            1,202
      Interest rate floors                                       --              --              --           52,839
      Interest rate swaptions                                    --              --              --          105,626
      Interest rate lock commitments                             --              --              --            3,635
      Forward loan sale commitments                              --              --              --           (5,340)
      Embedded derivative options in borrowings:
           Interest rate caps                                    --          52,163              --            6,552
           Interest rate swaptions                               --           9,448              --           12,892

                                                                                                         (Continued)
</TABLE>

                                      F-80
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

--------------
(a)    Fair value  amounts  presented for MSRs do not include the fair values of
       interest rate floor contracts,  interest rate swaps, principal only swaps
       and interest rate  swaptions.  Prior to January 1, 2001, the MSR carrying
       value included  unamortized premiums associated with interest rate floors
       and interest  rate  swaptions.  The  combined  fair value of MSRs and the
       related derivatives is $1.9 billion and $1.6 billion at December 31, 2001
       and 2000, respectively.

(b)    The carrying value of interest rate lock commitments does not include the
       net servicing  value,  which when the loans are funded should result in a
       greater fair value than the carrying value.

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

       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
forecasting principal and interest payments, both scheduled and prepayments, and
discounting  these amounts using factors  provided by 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  estimated  by  discounting  the
forecasted  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  FHLB  buys  and  sells  the  stock at par,  fair  value of these  financial
instruments approximates the carrying value.

       ACCRUED  INTEREST:  The carrying amounts of accrued interest  approximate
their fair values.


                                      F-81
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       MORTGAGE  SERVICING  RIGHTS:  The fair  value of MSRs 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 to service,  the discount
rate, custodial earnings rate, an inflation rate,  ancillary income,  prepayment
speeds and default  rates and losses.  The  following  assumptions  were used in
estimating the fair value of residential MSRs; the fair value of commercial real
estate and commercial banking MSRs is considered to be immaterial.

                                                    December 31,
                                               -----------------------
                                                2001             2000
                                               ------           ------

       Weighted average default rate            1.03%            0.99%
       Weighted average prepayment rate (CPR)  11.58%           12.78%
       Weighted average discount rate           9.60%           10.20%

       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.

       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.

       ON-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND EMBEDDED DERIVATIVE
OPTIONS:  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 those  derivative  financial  instruments  hedging the  Company's
liabilities.  The Company uses an  independent  consultant to model the value of
the derivative financial instruments hedging MSRs.

       OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - LOAN COMMITMENTS:

       The  Company has two types of  off-balance  sheet loan  commitments:  (1)
commitments  for commercial  loans  originated for portfolio and (2) commitments
for residential loans originated for portfolio.

       These loan commitments are off-balance sheet because they do not meet the
definition  of a  derivative  as  described  in SFAS No. 133.  The fair value of
commitments for commercial loans originated for portfolio is 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. The
fair value of  commitments  for  residential  loans  originated for portfolio is
estimated using as a basis the fair value of similar commitments for residential
loans that meet the definition of a derivative and which are readily convertible
to cash.


                                      F-82
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(39)   SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
       ---------------------------------------------

       The following table presents selected unaudited  quarterly financial data
for the years ended December 31, 2001 and 2000 (in  thousands,  except per share
data):
<TABLE>
<CAPTION>
                                                                          Quarter Ended
                                              ----------------------------------------------------------------------
                                              December 31,   September 30,    June 30,       March 31,
                                                 2001            2001           2001           2001       Total 2001
                                                 ----            ----           ----           ----       ----------
<S>                                           <C>             <C>           <C>             <C>           <C>
Total interest income                         $ 893,503       $ 988,557     $1,027,531      $1,059,057    $ 3,968,648
Total interest expense                         (535,235)       (632,073)      (691,143)       (748,707)    (2,607,158)
                                              ---------       ---------     ----------      ----------    -----------
    Net interest income                         358,268         356,484        336,388         310,350      1,361,490
Total noninterest income                         96,528          85,949        109,594          58,847        350,918
Total noninterest expense                      (249,833)       (247,288)      (246,866)       (235,356)      (979,343)
                                              ---------       ---------     ----------      ----------    -----------
Income before income taxes,
    minority interest and cumulative
    effect of change in accounting
    principle                                   204,963         195,145        199,116         133,841        733,065
Income tax expense                              (89,162)        (85,138)       (83,387)        (34,308)      (291,995)
Minority interest: provision in
    lieu of income tax expense                      110              --         (3,247)             --         (3,137)
Minority interest: other                         (6,747)         (6,747)        (6,747)         (6,747)       (26,988)
                                              ---------       ---------     ----------      ----------    ------------
Income before cumulative effect of
    change in accounting principle              109,164         103,260        105,735          92,786        410,945
Cumulative effect of change in
    accounting principle, net of tax                 --              --         (1,552)             --         (1,552)
                                              ---------       ---------     ----------      ----------    -----------
    Net income                                $ 109,164       $ 103,260     $  104,183      $   92,786    $   409,393
                                              =========       =========     ==========      ==========    ===========

Earnings per share:
Basic
    Income before cumulative effect
       of change in accounting
       principle                                  $0.76           $0.73         $ 0.74           $0.65         $ 2.88
    Cumulative effect of change in
       accounting principle                          --              --          (0.01)             --          (0.01)
                                                  -----           -----         ------           -----         ------
    Net income                                    $0.76           $0.73         $ 0.73           $0.65         $ 2.87
                                                  =====           =====         ======           =====         ======

Diluted
    Income before cumulative effect
       of change in accounting
       principle                                  $0.76           $0.72         $ 0.73           $0.65         $ 2.86
    Cumulative effect of change in
       accounting principle                          --              --          (0.01)             --          (0.01)
                                                  -----           -----         ------           -----         ------
    Net income                                    $0.76           $0.72         $ 0.72           $0.65         $ 2.85
                                                  =====           =====         ======           =====         ======

Dividends declared per common share               $0.10           $0.10         $ 0.10           $0.10         $ 0.40
                                                  =====           =====         ======           =====         ======
</TABLE>

                                      F-83
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                          Quarter Ended
                                              ----------------------------------------------------------------------
                                              December 31,   September 30,    June 30,       March 31,
                                                 2000           2000           2000            2000       Total 2000
                                                 ----           ----           ----            ----       ----------
<S>                                           <C>             <C>           <C>             <C>           <C>
Total interest income                         $1,060,382      $1,055,890    $1,022,871      $ 966,654     $ 4,105,797
Total interest expense                          (776,649)       (770,244)     (732,554)      (679,551)     (2,958,998)
                                              ----------      ----------    ----------      ---------     -----------
    Net interest income                          283,733         285,646       290,317        287,103       1,146,799
Total noninterest income                         116,950         111,966       104,567        107,282         440,765
Total noninterest expense                       (230,034)       (228,326)     (227,717)      (227,162)       (913,239)
                                              ----------      ----------    ----------      ---------     -----------
Income before income taxes,
    minority interest and
    extraordinary items                          170,649         169,286       167,167        167,223         674,325
Income tax (expense) benefit                     (74,560)        (73,976)      (73,139)        84,894        (136,781)
Minority interest: provision in
    lieu of income tax expense                        --              --            --       (161,688)       (161,688)
Minority interest: other                          (6,796)         (6,797)       (8,184)        (6,599)        (28,376)
                                              ----------      ----------    ----------      ---------     -----------
Income before extraordinary items                 89,293          88,513        85,844         83,830         347,480
Extraordinary items - gains on early
    extinguishment of debt, net of tax                --              --         1,808          1,206           3,014
                                              ----------      ----------    ----------      ---------     -----------
    Net income                                $   89,293      $   88,513    $   87,652      $  85,036     $   350,494
                                              ==========      ==========    ==========      =========     ===========

Earnings per share:
Basic
    Income before extraordinary items              $0.63           $0.63         $0.62          $0.62           $2.50
    Extraordinary items                               --              --          0.01           0.01            0.02
                                                   -----           -----         -----          -----           -----
    Net income                                     $0.63           $0.63         $0.63          $0.63           $2.52
                                                   =====           =====         =====          =====           =====

Diluted
    Income before extraordinary items              $0.63           $0.62         $0.60          $0.59           $2.44
    Extraordinary items                               --              --          0.01           0.01            0.02
                                                   -----           -----         -----          -----           -----
    Net income                                     $0.63           $0.62         $0.61          $0.60           $2.46
                                                   =====           =====         =====          =====           =====
Dividends declared per common share                $0.10           $0.10         $  --          $  --           $0.20
                                                   =====           =====         =====          =====           =====
</TABLE>

(40)   CONDENSED PARENT COMPANY FINANCIAL INFORMATION
       ----------------------------------------------

       The following  represents condensed balance sheets of the Company (parent
company only) (in thousands):
<TABLE>
<CAPTION>
                                                                           December 31,
                                                                  -----------------------------
                                                                     2001               2000
                                                                  ----------         ----------
     <S>                                                          <C>                <C>
       Assets
          Cash                                                    $    8,242         $   30,114
          Investments in subsidiaries                              2,657,204          2,340,843
          Other assets                                                 6,294             26,466
                                                                  ----------         ----------
             Total                                                $2,671,740         $2,397,423
                                                                  ==========         ==========

       Liabilities and Stockholders' Equity
          Other liabilities                                       $  102,305         $  246,689
                                                                  ----------         ----------
             Total liabilities                                       102,305            246,689
          Total stockholders' equity                               2,569,435          2,150,734
                                                                  ----------         ----------
             Total liabilities and stockholders' equity           $2,671,740         $2,397,423
                                                                  ==========         ==========
</TABLE>

                                      F-84
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The following  represents  parent  company only  condensed  statements of
income (in thousands):
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                              ----------------------------------------
                                                                                2001            2000             1999
                                                                              --------       --------         --------
       <S>                                                                    <C>             <C>             <C>
       Interest income                                                        $     --        $     --        $     47
       Loss on assets                                                           (4,098)             --              --
       Dividends received from subsidiary                                      135,000          96,000         230,500
                                                                              --------        --------        --------
          Total income                                                         130,902          96,000         230,547
       Interest expense                                                            122           1,202              --
       Noninterest expense                                                       5,467           4,434           4,082
                                                                              --------        --------        --------
          Total expense                                                          5,589           5,636           4,082
       Income before equity in undistributed
          net income of subsidiaries                                           125,313          90,364         226,465
       Equity in undistributed net income of subsidiaries                      283,261         420,905         102,562
                                                                              --------        --------        --------
       Income before income taxes and minority interest                        408,574         511,269         329,027
       Income tax benefit                                                       (3,956)         (2,302)        (42,293)
                                                                              --------        --------        --------
       Income before minority interest                                         412,530         513,571         371,320
       Minority interest - Provision in lieu of income taxes                     3,247         161,688          43,679
       Minority interest - Due to GSB Investments and Hunter's Glen               (110)          1,389           4,454
                                                                              --------        --------        --------
          Net income                                                          $409,393        $350,494        $323,187
                                                                              ========        ========        ========
</TABLE>


                                      F-85
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       The following represents parent company only statements of cash flows (in
thousands):
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                             ------------------------------------------
                                                                                2001            2000            1999
                                                                             ----------       --------       ----------
<S>                                                                           <C>             <C>            <C>
Cash flows from operating activities:
       Net income                                                             $ 409,393       $ 350,494      $ 323,187
       Adjustments to reconcile net income to net cash
          provided by operating activities:
          Decrease (increase) in other assets                                    17,293         (16,063)       (24,656)
          (Decrease) increase in other liabilities                              (50,913)         38,618         34,721
          Loss on assets                                                          4,098              --             --
          Minority interest - Provision in lieu of income taxes                   3,247         161,688         43,679
          Minority interest - Due to GSB Investments and
             Hunter's Glen                                                         (110)          1,389          4,454
          Equity in undistributed net income of subsidiaries                   (283,261)       (420,905)      (102,562)
                                                                              ---------       ---------      ---------
          Net cash provided by operating activities                              99,747         115,221        278,823
                                                                              ---------       ---------      ---------

Cash flows from investing activities:
       Capital contribution to subsidiaries                                     (10,500)        (40,500)       (52,500)
       Purchase of securities                                                        --          (4,098)            --
       Merger with Golden State Financial Corporation                                --             --             959
                                                                              ---------       ---------      ---------
          Net cash used in investing activities                                 (10,500)        (44,598)       (51,541)
                                                                              ---------       ---------      ---------

Cash flows from financing activities:
       Purchase of treasury stock                                                  (749)        (63,724)      (250,245)
       Exercise of stock options and warrants                                     7,767         131,873          7,880
       Sale of treasury stock                                                        --             134            979
       Extinguishment of Issuable Shares                                        (64,000)        (85,000)            --
       Dividends                                                                (54,137)        (26,444)            --
                                                                              ---------       ---------      ---------
          Net cash used in financing activities                                (111,119)        (43,161)      (241,386)
                                                                              ---------       ---------      ---------

       Net change in cash and cash equivalents                                  (21,872)         27,462        (14,104)
       Cash and cash equivalents at beginning of year                            30,114           2,652         16,756
                                                                              ---------       ---------      ---------
       Cash and cash equivalents at end of year                               $   8,242       $  30,114      $   2,652
                                                                              =========       =========      =========
</TABLE>

                                      F-86
<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>
                                                                                             Year Ended December 31,
                                                                                    -----------------------------------------
                                                                                      2001           2000             1999
                                                                                    ---------      ---------        ---------
                                                                                                 (in thousands)
<S>                                                                                 <C>            <C>              <C>
Cash received for:
       Income taxes, net                                                            $ (7,420)      $ (28,845)       $(54,710)

Non-cash financing activities:
       Adjustment to initial dividend of tax benefits to
           former parent due to deconsolidation                                           --              --         (15,519)
       Distribution of Issuable Shares                                               (20,000)       (100,000)         (5,540)
       Issuable Shares (usage of pre-merger NOLs)                                     98,217         166,484         197,562
       Adjustment to additional paid-in capital and Issuable Shares
           for changes to tax benefits                                                14,422              --              --
       Issuable Shares adjustment for tax refund and related
           interest                                                                       --           1,389              --
       Adjustment to pre-merger tax benefits retained by
           previous owners FN Holdings                                               (24,694)        (39,305)             --
       Reclassification of LTW(TM)s 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                                                     658           3,451         (24,081)
       Impact of restricted common stock                                               3,458           3,175             477
       Extinguishment of Issuable Shares:
           Reduction of Issuable Shares                                              (11,000)        (53,312)             --
           Increase to other liabilities                                                 700          38,911              --
           Increase to additional paid-in-capital                                     10,300          14,401              --
           Reversal of previously capitalized costs - 2000
              extinguishment of Issuable Shares                                          998              --              --
       Dividend of tax asset from subsidiary                                          10,551              --              --
</TABLE>

                                      F-87
<PAGE>