<PAGE>

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

                                    ---------
                                    FORM 10-K
                                    ---------

(MARK ONE)

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

                   For the fiscal year ended December 31, 2000

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

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

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

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

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

        Registrant's telephone number, including area code: 415-904-1100
           Securities registered pursuant to Section 12(b) of the act:
       New York Stock and Pacific Exchanges: Common Stock, Par Value $1.00
           Securities registered pursuant to Section 12(g) of the Act:
                        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, 2001: $1,984,832,272

     The number of shares outstanding of the registrant's $1.00 par value common
stock, as of the close of business on February 28, 2001:  134,954,683  shares of
common stock.

                      Documents Incorporated by Reference:
              Portions of the Proxy Statement for the May 21, 2001
                    Annual Meeting of Stockholders Part III


                                     Page 1

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                            GOLDEN STATE BANCORP INC.
                         2000 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                   Page
                                                      PART I                                       ----
<S>        <C>                                                                                      <C>
ITEM 1.    Business................................................................................  3
                   General.........................................................................  3
                   Employees.......................................................................  5
                   Competition.....................................................................  5
                   Regulation and Supervision......................................................  6
ITEM 2.    Properties.............................................................................. 10
ITEM 3.    Legal Proceedings....................................................................... 11
ITEM 4.    Submission of Matters to a Vote of Security Holders..................................... 12

                                                     PART II
ITEM 5.    Market for Registrant's Common Equity and Related Stockholder Matters................... 13
ITEM 6.    Selected Financial Data................................................................. 14
ITEM 7.    Management's Discussion and Analysis
               of Financial Condition and Results of Operations.................................... 18
                   Results of Operations........................................................... 18
                   Provision for Federal and State Income Taxes.................................... 29
                   Balance Sheet Analysis.......................................................... 31
                       Investment Activities....................................................... 31
                       Sources of Funds............................................................ 33
                       Mortgage Banking Activities................................................. 38
                       Loan Portfolio.............................................................. 39
                       Problem and Potential Problem Assets........................................ 46
                       Non-performing Assets....................................................... 49
                       Allowance for Loan Losses................................................... 51
                   Risk Management................................................................. 55
                       Asset and Liability Management.............................................. 55
                       Mortgage Banking Risk Management............................................ 58
                   Liquidity....................................................................... 59
                   Other Activities................................................................ 62
                   Capital Management.............................................................. 64
                   Impact of Inflation and Changing Prices......................................... 66
                   Year 2000....................................................................... 66
ITEM 7A.   Quantitative and Qualitative Disclosures about Market Risk.............................. 67
ITEM 8.    Financial Statements and Supplementary Data............................................. 69
ITEM 9.    Changes in and Disagreements With Accountants On Accounting and Financial Disclosure.... 69

                                                     PART III
ITEM 10.   Directors and Executive Officers of the Registrant...................................... 70
ITEM 11.   Executive Compensation.................................................................. 72
ITEM 12.   Security Ownership of Certain Beneficial Owners and Management.......................... 72
ITEM 13.   Certain Relationships and Related Transactions.......................................... 72

                                                     PART IV
ITEM 14.   Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 73

Signatures......................................................................................... 77

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

                                     Page 2

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     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.  IN NOVEMBER  2000,  WE FILED AN S-3
REGISTRATION  STATEMENT  WITH THE SEC THAT  DISCUSSES  THESE  FACTORS IN GREATER
DETAIL. WE ASSUME NO OBLIGATION TO UPDATE ANY OF OUR FORWARD-LOOKING STATEMENTS.

                                     PART I

ITEM 1.   BUSINESS

GENERAL

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

     The Company, which is headquartered in San Francisco,  California, provides
diversified  financial  services to consumers and small businesses in California
and Nevada.  The  Company's  principal  business  consists of  operating  retail
branches that provide deposit  products such as demand,  transaction and savings
accounts,  and selling investment  products such as mutual funds,  annuities and
insurance.  In addition,  it engages in mortgage banking  activities,  including
originating  and  purchasing  1-4 unit  residential  loans  for sale to  various
investors in the  secondary  market or for retention in its own  portfolio,  and
servicing  loans  for  itself  and  others.  To a  lesser  extent,  the  Company
originates  and/or  purchases  commercial  real estate,  commercial and consumer
loans for investment.  These operating  activities are financed principally with
customer  deposits,  secured  short-term  and  long-term  borrowings,  including
Federal Home Loan Bank ("FHLB") advances,  collections on loans, asset sales and
retained  earnings.  Refer to note 24 of the  Company's  Notes  to  Consolidated
Financial  Statements for additional  information  about the Company's  business
segments.

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

     The Company's revenues are derived primarily from interest earned on loans,
interest  received  on  government  and agency  securities  and  mortgage-backed
securities,  gains on sales of loans and other  investments and fees received in
connection with loan servicing,  securities brokerage and other customer service
transactions.  Expenses  primarily  consist  of  interest  on  customer  deposit
accounts,   interest  on  short-term  and  long-term  borrowings,   general  and
administrative   expenses   consisting  of  compensation   and  benefits,   data
processing,   occupancy  and  equipment,   communications,   deposit   insurance
assessments,  advertising  and  marketing,  professional  fees and other general
administrative expenses.

                                     Page 3

<PAGE>

     As of December  31, 2000,  the Company had total  assets of $60.5  billion,
deposits of $23.4 billion and operated 354 retail  branch  offices in California
and Nevada.

     OWNERSHIP STRUCTURE

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

     Immediately prior to the consummation of the Golden State Acquisition,  the
charter of the Bank was  amended to  provide  that each share of Bank  Preferred
Stock (as defined  herein) is  entitled to one vote,  and each CALGZ (as defined
herein) and each CALGL (as defined  herein) has 1/5 of one vote with the holders
of the common stock of the Bank,  the Bank Preferred  Stock,  the CALGZs and the
CALGLs voting together as a single class. In addition,  after giving effect to a
stock split of the common stock of the Bank,  GS Holdings'  ownership of 100% of
the common  stock  represents  approximately  90% of the total  voting  power of
voting  securities of the Bank. In addition to its common stock ownership of the
Bank, GS Holdings owns all of the Bank Preferred Stock with a total  liquidation
preference of $473.2 million. The Bank Preferred Stock represents  approximately
7% of the total voting power of voting securities of the Bank.

     BUSINESS STRATEGY

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

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

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

                                     Page 4

<PAGE>

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

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

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

EMPLOYEES

     At  December  31,  2000,  Golden  State  and  its  subsidiaries  had  8,446
employees,  compared  with 8,102  employees at December 31, 1999.  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, loan-to-value ("LTV") ratios,
loan fees and the amount of time it takes to process a loan from  receipt of the
loan  application  to date of funding.  The Company's  future  performance  will
depend on its ability to originate a sufficient  volume of mortgage loans in its
local  market  areas and through its  wholesale  network and, if it is unable to
originate a  sufficient  volume of  mortgage  loans,  to  purchase a  sufficient
quantity  of  high-quality  mortgage-backed  securities  or loans with  adequate
yields.  There can be no assurance  that the Company will be able to effect such
actions on satisfactory terms.

                                     Page 5

<PAGE>

REGULATION AND SUPERVISION

     GENERAL

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

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

     REGULATION OF GOLDEN STATE

     HOLDING COMPANY ACTIVITIES

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

     HOLDING COMPANY ACQUISITIONS

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

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

     REGULATION OF THE BANK

     REGULATORY SYSTEM

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

                                     Page 6

<PAGE>

     LIQUID ASSETS

     Under OTS regulations,  for each calendar quarter, a savings association is
required to maintain an average daily balance of liquid assets  (including cash,
certain  time  deposits  and savings  accounts,  bankers'  acceptances,  certain
government  obligations and certain other investments) not less than a specified
percentage of the average daily  balance of its net  withdrawable  accounts plus
short-term  borrowings (its liquidity base) during the preceding calendar month.
This liquidity  requirement was 4% during each of the years 2000, 1999 and 1998.
The liquidity requirement may be changed by the OTS to any amount between 4% and
10% depending upon certain  factors.  The Bank has  maintained  liquid assets in
compliance with the regulations in effect throughout 2000, 1999 and 1998.

     REGULATORY CAPITAL REQUIREMENTS

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

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

     PROMPT CORRECTIVE ACTION

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

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

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

     The Bank met the capital  requirements of a "well capitalized"  institution
under the FDICIA prompt corrective action regulation as of December 31, 2000 and
is not subject to any  enforcement  action or other  regulatory  proceeding with
respect to the prompt corrective action  regulation.  Management  believes there
have been no conditions or events since December 31, 2000 which would change the
Bank's  capital  classification.  See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations--Capital Management."

                                     Page 7

<PAGE>

     ENFORCEMENT POWERS

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

     CAPITAL DISTRIBUTION REGULATION

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

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

     DIVIDEND POLICY

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

     (a)  the quality and stability of the Bank's net income,
     (b)  the availability of liquid assets to make dividend payments,
     (c)  the level of earnings retention as it impacts the Bank's capital needs
          and projected  growth and funding levels,  both internal and external,
          and
     (d)  the adequacy of capital after the payment of a dividend.

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

     (a)  cause the capital  level of the Bank to be reduced  below  "adequately
          capitalized" levels, or
     (b)  together with any other  dividends  declared  during the same calendar
          year,  exceed  100% of the net income to date for that  calendar  year
          plus retained net income for the preceding two years, except as may be
          permitted by regulation in extraordinary circumstances.

     For further  information  regarding dividend payments,  refer to note 27 of
the Company's Notes to Consolidated Financial Statements.

     TAX EFFECTS OF DIVIDEND PAYMENTS BY THE BANK

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

                                     Page 8

<PAGE>

     QUALIFIED THRIFT LENDER TEST

     Unless a savings  association is a qualified thrift lender (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." The restrictions to
which a savings association that is not a QTL is subject include restrictions on
its ability to obtain  advances from the FHLB, to establish  branches and to pay
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
and FHLB stock and accrued dividends. At December 31, 2000, approximately 93.13%
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  deposits  of the  Bank are  insured  by the  SAIF of the  FDIC,  up to
applicable limits,  and are subject to deposit premium  assessments by the SAIF.
Under  the  FDIC's  risk-based  insurance  system,  SAIF-assessed  deposits  are
currently  subject  to  insurance  premiums  of  between 0 and 27 basis  points,
depending upon the institution's capital position and other supervisory factors.
The rate applicable to the Bank at December 31, 2000 was 0 basis points.

     Since January 1997,  institutions with Bank Insurance Fund ("BIF") deposits
have been required to share the cost of funding debt  obligations  issued by the
Financing  Corporation  ("FICO"),  a  corporation  established  by  the  federal
government in 1987 to finance the  recapitalization  of the Federal  Savings and
Loan  Insurance  Corporation  ("FSLIC").  Until  December  31,  1999,  the  FICO
assessment  rate for BIF deposits was only  one-fifth of the rate  applicable to
SAIF  deposits.  Consequently,  the  annual  FICO  assessments  added to deposit
insurance  premiums were 5.0 basis points for SAIF deposits  during 1999.  Since
January  1,  1997,  FICO  payments  have  been  paid  directly  by SAIF  and BIF
institutions in addition to deposit insurance assessments.  Effective January 1,
2000, the FICO  assessment  rate is equal for SAIF and BIF deposits.  The Bank's
SAIF plus FICO  assessment  during  2000 was  approximately  2.04  basis  points
(annualized).

     AFFILIATE RESTRICTIONS

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

     Sections  23A and 23B require  generally  that all  transactions  between a
savings  association  and its  affiliates be on terms and  conditions  and under
circumstances that are at least as favorable to the savings association as those
prevailing  at  the  time  for  comparable   transactions  with   non-affiliated
companies.  Section 23A also limits the extent to which a savings association or
its  subsidiaries  may  engage  in  certain  "covered   transactions"  with  its
affiliates. A "covered transaction" is defined to include a loan or extension of
credit  to an  affiliate;  a  purchase  of  investment  securities  issued by an
affiliate;  with certain exceptions, a purchase of assets from an affiliate; the
acceptance  of  securities  issued by an affiliate as  collateral  for a loan or
extension of credit to any party; or the issuance of a guarantee,  acceptance or
letter of credit on behalf of an affiliate.  During 2000,  1999,  and 1998,  the
Bank had no covered transactions.

     NON-INVESTMENT GRADE DEBT SECURITIES

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

                                     Page 9

<PAGE>

     COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS

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

     PROPOSED REGULATORY LEGISLATION

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

ITEM 2.  PROPERTIES

     The  executive  offices of the Bank and 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 216,000 square foot facility in
West Sacramento, California under a lease expiring in 2001. The five-year option
to extend this lease to 2006 is expected to be exercised.

      The  Company  and  its   subsidiaries   occupied   additional   executive,
administrative and operational space at 26 sites in California,  Maryland, Texas
and Montana as of December 31, 2000. These sites included  approximately 413,000
owned square feet (4 sites) and 417,000 leased square feet (22 sites) with lease
expirations  ranging from 2001 to 2011. During 2000,  administrative  operations
were  consolidated  out of  approximately  136,000  square feet of which 106,000
square  feet  was  sold and  30,000  square  feet  was  terminated  under  lease
expiration.

     At December 31, 2000,  the Bank operated a total of 354 retail  branches in
California and Nevada which included  approximately  1,003,000 owned square feet
(127  branches)  and  1,206,000  leased  square feet (227  branches)  with lease
expirations  ranging  from  2001 to 2034.  Some of these  retail  branches  were
multi-purpose  facilities,  housing loan production and administrative  space in
addition  to retail  space.  FNMC  operated  seven  loan  production  offices in
California, Maryland, Nevada and Pennsylvania. These offices were independent of
branch  facilities  and included  approximately  52,000  leased square feet with
expirations ranging from 2001 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 of Home Federal Corporation and San Francisco Federal (the
"1996  Acquisitions"),  the acquisition of 100% of the outstanding  stock of Cal
Fed and Old California  Federal (as defined herein) (the "Cal Fed Acquisition"),
the merger with Glendale Federal Bank, Federal Savings Bank ("Glendale Federal")
and  certain  branch  purchases.  During  2000,  16 sites were  disposed  of and
included approximately 58,000 square feet. Of this, 8,000 owned square feet were
sold and 50,000  leased  square feet were  terminated.  As of December 31, 2000,
there were 39 branch sites not occupied by the Company or its  subsidiaries,  of
which 27 sites were  leased or  subleased  generating  income,  leaving 12 sites
unoccupied. In addition, there were three administrative facilities not occupied
by the  Company  or its  subsidiaries.  All  three of the sites  were  leased or
subleased, generating income.

                                    Page 10

<PAGE>

     A  state-by-state   breakdown  of  all  retail   branches,   administrative
facilities and loan production offices operated by the Bank at December 31, 2000
is shown in the following table:
<TABLE>
<CAPTION>


                        Branches                 Administrative Facilities      Loan Production Facilities
                ---------------------------      -------------------------      --------------------------
                Owned     Leased     Vacant      Owned    Leased    Vacant      Owned    Leased     Vacant
                -----     ------     ------      -----    ------    ------      -----    ------     ------
<S>              <C>        <C>        <C>        <C>       <C>       <C>        <C>        <C>       <C>
Arizona           --         --        --         --         1        --         --         --        --
California       120        218        39          3        18         2         --          5        --
Florida           --         --        --         --        --         1         --         --        --
Maryland          --         --        --          1         1        --         --         --        --
Montana           --         --        --         --         1        --         --         --        --
Nevada             7          9        --         --        --        --         --          1        --
Pennsylvania      --         --        --         --         1        --         --         --        --
Texas             --         --        --         --         4        --         --          1        --
                 ---        ---        --         --        --        --         --         --        --
      Total      127        227        39          4        26         3         --          7        --
                 ===        ===        ==         ==        ==        ==         ==        ===        ==
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

CALIFORNIA FEDERAL GOODWILL LITIGATION

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

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

     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 $23.0 million.
The summary judgment  liability  decision by the first Court of Claims Judge has
been  appealed by the  Government  and the damage  award by the second  Court of
Claims  Judge has been  appealed by the Bank.  After all  appellate  briefs were
filed,  oral  argument in the  Federal  Circuit  Court of Appeals  took place in
conjunction with the appellate argument in the Glendale Goodwill  Litigation (as
defined herein) on July 7, 2000, but the Court of Appeals has not yet rendered a
decision.

GLENDALE GOODWILL LITIGATION

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

                                    Page 11

<PAGE>

     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, and
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.  No
further  proceedings  have been  taken in the case  since the Court of  Appeals'
February 16 decision,  and the Bank continues to pursue  vigorously 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 Trustee Service
Corporation ("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 June 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.  The Bank believes that it has meritorious defenses to
the claim and intends to continue to contest it 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 12

<PAGE>

                                     PART II

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

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

                                    Common Stock            LTW(TM)s
                                  -----------------      ---------------
                                   High        Low        High      Low
                                  ------     ------      -----     -----
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

Year Ended December 31, 1999
       First Quarter              $24.50     $16.50      $5.56     $4.06
       Second Quarter              26.56      21.63       5.34      1.14
       Third Quarter               23.56      17.38       1.75      1.13
       Fourth Quarter              22.25      16.25       1.25      0.69

     At the close of business on February 28, 2001,  the Company's  common stock
and LTW(TM) prices were $27.40 and $1.31 per share, respectively.

NUMBER OF HOLDERS OF COMMON STOCK

     At February  28,  2001,  134,954,683  shares of Company  common  stock were
outstanding  and held by 6,168  holders of record.  Also at February  28,  2001,
83,484,458 LTW(TM)s were outstanding and held by 5,993 holders of record.

DIVIDENDS

     Dividends on Golden  State's common stock of $0.10 per share in each of the
third and fourth  quarters  totalled  $26.4 million for 2000. No dividends  were
paid in 1999 and 1998. See discussion of dividend restrictions in note 27 of the
Company's Notes to Consolidated Financial Statements.

                                    Page 13

<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

     The data presented below represents selected financial data relative to the
Company for each of the years in the five-year period ended December 31, 2000.
<TABLE>
<CAPTION>


                                                                             Year Ended December 31,
                                                         ------------------------------------------------------------
                                                         2000 (1)     1999 (2)     1998 (3)     1997 (4)     1996 (5)
                                                         ----         ----         ----         ----         ----
                                                               (dollars in millions, except per share data)
<S>                                                      <C>          <C>          <C>          <C>          <C>
SELECTED OPERATING DATA
Interest income                                          $4,106       $3,652       $2,585       $2,128       $1,246
Interest expense                                          2,959        2,466        1,820        1,499          848
Net interest income                                       1,147        1,186          765          629          398
Provision for loan losses                                    --           10           40           80           40
Noninterest income                                          440          400          418          331          634
Noninterest expense                                         913          907          741          642          484
Income before income taxes, minority interest
     and extraordinary items                                674          669          402          238          508
Income tax expense (benefit) (6)                            137          186         (107)          41          (76)
Minority interest: provision in lieu of
     income tax expense (6)                                 162          123           --           --           --
Minority interest: other (7)                                 28           39          111          102           48
Income before extraordinary items                           347          321          398           95          536
Extraordinary items - gain (loss) on early
     extinguishment of debt, net                              3            2         (150)          --           (2)
Net income available to common stockholders                 350          323          248           95          534


Earnings per common share:
     Basic:
               Income before extraordinary items          $2.50        $2.45        $5.00        $1.67        $9.44
               Net income                                  2.52         2.47         3.11         1.67         9.41
     Diluted:
               Income before extraordinary items           2.44         2.29         4.88         1.67         9.44
               Net income                                  2.46         2.31         3.04         1.67         9.41



SELECTED PERFORMANCE RATIOS
Return on average assets (8)                               0.59%        0.58%        0.63%        0.31%        3.12%
Return on average common equity (9)                       20.25        20.96        27.38        27.42       127.68
Average equity to average assets                           2.91         2.75         2.30         1.13         2.44
Yield on interest-earning assets (10)                      7.28         6.97         7.21         7.51         7.74
Cost of interest-bearing liabilities (11)                  5.26         4.69         5.05         5.28         5.29
Net interest margin (12)                                   2.05         2.27         2.13         2.21         2.47
Efficiency ratio of the Bank (13)                         47.85        47.38        49.38        50.76        54.33
Dividend payout ratio (14)                                 7.94           --           --           --           --


RATIO OF EARNINGS TO COMBINED FIXED
     CHARGES AND MINORITY INTEREST (15)
Excluding interest on deposits                             1.22x        1.29x        1.25x        1.16x        1.95x
Including interest on deposits                             1.15         1.19         1.15         1.08         1.51
</TABLE>

                                    Page 14

<PAGE>
<TABLE>
<CAPTION>
                                                                            December 31,
                                                  -------------------------------------------------------------------
                                                  2000 (1)      1999 (2)       1998 (3)       1997 (4)       1996 (5)
                                                  ----          ----           ----           ----           ----
                                                               (dollars in millions, except per share data)
<S>                                               <C>           <C>            <C>            <C>            <C>
SELECTED FINANCIAL DATA
Securities available for sale                     $   641       $ 1,076        $   771        $   813        $   542
Securities held to maturity                           588           185            251             58              4
Mortgage-backed securities available for sale       9,867        13,765         12,948          5,077          1,599
Mortgage-backed securities held
      to maturity                                   2,887         2,150          2,771          1,338          1,622
Loans receivable, net                              39,593        33,953         30,281         19,424         10,213
Total assets                                       60,517        57,019         54,869         31,362         16,635

Deposits                                           23,430        23,036         24,620         16,203          8,502
Securities sold under agreements
      to repurchase                                 4,511         5,482          4,238          1,842          1,583
Borrowings                                         28,801        25,669         22,376         11,233          5,365
Total liabilities                                  57,866        54,957         52,694         29,981         15,850
Minority interest                                     500           500            593          1,012            460
Stockholders' equity                                2,151         1,562          1,582            369            325

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

Book value per diluted share                       $14.96        $11.26         $11.34          $6.51          $5.74
Tangible book value per diluted share               10.15          5.35           4.72          (5.40)          3.26

REGULATORY CAPITAL RATIOS OF THE BANK
Tangible capital                                     6.30%         5.81%          5.29%          5.65%          7.17%
Core capital                                         6.30          5.81           5.29           5.65           7.17
Risk-based capital:
      Core capital                                  11.58         11.36          10.27          10.14          11.50
      Total capital                                 13.08         12.89          11.69          11.93          13.62

SELECTED OTHER DATA
Number of full service customer facilities            354           349            358            225            116
Loans serviced for others (16)                    $85,772       $75,782        $68,803        $47,933        $44,034
Full-time equivalent staff (FTE)                    7,834         7,578          8,003          4,983          3,415
Non-performing assets as a
       % of the Bank's total assets                  0.23%         0.35%          0.57%          0.87%          1.36%
</TABLE>

-----------------
(1)  2000 earnings  includes gains on the early  extinguishment  of debt of $3.0
     million, net of tax.

(2)  On April 16,  1999,  the  Company  acquired  twelve  retail  branches  with
     deposits of $543 million from Norwest Bank, Nevada, a subsidiary of Norwest
     Corporation  and Wells Fargo Bank,  N.A.  (the "Nevada  Purchase").  During
     April 1999, FNMC sold servicing rights on  approximately  49,000 loans with
     an unpaid principal balance of $2.0 billion (the "1999 Servicing Sale"). In
     August 1999, the Company sold deposits  totalling $70.1 million to Humboldt
     Bank.  Noninterest  income for the year ended  December  31, 1999  includes
     pre-tax gains of $16.3 million from the sale of mortgage  servicing  rights
     ("MSRs") and $2.3 million on the sale of deposits. 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 15

<PAGE>

(3)  On September 11, 1998,  Glendale Federal Bank merged with and into the Bank
     (the "Glen Fed  Merger"),  causing the Company to acquire  assets with fair
     values  totalling  approximately  $18.8 billion and liabilities  (including
     deposit  liabilities)  with  fair  values  totalling   approximately  $17.7
     billion.  In addition,  on September 11, 1998, the Company  consummated the
     sale of its Florida deposit  franchise to Union Planters Bank (the "Florida
     Branch Sale"),  with associated  deposit  accounts  totalling $1.4 billion,
     which resulted in a pre-tax gain of $108.9 million. Noninterest expense for
     the year ended  December  31,  1998  includes  $59.2  million in merger and
     integration  costs.  During 1998, GS Escrow Corp. issued $2 billion in debt
     securities  to fund,  in part,  the  Refinancing  Transactions  (as defined
     herein).  The Company  purchased  3,806,660  shares of the two  outstanding
     series of Bank Preferred  Stock in the Bank  Preferred  Stock Tender Offers
     (as  defined  herein)  for a total  redemption  price  of  $423.0  million,
     resulting in $36.9  million of expenses and tender  premiums,  reflected as
     minority interest expense on the Company's 1998  consolidated  statement of
     income.  In addition,  during 1998,  the Company  purchased the FN Holdings
     Notes (as defined herein) in the Debt Tender Offers (as defined herein) for
     an aggregate purchase price of $1.1 billion.  Further, the Company defeased
     the 12 1/2%  Parent  Holdings  Notes  (as  defined  herein)  in the  Parent
     Holdings  Defeasance (as defined  herein) for an aggregate  purchase price,
     including  accrued  interest  payable,  of $553.7  million.  The  after-tax
     premiums  and  expenses  paid in  connection  with such  purchases  (which,
     together with the Bank Preferred  Stock Tender  Offers,  are referred to as
     the "Refinancing  Transactions")  totalled $150.3 million and are reflected
     as an extraordinary  loss on the Company's 1998  consolidated  statement of
     income.

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

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

(6)  Income tax benefit for 1996  includes  the  recognition  of a deferred  tax
     benefit of $125 million,  offset by federal alternative minimum tax ("AMT")
     reduced to the extent of 90% by net operating loss carryovers and state tax
     generally  at an assumed  rate of 8%.  Income tax  expense for 1997 and the
     first half of 1998 represents federal AMT reduced, to the extent of 90%, by
     net operating loss carryovers,  and state tax at an assumed rate of 11%. On
     June 30, 1998, the Bank recorded a $250 million  reduction of the valuation
     allowance  related to its  deferred  tax asset.  Income tax expense for the
     second half of 1998 and for 1999  represents  an effective tax rate of 42%.
     1999 income tax expense  includes a $122.7 million tax benefit based on the
     actual filing of the Mafco Group (as defined  herein) and Golden State 1998
     consolidated federal income tax returns. The tax benefit is fully offset by
     an increase in minority interest expense.  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. Golden State's effective state tax rate declined
     to 6% in 2000  from  8% in 1999 as a  result  of  changes  in  management's
     estimates of the expected state tax liability of the Company.

                                              (Footnotes continued on next page)

                                    Page 16

<PAGE>

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

(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.

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

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

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

(13) 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).

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

(15) 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.

(16) 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 17

<PAGE>

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

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

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

RESULTS OF OPERATIONS

     Based in San  Francisco,  Golden  State is the  indirect,  publicly  traded
parent of California  Federal,  a  full-service,  community  oriented bank, that
serves consumers and small businesses in California and Nevada.  At December 31,
2000, it was the second  largest thrift in the U.S. with $60.5 billion in assets
and 354 branches.

     Golden State reported net income for 2000 of $350.5  million,  or $2.46 per
diluted share,  compared with net income of $323.2 million in 1999, or $2.31 per
diluted share. Net income for 2000 included gains on the early extinguishment of
debt, net of tax, of $3.0 million.

     Net income for 1999 included the following non-recurring items, net of tax:
a $9.4  million  gain from the 1999  Servicing  Sale,  $3.2  million in minority
interest  expense  related to the redemption of the Bank  Preferred  Stock and a
$2.5 million gain on the early extinguishment of debt.

     Excluding  these  non-recurring  items,  operating  net income for 2000 was
$347.5 million,  or $2.44 per diluted share,  compared with operating net income
for 1999 of $314.5 million, or $2.24 per diluted share.

                                    Page 18

<PAGE>

     The following table shows Golden State's consolidated average balance sheet
for the past three years,  with the related interest income,  interest  expense,
and average  interest  rates for the periods  presented.  Average  balances  are
calculated  on a daily  basis.  The  year-to-year  comparisons  set forth  below
include the effect of the Company's  acquisitions  and  dispositions  during the
periods involved.
<TABLE>
<CAPTION>
                                                                            Year Ended December 31,
                                            ----------------------------------------------------------------------------------------
                                                        2000                         1999                            1998
                                            ---------------------------    ---------------------------   ---------------------------
                                            Average             Average    Average             Average    Average            Average
                                            Balance   Interest   Rate      Balance   Interest   Rate      Balance   Interest  Rate
                                            -------   --------   ----      -------   --------   ----      -------   --------  ----
                                                                              (dollars in millions)
<S>                                         <C>       <C>       <C>        <C>       <C>       <C>        <C>        <C>      <C>
ASSETS
   Interest-earning assets (1):
      Securities and interest-bearing
         deposits in banks (2)              $ 1,424   $   90     6.34%     $ 1,554   $  100     6.45%     $ 1,121    $   77    6.84%
      Mortgage-backed securities
          available for sale                 12,017      800     6.66       13,706      873     6.37        7,952       483    6.07
      Mortgage-backed securities
          held to maturity                    2,730      206     7.56        2,392      178     7.43        1,753       134    7.67
      Loans held for sale                       837       63     7.48        1,659      110     6.60        1,652       116    7.01
      Loans receivable, net:
         Residential                         29,800    2,108     7.07       24,723    1,726     6.98       16,583     1,221    7.36
         Commercial real estate               5,711      465     8.13        5,427      416     7.67        5,019       401    7.99
         Commercial banking                     519       52     9.96          514       48     9.40          174        17    9.77
         Consumer                               763       78    10.27          649       62     9.59          549        52    9.54
         Auto                                 1,294      151    11.64          635       80     12.50         447        48   10.58
                                            -------   ------               -------   ------               -------    ------
      Loans receivable, net                  38,087    2,854     7.49       31,948    2,332     7.30       22,772     1,739    7.64
      FHLB stock                              1,301       93     7.14        1,113       60     5.36          623        36    5.78
                                            -------   ------              -------    ------               -------    ------
      Total interest-earning assets          56,396    4,106     7.28%      52,372    3,653     6.97%      35,873     2,585    7.21%
                                                      ------                         ------                          ------
   Noninterest-earning assets                 3,070                          3,735                          3,424
                                            -------                        -------                        -------
      Total assets                          $59,466                        $56,107                        $39,297
                                            =======                        =======                        =======

LIABILITIES, MINORITY INTEREST
   AND STOCKHOLDERS' EQUITY
   Interest-bearing liabilities:
      Deposits                              $23,240   $  928     3.99%     $23,902   $  888     3.72%     $18,856    $  791    4.20%
      Securities sold under agreements
         to repurchase (3)                    5,380      352     6.45        5,057      266     5.18        2,805       154    5.40
      Borrowings (3)                         27,407    1,679     6.10       23,613    1,313     5.56       14,390       875    6.08
                                            -------   ------              -------    ------               -------    ------
      Total interest-bearing liabilities     56,027    2,959     5.26%      52,572    2,467     4.69%      36,051     1,820    5.05%
                                                      ------
   Noninterest-bearing liabilities            1,210                          1,453                          1,463
   Minority interest                            498                            540                            878
   Stockholders' equity                       1,731                          1,542                            905
                                            -------                        -------
      Total liabilities, minority interest
         and stockholders' equity           $59,466                        $56,107                        $39,297
                                            =======                        =======                        =======
   Net interest income                                $1,147                         $1,186                          $  765
                                                      ======                         ======                          ======
   Interest rate spread                                          2.02%                        2.28%                            2.16%
                                                                 ====                         ====                             ====
   Net interest margin                                           2.05%                        2.27%                            2.13%
                                                                 ====                         ====                             ====
   Average equity to average assets                              2.91%                        2.75%                            2.30%
                                                                 ====                         ====                             ====
</TABLE>

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

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

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

                                    Page 19

<PAGE>

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

                                                                           Year Ended December 31,
                                                         -----------------------------------------------------------
                                                                2000 vs. 1999                    1999 vs. 1998
                                                         ---------------------------     ---------------------------
                                                         Increase (Decrease) Due To      Increase (Decrease) Due To
                                                         ---------------------------     ---------------------------
                                                         Volume      Rate        Net     Volume     Rate         Net
                                                         ------      ----        ---     ------     ----         ---
                                                                                 (in millions)
<S>                                                      <C>        <C>         <C>      <C>         <C>       <C>
INTEREST INCOME:
Securities and interest-bearing deposits in banks        $  (8)     $  (2)      $(10)    $   27      $  (4)    $   23
Mortgage-backed securities available for sale             (116)        43        (73)       365         25        390
Mortgage-backed securities held to maturity                 25          3         28         48         (4)        44
Loans held for sale                                        (63)        16        (47)        --         (6)        (6)
Loans receivable, net                                      460         62        522        666        (73)       593
FHLB stock                                                  11         22         33         27         (3)        24
                                                         -----      -----       ----     ------      -----     ------
       Total                                               309        144        453      1,133        (65)     1,068
                                                         -----      -----       ----     ------      -----     ------

INTEREST EXPENSE:
Deposits                                                   (24)        64         40        169        (72)        97
Securities sold under agreements to repurchase              18         68         86        118         (6)       112
Borrowings                                                 228        138        366        506        (68)       438
                                                         -----      -----       ----     ------      -----     ------
       Total                                               222        270        492        793       (146)       647
                                                         -----      -----       ----     ------      -----     ------

Change in net interest income                            $  87      $(126)      $(39)    $  340      $  81     $  421
                                                         =====      =====       ====     ======      =====     ======
</TABLE>

     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.

                                    Page 20

<PAGE>

     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 California  Federal Bank, A Federal  Savings Bank
prior to the Cal Fed Acquisition ("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.

     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 certificates of deposit,  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.

                                    Page 21

<PAGE>

     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.
Noninterest income includes the following  components in each of the years ended
December 31, 2000, 1999 and 1998:
<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                                  ----------------------------------
                                                                    2000         1999         1998
                                                                  --------     --------     --------
                                                                            (in thousands)
<S>                                                               <C>          <C>          <C>
Noninterest income:
     Loan servicing fees, net                                     $176,159     $127,834     $109,203
     Customer banking fees and service charges                     196,969      187,022      121,283
     Gain on sale, settlement and transfer of loans, net            49,730       32,885       54,217
     (Loss) gain on sale of assets, net                            (13,426)      21,699          193
     Gain on sale of branches, net                                      --        2,343      108,825
     Other income                                                   31,333       28,211       23,896
                                                                  --------     --------     --------
         Total noninterest income                                 $440,765     $399,994     $417,617
                                                                  ========     ========     ========
</TABLE>

     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 lower
of cost or market adjustments.

                                    Page 22

<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.  It is expected  that these
sales will 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.

     Net gain on sale of branches of $2.3 million in 1999 relates to the sale of
the Eureka and Ukiah branches. There were no branch sales in 2000.

     Other  noninterest  income was $31.3  million for 2000, an increase of $3.1
million from 1999,  primarily  attributed to IPS float  commissions for property
tax payments.

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 $17.0  million  in other  noninterest  expense,  $11.3  million in
professional  fees,  $7.7  million  in  specific  merger and  integration  costs
incurred  in 1999 in  connection  with the  Golden  State  Acquisition  and $7.0
million in amortization of intangible assets.  Noninterest  expense includes the
following  components  in each of the years ended  December 31,  2000,  1999 and
1998:

                                                   Year Ended December 31,
                                             ----------------------------------
                                               2000        1999          1998
                                             --------     --------     --------
                                                       (in thousands)
Noninterest expense:
   Compensation and employee benefits        $427,362     $391,597     $293,982
   Occupancy and equipment                    160,820      148,411       99,746
   Professional fees                           41,381       52,667       56,360
   Loan expense                                17,018       17,200       24,843
   Foreclosed real estate operations, net      (4,690)      (6,411)      (6,152)
   Amortization of intangible assets           62,717       69,724       53,415
   Merger and integration costs                    --        7,747       59,162
   Other expense                              208,631      225,674      159,307
                                             --------     --------     --------
      Total noninterest expense              $913,239     $906,609     $740,663
                                             ========     ========     ========

     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.

                                    Page 23

<PAGE>

     Merger  and  integration  costs  were $7.7  million  in 1999,  representing
transition expenses, which include severance, conversion and consolidation costs
incurred in connection  with the Golden State  Acquisition.  Such costs were not
incurred during 2000.

     Other  noninterest  expense was $208.6  million in 2000  compared to $225.7
million in 1999.  The decline in operating  expenses is primarily  attributed to
management's continued expense reduction efforts.

     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.

     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  nondeductible  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
26 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.
Dividends on the REIT Preferred Stock totalling $45.6 million were also recorded
during 2000.  Minority  interest expense relative to the REIT Preferred Stock is
reflected net of related income tax benefit of $18.6  million,  which will inure
to the Company 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.  Minority interest expense relative to the REIT Preferred
Stock is reflected  net of related  income tax benefit of $19.2  million,  which
will inure to the Company as a result of the deductibility of such dividends for
income tax  purposes.  The reduction in minority  interest  relative to the Bank
Preferred Stock reflects the impact of the $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

                                    Page 24

<PAGE>

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  acquisition  of Gulf  States
Acceptance Corporation (the "GSAC Acquisition").

     EXTRAORDINARY ITEMS. During 2000, the FHLB called and the Bank prepaid $400
million in FHLB 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 due September 1, 2004
(the "11.20% Senior Notes")  assumed in the SFFed  Acquisition,  resulting in an
extraordinary loss of $0.2 million,  net of income taxes 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.

     YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER 31, 1998

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

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

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

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

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

                                    Page 25

<PAGE>

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

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

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

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

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

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

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

                                    Page 26

<PAGE>

     NONINTEREST INCOME. Total noninterest income,  consisting primarily of loan
servicing  fees,  customer  banking  fees and  gains on sale and  settlement  of
assets,  was $400.0  million in 1999,  a decrease  of $17.6  million  from 1998.
Noninterest income included a $16.3 million pre-tax gain from the 1999 Servicing
Sale and a gain on sale of branches of $108.8 million in 1998  (primarily due to
the Florida  Branch Sale).  Excluding  these  non-recurring  items,  noninterest
income was $383.7 million in 1999 compared with $308.8 million in 1998.

     Loan servicing fees, net of amortization of MSR and  pass-through  interest
expense,  were $127.8  million for 1999,  compared with $109.2 million for 1998.
The single-family residential loan servicing portfolio, excluding loans serviced
for the Bank, increased from $65.4 billion at December 31, 1998 to $72.9 billion
at December 31, 1999.  Incremental  loan servicing fees were partially offset by
amortization  related  to  higher  average  MSR  basis in 1999 and  pass-through
interest  expense.  Loan  servicing fees benefited from the slowdown in mortgage
loan  prepayments in 1999, with an average  prepayment rate on loans serviced of
17% in 1999 versus 23% in 1998.  Pass-through  interest  expense  declined  $4.5
million during 1999, also as a result of these lower  prepayment  rates on loans
serviced for others.

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

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

     Gain on sale and  settlement  of loans  totalled  $32.9 million for 1999, a
decrease of $21.3  million from 1998.  The decrease is primarily  attributed  to
lower  gains on  residential  loans  held for sale  during  1999.  During  1999,
California Federal sold $9.7 billion in single-family  mortgage loans originated
for sale with servicing  rights retained as part of its ongoing mortgage banking
operations for a gain of $14.9 million  compared with $7.9 billion of such sales
for a gain of $32.3  million in 1998.  In addition,  gains  attributed  to early
payoffs and settlement of commercial loans with unamortized  discounts were $3.9
million higher in 1998 compared with 1999.

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

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

     NONINTEREST EXPENSE.  Total noninterest expense was $906.6 million in 1999,
an increase of $165.9  million from 1998.  Noninterest  expense in 1999 included
higher compensation,  occupancy and equipment,  goodwill  amortization and other
noninterest  expense,  attributed to the Golden State Acquisition and the Nevada
Purchase.  These increases were partially  offset by a $51.4 million decrease in
merger and  integration  costs  incurred  in  connection  with the Golden  State
Acquisition, as the majority of these costs were incurred in 1998.

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

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

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

                                    Page 27

<PAGE>

     Loan  expense was $17.2  million in 1999,  a decrease of $7.6  million from
1998.  The  decrease is primarily  attributed  to an increase in FAS 91 deferred
origination  costs due to higher loan  production  activity during 1999 compared
with 1998.

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

     Merger and  integration  costs were $7.7 million and $59.2  million in 1999
and  1998,   respectively,   representing  transition  expenses,  which  include
severance,  conversion and  consolidation  costs incurred in connection with the
Golden State Acquisition. The majority of such costs were incurred in 1998.

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

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

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

     MINORITY  INTEREST.  Minority  interest for 1999 includes a $122.7  million
provision in lieu of income taxes, representing pre-merger tax benefits retained
by the previous  owners of FN Holdings  (see note 26 of the  Company's  Notes to
Consolidated  Financial  Statements),  and $5.0 million in net premiums  paid in
connection  with the  redemption of the Bank Preferred  Stock.  Dividends on the
Bank  Preferred  Stock that had not been  acquired by GS  Holdings  and the REIT
Preferred  Stock  totalling $1.8 million and $26.4 million,  respectively,  were
also recorded  during 1999.  Minority  interest  relative to the REIT  Preferred
Stock is reflected  net of related  income tax benefit of $19.2  million,  which
will inure to the Company as a result of the deductibility of such dividends for
income tax  purposes.  The reduction in minority  interest  relative to the Bank
Preferred  Stock  reflects  the impact of the $380.7  million in Bank  Preferred
Stock purchased by GS Holdings in connection  with the Refinancing  Transactions
in 1998, as well as the $92.5 million  redeemed in 1999.  Minority  interest for
1999 also includes a $1.7 million benefit reversal  representing that portion of
Auto One's loss attributable to the 20% interest in the common stock of Auto One
that was issued as part of the GSAC Acquisition.

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

                                    Page 28

<PAGE>

premiums paid in connection with such purchase  totalled $150.3 million,  net of
income taxes, and is reflected as an extraordinary loss on early  extinguishment
of debt on Golden State's consolidated statement of income for 1998.

PROVISION FOR FEDERAL AND STATE INCOME TAXES

     During the years 2000,  1999 and 1998,  Golden  State  recorded  income tax
expense (benefit), excluding the tax effects associated with extraordinary items
and minority interest in 2000, 1999 and 1998, of $298.5 million, $309.2 million,
and $(106.4) million, respectively. 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.  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.  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.

     Included in 1999 income tax expense of $309.2  million is a $122.7  million
provision in lieu of taxes resulting from adjustments  related to pre-merger tax
benefits,  which are  retained by the previous  owners of FN Holdings  under the
Golden State Merger agreement.  To the extent these tax benefits are recognized,
there is a reduction  in income tax  expense,  which is offset by an increase in
minority  interest:  provision in lieu of income tax expense.  These adjustments
resulted from 1998 tax filings in 1999.

     The Company's effective federal income tax rates were 38%, 38% and (36)% in
2000, 1999 and 1998,  respectively.  The Company's  federal statutory income tax
rate was 35% in each of the  years  2000,  1999 and 1998.  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.  For the
year ended December 31, 1998, the difference between the effective and statutory
rates  was  primarily  the  result  of a  reduction  in the  deferred  tax asset
valuation allowance,  partially offset by non-deductible  goodwill amortization.
During the years 2000, 1999 and 1998,  Golden State's  effective state tax rates
were 6%, 8% and 9%,  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.

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

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

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

                                    Page 29

<PAGE>

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

     (a)  the Company  replaced Mafco Holdings and assumed all of the rights and
          obligations  of Mafco  Holdings  under the Tax Sharing  Agreement with
          respect to such taxable periods;
     (b)  GS Holdings  replaced FN Holdings under the Tax Sharing  Agreement and
          assumed all of the rights and obligations of FN Holdings under the Tax
          Sharing Agreement with respect to such taxable periods; and
     (c)  California Federal continued to be bound by the Tax Sharing Agreement.
          Mafco Holdings continued to be bound for all obligations  accruing for
          taxable periods on or prior to September 11, 1998.

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

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

     In connection with the Golden State Acquisition, the Company deconsolidated
from the Mafco Group. As a result,  only the amount of the net operating  losses
("NOLs") of the Company  not  utilized by the Mafco Group on or before  December
31, 1998 are available to offset  taxable income of the Company  thereafter.  At
September 11, 1998,  had the Company  filed a  consolidated  federal  income tax
return on behalf of itself and its  subsidiaries for each of the years since the
formation  of the  Company,  it would have had  regular NOL  carryforwards,  for
federal   income   tax   purposes,   of   approximately   $1.8   billion.   Upon
deconsolidation, the NOLs available to offset taxable income of the Company were
initially  estimated to be reduced by $900 million.  This  reduction of NOLs and
other tax attributes  (the  "Deconsolidation  Adjustment")  resulted in a $230.2
million  reduction  in  retained  earnings  during  1998.  The   Deconsolidation
Adjustment  was revised  during  1999 based upon the actual  filing of the Mafco
Group 1998  consolidated  federal  income tax return  (including  the  Company's
operations through September 11, 1998) and may continue to change based upon the
results of Internal  Revenue  Service ("IRS") audits for all open years of Mafco
and the Company.  Any change to the Deconsolidation  Adjustment will be recorded
as an adjustment to the amounts due or distributions made to the previous owners
of FN Holdings. In addition, adjustments related to the valuation allowance as a
result of the  Deconsolidation  Adjustment  will be recorded as an adjustment to
federal income tax expense.  Such adjustment will be offset by minority interest
since under the merger  agreement  with Golden State the tax  benefits  from any
NOLs and other tax attributes of Parent Holdings and  subsidiaries  are retained
by  the  previous  owners  of  FN  Holdings.  Accordingly,  any  change  to  the
Deconsolidation Adjustment should have no impact on Golden State's effective tax
rate. Changes are recorded in the period during which such change is determined.
During 2000, a tax benefit of $161.7 million was recognized, and a corresponding
increase to minority  interest was recorded in accordance  with the Golden State
Merger agreement.  The 2000 adjustment  resulted from a $211.7 million reduction
in the valuation  allowance and a $50 million  reduction in Goodwill  based upon
favorable  resolutions of federal  income tax audits of Old  California  Federal
Bank and Glendale  Federal,  and the current  status of Mafco's,  including  the
Company's, audits for the years 1991 through 1995. During 1999, a tax benefit of
$122.7 million was recognized, and a corresponding increase to minority interest
was recorded in accordance with the Golden State Merger agreement.  In addition,
the Company  recorded an adjustment of $15.5 million (which  increased  retained
earnings) to reduce the Deconsolidation  Adjustment to $214.7 million.  The 1999
adjustments resulted from 1998 tax filings in 1999.

                                    Page 30

<PAGE>

     At December 31, 2000, the Company had regular NOL carryforwards for federal
income tax purposes of  approximately  $401.1  million,  which are  available to
offset future federal taxable  income,  if any,  through 2018. In addition,  the
Company had AMT credit  carryforwards of  approximately  $94.8 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 Statement of Financial Accounting Standards ("SFAS") NO.
109,  ACCOUNTING  FOR  INCOME  TAXES,  a  deferred  tax  liability  has not been
recognized  for the base year  reserves of the Bank.  The base year reserves are
generally  the  balance of the tax bad debt  reserve  as of  December  31,  1987
reduced  proportionately  for reductions in the Bank's loan portfolio since that
date. At December 31, 2000, the amount of those  reserves was $305 million.  The
amount of the unrecognized  deferred tax liability at December 31, 2000 was $107
million.  Circumstances  that may  require  an accrual  of this  unrecorded  tax
liability are a failure to meet the  definition  of a "bank" for federal  income
tax  purposes,  dividend  payments  in  excess  of the  greater  of  current  or
accumulated  earnings  and  profits,   and  other  distributions,   dissolution,
liquidation or redemption of stock,  excluding  preferred  stock meeting certain
conditions.

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

BALANCE SHEET ANALYSIS

     At December 31, 2000, Golden State's assets totalled $60.5 billion, up from
$57.0 billion at December 31, 1999.  The increase was primarily due to growth in
loans receivable,  partially offset by a decrease in mortgage-backed securities.
(For a discussion of the loan portfolio,  see "--Loan Portfolio.") The growth in
interest-earning assets was largely funded by increased borrowings from the FHLB
and 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

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

     CASH EQUIVALENTS

     Cash equivalents totalled $783.1 million and $593.0 million at December 31,
2000  and  1999,  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  $641.2 million and $1.1 billion at
December  31,  2000 and  1999,  respectively.  They  consist  primarily  of U.S.
government  and agency  obligations.  At December 31, 2000 and 1999,  marketable
equity  securities   include  Golden  State's  investment  in  Precept  Business
Services,  Inc.  of $3  thousand  and $0.7  million,  respectively.  For further
information,  refer to  notes 8 and 9 of the  Company's  Notes  to  Consolidated
Financial Statements.

                                    Page 31

<PAGE>

     SECURITIES HELD TO MATURITY

     Securities  held to maturity  totalled $587.5 million and $185.4 million at
December  31, 2000 and 1999,  respectively.  They consist of  commercial  paper,
municipal  securities and federal agency  securities.  For further  information,
refer  to  notes  8 and 10 of the  Company's  Notes  to  Consolidated  Financial
Statements.

     MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE

     Mortgage-backed  securities  available  for sale  totalled $9.9 billion and
$13.8 billion at December 31, 2000 and 1999, respectively.  At December 31, 2000
and 1999,  mortgage-backed  securities  available for sale  included  securities
totalling $723.9 million and $928.7 million,  respectively,  which resulted from
the  securitization  of  certain  qualifying  mortgage  loans  from  the  Bank's
portfolio.  Mortgage-backed  securities available for sale included $3.0 billion
and $4.3 billion of variable-rate  securities as of December 31, 2000, and 1999,
respectively.

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

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

     The Company held privately issued CMOs with an aggregate  carrying value of
$5.6 billion at December 31, 2000. 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                      $336                $332
Chase Mortgage Finance Corporation                 369                 368
Countrywide Home Loans                             485                 482
First Nationwide Trust                             306                 303
GE Capital Mortgage Services, Inc.                 581                 577
Norwest Asset Securities Corp.                     650                 648
PNC Mortgage Securities Corp.                      224                 223
Residential Funding Mortgage Securities            876                 870

                                    Page 32

<PAGE>

     At December 31, 2000,  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 $269.4 million,  of which $67.8 million are
non-rated CMO residual class securities  formed by Old California  Federal's and
Glendale  Federal's  originations  of  residential  mortgages.  Credit  ratings,
however,  may be subject to  revision  or  withdrawal  at anytime by such rating
agencies.  The  mortgage-backed  securities  which  Golden State  purchases  and
maintains  in its  portfolio  include  certain  CMOs. A CMO is a special type of
pay-through  debt  obligation  in which the  stream of  principal  and  interest
payments on the underlying  mortgages or  mortgage-backed  securities is used to
create  classes  with  different  maturities  and, in some  cases,  amortization
schedules,  and a residual class of the CMO security being sold,  with each such
class  possessing  different risk  characteristics.  The residual  interest sold
represents  any residual  cash flows which result from the excess of the monthly
receipts generated by principal and interest payments on the underlying mortgage
collateral and any reinvestment  earnings thereon, less the cash payments to the
CMO holders and any administrative  expenses.  As a matter of policy, due to the
risk  associated  with  residual  interests,  the Company does not invest in the
residual interests of CMOs.

     For further information on mortgage-backed  securities  available for sale,
refer  to  notes  8 and 11 of the  Company's  Notes  to  Consolidated  Financial
Statements.

     MORTGAGE-BACKED SECURITIES HELD TO MATURITY

     At December 31, 2000 and 1999,  mortgage-backed securities held to maturity
totalled $2.9 billion and $2.1 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.

     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  8 and 12 of the  Company's  Notes  to  Consolidated
Financial Statements.

     SOURCES OF FUNDS

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

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

                                    Page 33

<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, 2000, deposits
totalled $23.4 billion, compared with $23.0 billion at December 31, 1999.
<TABLE>
<CAPTION>

                                                                        December 31,
                                         -------------------------------------------------------------------------------
                                                 2000                       1999                         1998
                                         ----------------------     -----------------------      -----------------------
                                                      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                     $ 3,087       13.2%        $ 3,666         16.0%        $ 3,372         13.7%
   Demand deposits:
       Interest-bearing                    2,063        8.8           1,974          8.6           1,865          7.6
       Noninterest bearing                 2,543       10.9           2,198          9.6           3,002         12.2
   Money market deposit accounts           3,033       13.0           3,144         13.6           3,255         13.3
                                         -------      -----         -------        -----         -------        -----
       Total transaction accounts         10,726       45.9          10,982         47.8          11,494         46.8

Term accounts                             12,611       54.1          11,990         52.2          13,080         53.2
                                         -------      -----         -------        -----         -------        -----
                                          23,337      100.0%         22,972        100.0%         24,574        100.0%
                                                      =====                       =====                         =====
Accrued interest payable                      92                         61                           39
Purchase accounting adjustments                1                          3                            7
                                         -------                    -------                      -------
       Total                             $23,430                    $23,036                      $24,620
                                         =======                    =======                      =======
</TABLE>

     Total deposits at December 31, 2000 and 1999 included  escrow  balances for
loans serviced for others  (custodial  accounts) of $825.4  million,  and $813.7
million, respectively. Deposit balances averaged $23.2 billion and $23.9 billion
during 2000 and 1999,  respectively,  with average  interest  rates of 3.99% and
3.72%,  respectively.  The weighted average stated interest rates on deposits at
December 31, 2000 and 1999 were 4.00% and 3.74%, respectively.

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

                                                                        December 31,
                                        --------------------------------------------------------------------------
                                                2000                      1999                      1998
                                        ---------------------    ----------------------     ----------------------
                                        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                  $ 3,449       3.38%      $ 3,652        3.41%       $ 2,685        3.68%
     Demand deposits:
             Interest-bearing             2,056       0.68         1,908        0.93          1,352        1.00
             Noninterest bearing          2,523         --         2,665          --          1,899          --
Money market deposit accounts             2,997       4.03         3,196        3.89          1,680        3.61
Term accounts                            12,214       5.56        12,476        5.02         11,151        5.46
                                        -------                  -------                    -------
       Total                            $23,239       4.00%      $23,897        3.74%       $18,767        4.17%
                                        =======                  =======                    =======
</TABLE>

                                    Page 34

<PAGE>

     The following  table sets forth the  scheduled  maturities of the Company's
term accounts by stated interest rate at December 31, 2000 (in millions):
<TABLE>
<CAPTION>

                             2001      2002      2003    2004    2005    Thereafter    Total
                             ----      ----      ----    ----    ----    ----------    -----
<S>                        <C>        <C>        <C>     <C>     <C>         <C>      <C>
3.01 - 4.00%               $   135    $   25     $--     $--     $ --        $--      $   160
4.01 - 5.00%                   723        45      14      14        5         --          801
5.01 - 6.00%                 4,536       449      71      15       15          1        5,087
6.01 - 7.00%                 5,567       656       2      14      167          1        6,407
7.01 - 8.00%                   122        23      --       6        5         --          156
                           -------    ------     ---     ---     ----        ---      -------

   Total term accounts     $11,083    $1,198     $87     $49     $192        $ 2      $12,611
                           =======    ======     ===     ===     ====        ===      =======
</TABLE>

     The following table sets forth remaining  maturities for the Company's term
deposits in amounts of $100,000 or more at December 31, 2000 (in millions):

     3 months or less                                    $  854
     Over 3 months but within 6 months                    1,055
     Over 6 months but within 12 months                   1,006
     Over 12 months                                         389
                                                         ------
                                                         $3,304
                                                         ======

     At December 31, 2000, the aggregate  amount  outstanding of certificates of
deposit of $100,000 or larger at the Company  was $3.3  billion,  compared  with
$2.7  billion at December 31, 1999.  Deposits  held by foreign  investors at the
Bank  totalled  $93.6  million and $92.3  million at December 31, 2000 and 1999,
respectively.

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

     The Bank issues  certificates of deposit through direct placement  programs
and national investment banking firms ("Brokered Deposits").  These deposits are
usually in amounts less than $100,000 and are obtained  from a diverse  customer
base. These funds are generally more costly than traditional  passbook and money
market  deposits  and are more  volatile  as a source of funds  because of their
sensitivity to the rates offered.  However,  they are used to supplement  retail
customer  deposits in raising funds for financing  and  liquidity  purposes.  At
December 31,  2000,  California  Federal had $466  million of Brokered  Deposits
outstanding,  representing  1.99% of total  deposits.  For more  information  on
deposits,  refer to note 20 of the  Company's  Notes to  Consolidated  Financial
Statements.

     BORROWINGS

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

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

                                    Page 35

<PAGE>

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

                                                      At or for the year ended December 31,
                                                    ----------------------------------------
                                                         2000         1999        1998
                                                         ----         ----        ----
                                                             (dollars in millions)
<S>                                                     <C>         <C>          <C>
Securities sold under agreements to repurchase:
     Average balance outstanding                        $ 4,049     $ 4,959      $2,766
     Maximum amount outstanding at any
         month end during the period                      6,073       5,996       4,264
     Balance outstanding at end of period                 2,596       5,207       4,222
     Average interest rate during the period               6.28%       5.24%       5.56%
     Average interest rate at end of period                6.68        5.48        5.05

Federal funds purchased:
     Average balance outstanding                        $    73     $    54      $   76
     Maximum amount outstanding at any
         month end during the period                        315         160         220
     Balance outstanding at end of period                    --          55         138
     Average interest rate during the period               6.52%       5.12%       5.26%
     Average interest rate at end of period                  --        5.50        5.00

Short-term FHLB advances:
     Average balance outstanding                        $10,816     $ 8,107      $5,577
     Maximum amount outstanding at any
         month end during the period                     13,601      11,270       7,880
     Balance outstanding at end of period                 8,791      11,270       7,880
     Average interest rate during the period               6.26%       5.40%       5.68%
     Average interest rate at end of period                6.56        5.84        5.34
</TABLE>

     At December  31,  2000,  the Company had an  estimated  additional  secured
borrowing capacity of $6.8 billion with the FHLB and other sources.

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

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

                                    Page 36

<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, each of which has its own
interest rate and range of maturities.  The FHLB prescribes the acceptable uses,
as well as limitations  on the size of such advances.  Depending on the program,
such limitations are based either on a fixed percentage of the institution's net
worth or on the FHLB's assessment of the institution's creditworthiness.

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

                                         2000                    1999                   1998
                                  ------------------      ------------------     ------------------
                                  Carrying   Average      Carrying   Average     Carrying   Average
                                   Value      Rate         Value      Rate        Value      Rate
                                   -----      -----        -----      ----        -----      ----
<S>                                <C>         <C>        <C>          <C>        <C>        <C>
Fixed-rate borrowings              $21,333     6.08%      $19,971      5.61%      $15,427    5.38%
Variable-rate borrowings             5,090     6.71         3,365      6.04         4,571    5.53
                                   -------                -------                 -------
    Total FHLB advances            $26,423     6.21%      $23,336      5.67%      $19,998    5.41%
                                   =======                =======                 =======
</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  22 of the  Company's  Notes  to
Consolidated Financial Statements.

     INTEREST  RATE  SWAP  AGREEMENTS.  The  Company  uses  interest  rate  swap
agreements to adjust its interest rate risk  exposure on  variable-rate  reverse
repurchase  agreements  and FHLB  advances.  The Company had interest  rate swap
agreements  with a notional  principal  amount of $3.2  billion and $2.6 billion
outstanding at December 31, 2000 and 1999,  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 the London  Interbank  Offered Rate  ("LIBOR") and pays a
fixed rate under  these  agreements.  In order to reduce  possible  counterparty
nonperformance  risk, the Company has entered into interest rate swap agreements
only with  primary  dealers in U.S.  government  securities  and the FHLB of San
Francisco.

     GS HOLDINGS NOTES. On August 6, 1998, GS Escrow,  which subsequently merged
into GS Holdings,  issued $2 billion principal amount of fixed and floating rate
notes  (the "GS  Holdings  Notes").  The GS  Holdings  Notes are  unsecured  and
unsubordinated  obligations of GS Holdings and rank in right of payment with all
other  unsubordinated and unsecured  indebtedness of GS Holdings.  The terms and
conditions of the respective note indentures  impose  restrictions  that affect,
among other things,  the ability of GS Holdings to incur debt,  pay dividends or
make distributions,  engage in a business other than holding the common stock of
the Bank and similar banking institutions, make acquisitions, create liens, sell
assets  and make  certain  investments.  For  additional  information  on the GS
Holdings Notes and other borrowings,  refer to note 22 of the Company's Notes to
Consolidated Financial Statements.

                                    Page 37

<PAGE>

     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,
2000,  management had identified $845.8 million of 1-4 unit residential loans as
held for sale.  These loans have been classified as loans held for sale, net, in
the  consolidated  balance  sheet at December  31, 2000 and are  recorded at the
lower of aggregate  amortized  cost or market value.  At December 31, 2000,  the
Company had forward and whole loan sale commitments to sell loans totalling $1.1
billion.  In  addition,  FNMC had entered  into  commitments  to  originate  and
purchase  fixed-  and  variable-rate  loans  (mortgage  loan  pipeline)  of $1.9
billion.

     At December 31, 2000, the Company had $1.6 billion in residential  mortgage
servicing  rights, an increase of $290.1 million from December 31, 1999. The 1-4
unit residential  loans serviced for others  (including  loans  sub-serviced for
others and  excluding  loans  serviced for the Bank)  totalled  $84.1 billion in
unpaid  principal  balance  ("UPB") at December 31,  2000,  an increase of $11.2
billion  from  December 31, 1999.  The serviced for others  portfolio  has grown
15.4% in UPB since  December  31,  1999,  while the loan count has  increased by
13.6%  between the two years.  The average loan balance  serviced has  increased
from $94,165 in 1999 to $95,636 at the end of 2000.

     The Company uses a variety of  instruments  to hedge against  declining MSR
values caused by higher  prepayments in a declining  interest rate  environment.
See "--Risk Management--Mortgage Banking Risk Management" and notes 19 and 38 to
the Company's  Notes to  Consolidated  Financial  Statements for a more detailed
discussion of these hedging activities.

     The servicing  portfolio of FNMC,  including  loans  serviced for the Bank,
approximated  $112.0  billion  and  1,048,262  loans as of  December  31,  2000.
Substantially  all of FNMC loans are serviced in a 230,000  square foot facility
in Frederick,  Maryland. Mortgage loan sales, primarily fixed-rate loans sold to
FNMA, FHLMC, GNMA and private investors,  totalled $5.1 billion and $9.7 billion
in 2000 and 1999, respectively.

     First  Nationwide  Bank, A Federal Savings Bank ("Old FNB"), Old California
Federal and Glendale Federal  occasionally sold 1-4 unit residential loans under
recourse  provisions;  such  liabilities were assumed by the Company in its 1994
acquisition  of  the  assets  and  certain  liabilities  of  Old  FNB  (the  "FN
Acquisition"),  in the Cal Fed  Acquisition,  and in the Glen Fed Merger.  As of
December 31, 2000, the balance of 1-4 unit  residential  loans sold with certain
recourse provisions totalled $728.0 million.

     During 2000, 1999 and 1998 FNMC acquired  mortgage-servicing rights on loan
portfolios of $15.7 billion or 146,601 loans, $14.5 billion or 121,568 loans and
$31.2 billion or 274,506 loans, respectively.  The Company sold servicing rights
on portfolios of approximately $22.7 million and 861 loans in 2000, $2.1 billion
and 50,700 loans in 1999, and $144.2  million and 3,527 loans in 1998.  Gains of
$50 thousand,  $16.3 million and $0.3 million were  recognized on these sales in
2000, 1999 and 1998, respectively.

     During 2000, the Company,  through FNMC,  originated  $5.3 billion and sold
$5.1 billion of 1-4 unit  residential  loans held for sale.  Gross revenues from
mortgage loan servicing activities for 2000 totalled $380.7 million, an increase
of $35.3  million from 1999.  Gross loan  servicing  fees for 2000 and 1999 were
reduced by $201.1 million and $208.2 million,  respectively,  of amortization of
servicing  rights  and  $10.4  million  and  $18.8  million,   respectively,  of
pass-through  interest  expense to arrive at net loan  servicing  fees of $169.1
million and $118.4 million, respectively, for FNMC.

                                    Page 38

<PAGE>

     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 2000,  1999 and 1998  totalled  $21.1  million,  $14.9
million and $32.3 million,  respectively,  and included  amounts  related to the
capitalization  of originated and excess MSRs of $126.6 million,  $193.9 million
and $170.0 million,  respectively.  The Company  monitors the prepayments on the
loans  serviced for investors and reduces the balance of the asset if the actual
prepayments are in excess of the estimated  prepayment trends used to record the
original  asset.  The Company's  assumptions  relative to the prepayment  speed,
discount and servicing fee rates are reviewed  periodically  to reflect  current
market  conditions  and  regulatory  requirements.   The  Company  measures  the
impairment of MSRs based on the  difference  between the carrying  amount of the
MSRs and their  current fair value.  At December 31, 2000 and 1999,  the Company
believes that no allowance for impairment of the MSRs was necessary.

     At December 31, 2000,  the Company,  through FNMC,  owned rights to service
approximately  $84.1  billion  of  whole  loans,   participation  interests  and
mortgage-backed  securities for others.  These loans have an average  balance of
$95,636,  a weighted  average coupon rate of 7.58%, a weighted  average maturity
based on unpaid  principal  balance of 286  months  and a service  fee spread of
0.41%.  The  greater  than 30 day  delinquency  rate on these  loans  (including
delinquent bankruptcies,  foreclosed loans and loans in foreclosure) at December
31, 2000 was 1.4%.

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

     LOAN PORTFOLIO

     The Company's  principal  lending activity is the origination of adjustable
and fixed-rate  mortgage loans secured by residential  real estate.  The Company
also  originates  primarily  adjustable-rate  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 1999 and 2000,
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  $781.0  million in 1999 to $1.3
billion in 2000, auto loan  originations and purchases  totalled $1.1 billion in
2000, an increase of $568 million over 1999, and home equity  lending  increased
from  $362.9  million  in 1999 to  $525.9  million  in 2000.  In  addition,  the
commercial  banking group was expanded to heighten  focus on small  business and
middle market lending.

                                    Page 39

<PAGE>

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

                                             Year Ended December 31,
                                             -----------------------
                                              2000             1999
                                              ----             ----
                                                  (in millions)

Balance at beginning of period               $34,327          $30,784
Originations:
    1-4 unit residential                       7,756            7,344
    Multi-family residential                     987              616
    Commercial real estate                       301              165
    Construction                                   1               --
    Equity line                                  526              363
    Other consumer                               223               61
    Commercial loans                             701              610
Purchases:
    Downey Acquisition                           380               --
       Auto One                                1,054              486
    Other                                        595            1,712
Sales                                            (69)             (19)
Foreclosures                                     (47)            (102)
Payments, payoffs and other                   (6,854)          (7,693)
                                             -------          -------
Balance at end of period                     $39,881          $34,327
                                             =======          =======

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

                                                                                      At December 31,
                                                                -----------------------------------------------------------
                                                                 2000          1999         1998         1997         1996
                                                                ------        -------      -------      -------     -------
                                                                                   (in millions)
<S>                                                             <C>           <C>          <C>          <C>         <C>
Real estate loans:
    1-4 unit residential                                        $30,828       $26,966      $23,493      $14,071     $ 6,118
    Multi-family residential                                      3,569         2,881        2,641        3,035       2,164
    Commercial real estate                                        2,487         2,565        2,940        2,146       1,978
    Land                                                             22            32           33            5          11
    Construction                                                      8             8           22            1           6
                                                                -------       -------      -------      -------     -------
         Total real estate loans                                 36,914        32,452       29,129       19,258      10,277
                                                                -------       -------      -------      -------     -------
Equity-line loans                                                   539           433          385          355         243
Other consumer loans                                                303           237          242          107          55
Auto loans, net                                                   1,567           698          487          171          --
Commercial loans                                                    558           507          541           30          30
                                                                -------       -------      -------      -------     -------
         Total loans receivable                                  39,881        34,327       30,784       19,921      10,605
                                                                -------       -------      -------      -------     -------
Less:
    Deferred loan fees, costs, discounts and premiums, net         (230)         (174)         (82)         (47)         (5)

    Allowance for loan losses                                       526           555          589          419         247
    Purchase accounting adjustments, net                             (8)           (7)          (4)         125         150
                                                                -------       -------      -------      -------     -------

Loans receivable, net                                           $39,593       $33,953      $30,281      $19,424     $10,213
                                                                =======       =======      =======      =======     =======
</TABLE>

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

                                    Page 40

<PAGE>

     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 is 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, 2000:
<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          $19,763     $4,600        $2,814        $377        $1,854        $388       $29,796        80.72%
Florida                 592        249            50           6            40           9           946         2.56
Texas                   442        145            70          39            10          19           725         1.96
Washington              397         52            38          14             5          --           506         1.37
New York                283        156            12           4            15          15           485         1.31
Illinois                278         89             9           5            16          22           419         1.14
Colorado                297         67            29           6             3           1           403         1.09
Nevada                  249         81            19          17             9           3           378         1.02
Other states (1)      2,106        982            29          31            70          38         3,256         8.83
                    -------     ------        ------        ----        ------        ----       -------       ------
          Total     $24,407     $6,421        $3,070        $499        $2,022        $495       $36,914       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.

     The following  table  summarizes  the Company's loan  portfolio,  excluding
loans held for sale, at December 31, 2000,  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                    $  2         $   27          $24,378      $24,407
                Fixed-rate                         48             41            6,332        6,421
        Multi-family residential
                Variable-rate                      85            489            2,496        3,070
                Fixed-rate                         11             77              411          499
        Commercial real estate and othe
                Variable-rate                     196            958              868        2,022
                Fixed-rate                         31            117              347          495
                                                 ----         ------          -------      -------
                      Total                       373          1,709           34,832       36,914
                                                 ----         ------          -------      -------
Commercial and consumer loans:
                Variable-rate                     211            119              573          903
                Fixed-rate                        182          1,668              214        2,064
                                                 ----         ------          -------      -------
                      Total                       393          1,787              787        2,967
                                                 ----         ------          -------      -------

                      Total loans receivable     $766         $3,496          $35,619      $39,881
                                                 ====         ======          =======      =======
</TABLE>

                                    Page 41

<PAGE>

     1-4 UNIT RESIDENTIAL LENDING

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

     Adjustable-rate programs include loans which:

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

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

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

     None of the ARM products  currently  offered is  convertible.  A variety of
features are  incorporated  into ARM loans to protect  borrowers  from unlimited
adjustments  in interest  rates and payments.  All ARMs have lifetime caps which
limit the amount of rate increases  over the life of the loan.  ARMs whose rates
adjust  annually  have rate caps which limit the amount that rates can change to
two percentage points per year. Loans which adjust monthly based upon the twelve
month average of the monthly one year Treasury Bill index limit payment  changes
to no more than 7.5% of the  payment  amount per year.  This may lead to monthly
payments  which are less  than the  amount  necessary  to  amortize  the loan to
maturity at the interest rate in effect for any particular  month.  In the event
that the monthly payment is not sufficient to pay interest  accruing on the loan
during the month,  this  deficiency  is added to the  loan's  principal  balance
(I.E.,  negative  amortization).  The total outstanding  principal balance for a
particular loan under this program is not allowed to exceed 110% of the original
loan amount as a result of negative amortization.

     The Company's  portfolio of 1-4 unit  residential  mortgage  loans contains
other loan products  which may negatively  amortize,  generally to not more than
125% of the  original  loan  amount.  Every  five years and at any time the loan
reaches its maximum  amount,  the loan  payment is  recalculated  to the payment
sufficient to repay the unpaid  principal  balance in full at the maturity date.
As of December 31, 2000, the Company's capitalized interest relative to such 1-4
unit residential loans was approximately  $13.9 million.  This amount represents
approximately  0.26% of the  approximately  $5.3 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 $4.3 billion of
loans  with  prepayment  penalty  options  for  the  Company  during  2000.  See
"--Mortgage Banking Activities" for a further discussion of these activities.

                                    Page 42

<PAGE>

     The following table summarizes 1-4 unit  residential loan  originations for
the years ended December 31, 2000 and 1999 (in millions):
<TABLE>
<CAPTION>


                                                      2000                                    1999
                                       ------------------------------------     ------------------------------------
    Production Channel                    Arm         Fixed         Total         Arm          Fixed        Total
    ------------------                    ---         -----         -----         ---          -----        -----
    <S>                                <C>           <C>          <C>           <C>           <C>          <C>

    Retail and portfolio retention     $  652.9      $  842.8     $ 1,495.7     $  692.1      $1,432.2     $ 2,124.3
    Wholesale                           4,360.7       1,448.5       5,809.2      4,368.4       2,866.8       7,235.2
    Correspondent lending               2,246.0       1,993.5       4,239.5      1,899.2       2,478.3       4,377.5
    Other                                    --       1,556.6       1,556.6          1.6       1,976.4       1,978.0
                                       --------      --------     ---------     --------      --------     ---------
                                       $7,259.6      $5,841.4     $13,101.0     $6,961.3      $8,753.7     $15,715.0
                                       ========      ========     =========     ========      ========     =========
</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.

     LOANS HELD FOR SALE

     Activity  related to loans held for sale for the years ended  December  31,
2000 and 1999 is summarized as follows:

                                                2000               1999
                                                ----               ----
                                                     (in millions)

         Balance at beginning of period        $   729            $ 2,367
         Purchases and originations              5,344              8,755
         Sales                                  (5,059)            (9,703)
         Payments, payoffs and other              (168)              (690)
                                               -------            -------
         Balance at end of period              $   846            $   729
                                               =======            =======

     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
1999 and 2000, 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 the FHLB 11TH
District Cost of Funds or the six-month and one-year  Treasury Bill indices with
a monthly or semi-annual rate adjustment.  The terms and  characteristics of the
ARMs originated for multi-family and commercial real estate lending purposes are
similar to those for  residential  lending.  As such, many of the same risks and
protections related to residential borrowers are present in the multi-family and
commercial  real  estate  portfolios,   including  the  potential  for  negative
amortization  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, 2000,  the  Company's  capitalized
interest relative to such loans was approximately $0.3 million, which represents
approximately  0.01% of the $2.6 billion of  multi-family  and  commercial  real
estate loans that have the potential to experience negative amortization.

                                    Page 43

<PAGE>

     At December 31, 2000 and 1999, the  multi-family and commercial real estate
loan portfolio totalled $6.1 billion and $5.4 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.

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

     The  following  table  summarizes  origination  activity for  multi-family,
commercial and other real estate loans for the years ended December 31, 2000 and
1999 (in millions):

                                            2000            1999
                                            ----            ----

      Multi-family residential             $  987           $616
      Commercial real estate                  301            165
                                           ------           ----
                                           $1,288           $781
                                           ======           ====

     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, 2000, the principal balance of loans sold with recourse totalled
$1.8 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, 2000, the home equity portfolio  totalled $539 million or 64.0% of the total
consumer loan  portfolio of $841 million.  At December 31, 1999, the home equity
portfolio totalled $433 million or 64.6% of the total consumer loan portfolio of
$670 million.

     The following table summarizes  consumer loan origination  activity for the
years ended December 31, 2000 and 1999 (in millions):

                                           2000           1999
                                           ----           ----

              Equity line of credit        $526           $363
              Other consumer                223             61
                                           ----           ----
                                           $749           $424
                                           ====           ====

     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.

                                    Page 44

<PAGE>

     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, 2000 and 1999, the Company's auto loan portfolio totalled
$1.6 billion and $698  million,  respectively,  of which,  $924 million and $698
million,  respectively,  were sub-prime.  Substantially  all of Auto One's loans
were  purchased  in bulk  from  third  parties  or from  independent  automobile
dealers.

     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 2000 prime and  sub-prime  production  was 63 and 59
months,  respectively,  while the  weighted  average  term on the  portfolio  at
December 31, 2000 was 51 and 46 months, respectively.

     Auto One loan  purchases  in 2000  consisted  of 25,207  prime  and  42,648
sub-prime loans (excluding the Downey  Acquisition),  with average loan balances
of $18.0 thousand and $13.9  thousand,  respectively.  The portfolio at December
31, 2000 consisted of 49,686 prime and 86,674 sub-prime contracts,  with average
loan balances of $12.4 thousand and $10.9 thousand, respectively.

     Approximately  69% of Auto  One's  purchases  of  prime  loans  in 2000 are
collateralized  with vehicles two years old or newer.  Approximately 68% of Auto
One's purchases of sub-prime loans in 2000 are collateralized  with vehicles two
years old or newer. Underwriting on loans purchased from dealers is performed by
Auto One personnel prior to purchase.

     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 purchased  auto loans for the years ended December 31,
2000 and 1999 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>
Balance, December 31, 1998               $  696           $(121)          $ (88)            $(8)          $  479

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

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
                                         ======           =====           =====             ===           ======
</TABLE>

                                    Page 45

<PAGE>

     COMMERCIAL BANKING

     The Company's  commercial  banking program has four  components:  community
business banking,  commercial  markets banking,  agribusiness  lending and Small
Business  Administration  ("SBA")  lending.  The  Company's  community  business
banking product line includes  business checking and savings products of various
types,  cash  management  products  and  services,   account  analysis,  payroll
services,  electronic banking services,  and merchant draft services.  Community
business banking focuses  primarily on businesses with annual sales of less than
$10  million  located in the  markets  served by the  Company's  retail  banking
offices.  To meet the credit  needs of these  business  customers,  the  Company
offers a wide variety of secured and unsecured  prime-based  lines of credit and
term loans  with  maturities  up to ten years.  The  maximum  credit  commitment
offered by community business banking is $1 million. At December 31, 2000, total
funded and unfunded  credit  commitments  under the community  business  banking
group totalled $383 million, compared to $298 million at December 31, 1999.

     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, 2000, funded and unfunded credit  commitments  under the commercial  markets
group totalled $235 million, compared to $220 million at December 31, 1999.

     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,
2000,  funded and unfunded credit  commitments  under the  agribusiness  lending
program totalled $172 million, compared to $215 million at December 31, 1999.

     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, 2000,  funded and unfunded  credit
commitments  under the SBA lending  program  totalled $158 million,  compared to
$152 million at December 31, 1999.  Additionally,  the SBA  servicing  portfolio
totalled  $100  million  and  $130  million  at  December  31,  2000  and  1999,
respectively.

     At December  31, 2000,  deposit  relationships  under the various  business
banking product lines totalled $1.3 billion. The Company's business banking loan
products primarily have adjustable  interest rates that are indexed to the prime
rate.

     PROBLEM AND POTENTIAL PROBLEM ASSETS

     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

                                    Page 46

<PAGE>

valuation allowances in accordance with generally accepted accounting principles
and federal regulations for assets classified as "substandard" or "doubtful" and
either  immediately write off assets classified as "loss" or establish  specific
valuation allowances equal to the amounts classified as "loss."

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

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

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

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

     At December 31, 2000 and 1999,  loans that were  considered  to be impaired
totalled $97.2 million and $123.6 million, respectively, (of which $19.5 million
and  $18.9  million,  respectively,  were on  nonaccrual  status).  The  average
recorded  investment in impaired  loans during the years ended December 31, 2000
and 1999, was approximately $91.3 million and $139.3 million,  respectively. For
the years  ended  December  31,  2000,  1999 and 1998,  the  Company  recognized
interest  income on those impaired loans of $8.3 million,  $9.5 million and $9.0
million,  respectively,  which  included  $1.6  million,  $2.7  million and $1.2
million, respectively, of interest income recognized using the cash basis method
of income recognition.

                                    Page 47

<PAGE>

     The following table presents the Company's non-performing loans, foreclosed
real estate,  repossessed  assets and impaired loans 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 unpaid principal balance.
<TABLE>
<CAPTION>

                                                      December 31, 2000                December 31, 1999
                                                 ----------------------------      ----------------------------
                                                 Non-performing      Impaired      Non-performing      Impaired
                                                 --------------      --------      --------------      --------
                                                                           (in millions)
<S>                                                   <C>              <C>             <C>               <C>
Real Estate:
   1-4 unit residential                               $ 89             $ 1             $126              $ --
   Multi-family residential                              3              24                6                34
   Commercial and other                                  2              40                8                67
   Land                                                 --              --               --                 2
                                                      ----             ---             ----              ----
        Total real estate                               94              65              140               103
Non-real estate                                         21              32               11                21
                                                      ----             ---             ----              ----
        Total loans                                    115 (a)         $97 (b)          151 (a)          $124 (b)
                                                                       ===                               ====
Foreclosed real estate, net                             19                               45
Repossessed assets                                       7                                4
                                                      ----                             ----
        Total non-performing assets                   $141                             $200
                                                      ====                             ====
</TABLE>

-----------------
(a)  Includes loans securitized with recourse on  non-performing  status of $2.0
     million at December  31,  1999.  No such loans are included at December 31,
     2000.

(b)  Includes  $19.5  million  and  $18.9  million  of  non-performing  loans at
     December 31, 2000 and 1999, respectively.

     IMPAIRED LOANS

     The following table indicates  outstanding  balances of impaired loans, net
of purchase accounting  adjustments,  by collateral type, interest rate type and
state concentration as of December 31, 2000:
<TABLE>
<CAPTION>

                         Multi-family           Commercial
                         Residential            and Other          Total
                      -----------------     -----------------    Impaired     % of
       State          Variable    Fixed     Variable    Fixed     Loans      Total
       -----          --------    -----     --------    -----     -----      -----
                                         (dollars in millions)
<S>                     <C>        <C>        <C>        <C>      <C>      <C>
California              $21        $2         $58        $5       $86       88.66%
Illinois                 --        --           6        --         6        6.19
Florida                  --        --           4        --         4        4.12
Other states (1)          1        --          --        --         1        1.03
                        ---        --         ---        --       ---      ------
     Total              $22        $2         $68        $5       $97      100.00%
                        ===        ==         ===        ==       ===      ======
</TABLE>

---------------

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

                                    Page 48

<PAGE>

     NON-PERFORMING ASSETS

     LOAN PORTFOLIO RISK ELEMENTS

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

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

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

                                                                  December 31,
                                                 -------------------------------------------------
                                                 2000      1999      1998        1997         1996
                                                 ----      ----      ----        ----         ----
                                                               (dollars in millions)
<S>                                              <C>       <C>       <C>         <C>          <C>
Non-performing loans:
   Real Estate:
      1-4 unit residential                       $ 89      $126      $190        $165         $146
      Multi-family residential                      3         6        16          12           13
      Commercial and other                          2         8        10           6            9
      Land                                         --        --        --          --           --
      Construction                                 --        --         1           2            1
                                                 ----      ----      ----        ----         ----
           Total real estate                       94       140       217         185          169
   Equity-line, consumer and other
      non-real estate                              21        11         9           7            3
                                                 ----      ----      ----        ----         ----
           Total non-performing loans             115       151       226         192          172
Foreclosed real estate, net                        19        45        80          77           52
Repossessed assets                                  7         4         4           3           --
                                                 ----      ----      ----        ----         ----
           Total non-performing assets           $141      $200      $310  (a)   $272  (b)    $224  (c)
                                                 ====      ====      ====        ====         ====

Non-performing loans as a percentage
      of loans receivable                        0.29%     0.44%     0.75%       0.99%        1.69%
                                                 ====      ====      ====        ====         ====

Non-performing assets as a percentage
      of the Bank's total assets                 0.23%     0.35%     0.57%       0.87%        1.36%
                                                 ====      ====      ====        ====         ====
</TABLE>

------------

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

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

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

                                    Page 49

<PAGE>

     Interest income of $8.5 million, $7.1 million and $9.7 million was received
and  recognized  by the  Company  for  nonaccrual  loans  during the years ended
December  31,  2000,  1999 and 1998,  respectively.  Had the loans  performed in
accordance  with their original  terms,  $10.0 million,  $10.9 million and $18.2
million  would have been  recognized  during  December 31, 2000,  1999 and 1998,
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, 2000:
<TABLE>
<CAPTION>

                                                                      Total
                          Non-performing        Foreclosed        Non-performing
                           Real Estate          Real Estate,        Real Estate         Geographic
                          Loans, Net (2)          Net (2)             Assets          Concentration
                          --------------          -------             ------          -------------
                                                        (dollars in millions)
<S>                             <C>                <C>                <C>                <C>
Region:
    Northeast (1)               $ 9                $  1               $ 10                 8.85%
    California                   56                  12                 68                60.18
    Other regions                29                   6                 35                30.97
                                ---                 ---               ----               ------
            Total               $94                 $19               $113               100.00%
                                ===                 ===               ====               ======
</TABLE>

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

(2)  Net of purchase accounting adjustments.

     At December 31, 2000, the Company's largest  non-performing  asset was $2.6
million and the Company  had two  non-performing  assets over $2 million in size
with balances averaging  approximately  $2.4 million.  At December 31, 2000, the
Company had 3,692 non-performing  assets below $2 million in size, including 973
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, 2000:
<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                $39         $14        $2         $--           $1        $--          $56          59.58%
New York                    3           2        --          --           --         --            5           5.32
Florida                     4           4        --          --            1         --            9           9.57
Hawaii                      5          --        --          --           --         --            5           5.32
New Jersey                  2           1        --          --           --         --            3           3.19
Illinois                    1           1        --          --           --         --            2           2.13
Texas                       1           2        --          --           --         --            3           3.19
Other states (1)            8           2         1          --           --         --           11          11.70
                          ---         ---        --         ---           --        ---          ---         ------
     Total                $63         $26        $3         $--           $2        $--          $94         100.00%
                          ===         ===        ==         ===           ==        ===          ===         ======
</TABLE>

-------------------
(1)  There are 39 states,  Puerto Rico, Virgin Islands, Guam and the District of
     Columbia, of which no one state had non-performing loans in excess of 1% of
     the total.

                                    Page 50

<PAGE>

     ALLOWANCE FOR LOAN LOSSES

     An allowance is maintained to absorb losses inherent in the loan portfolio.
The  adequacy of the  allowance  is  periodically  evaluated  by  management  to
maintain the  allowance at a level that is  sufficient  to absorb  expected loan
losses. The allowance for loan losses is increased by provisions for loan losses
as well  as by  balances  acquired  through  acquisitions  and is  decreased  by
charge-offs  (net of recoveries).  The Company  charges current  earnings with a
provision  for loan losses to maintain the  allowance for loan losses at a level
deemed  appropriate by  management.  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
year ended December 31, 2000. The Company recorded provisions for loan losses of
$10 million and $40  million  for the years  ended  December  31, 1999 and 1998,
respectively.

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

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

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

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

     The specific allowances are established against individual loans, including
impaired  loans.   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.

                                    Page 51

<PAGE>

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

     At December  31,  2000,  the  allowance  for loan losses was $526  million,
consisting of a $386 million formula allowance, a $27 million specific allowance
and a $113 million unallocated  allowance.  Although the loan loss allowance has
been allocated by type of loan for internal valuation purposes,  $499 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 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,
                                                       -----------------------------------------------------------
                                                       2000         1999          1998          1997          1996
                                                       ----         ----          ----          ----          ----
                                                                              (in millions)
<S>                                                    <C>          <C>           <C>           <C>           <C>
Specific allowance:
     Real estate loans:
        1-4 unit residential                           $ 11         $ 16          $ --          $ --          $ --
        Multi-family residential and
           Commercial real estate                         8           18            17             8             6
                                                       ----         ----          ----          ----          ----
               Total real estate loans                   19           34            17             8             6
        Equity-line and consumer loans                    8            5            --            --            --
                                                       ----         ----          ----          ----          ----
               Total specific allowance                  27           39            17             8             6
                                                       ----         ----          ----          ----          ----
General allowance:
     Real estate loans:
        1-4 unit residential                            217          219           251           202           123
        Multi-family residential and
           Commercial real estate                       175          258           261           190           109
                                                       ----         ----          ----          ----          ----
               Total real estate loans                  392          477           512           392           232
        Equity-line and consumer loans                  107           39            60            19             9
                                                       ----         ----          ----          ----          ----
               Total general allowance                  499          516           572           411           241
                                                       ----         ----          ----          ----          ----
               Total allowance for
                  loan losses                          $526         $555          $589          $419          $247
                                                       ====         ====          ====          ====          ====
</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,
                            --------------------------------------------------------------------------------------------------------
                                   2000                 1999                  1998                 1997                 1996
                            -------------------  ------------------   -------------------  --------------------  -------------------
                                        % 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              $228       77%       $235        79%      $251        76%       $202        71%       $123       58%
  Multi-family
     residential and
     commercial real estate    183       15         276        16        278        18         198        26         115       39
                              ----      ---        ----       ---       ----       ---        ----       ---        ----      ---
        Total real
           estate loans        411       92         511        95        529        94         400        97         238       97
  Equity-line and
     other loans               115        8          44         5         60         6          19         3           9       3
                              ----      ---        ----       ---       ----       ---        ----       ---        ----      ---
        Total                 $526      100%       $555       100%      $589       100%       $419       100%       $247      100%
                              ====      ===        ====       ===       ====       ===        ====       ===        ====      ===
</TABLE>

                                    Page 52
<PAGE>

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

                                                                                  Year Ended December 31,
                                                                     ---------------------------------------------------
                                                                     2000        1999        1998        1997       1996
                                                                     ----        ----        ----        ----       ----
                                                                                        (in millions)
<S>                                                                  <C>         <C>         <C>          <C>        <C>
Balance at beginning of period                                       $555        $589        $419         $247       $210
  Purchases - Glen Fed Merger                                          --          --         170           --         --
  Purchases - Cal Fed Acquisition                                      --          --          --          144         --
  Purchases - SFFed Acquisition                                        --          --          --           --         40
  Purchases - Home Federal Acquisition                                 --          --          --           --          5
  Provision for loan losses                                            --          10          40           80         40
  Charge-offs:
      1-4 unit residential                                             (7)        (19)        (27)         (38)       (35)
      Multi-family  residential  and  commercial  real estate (a)      (6)         (7)         (9)          (8)        (4)
      Consumer and other                                              (21)        (14)        (10)         (10)        (6)
                                                                     ----        ----        ----         ----       ----
           Total charge-offs                                          (34)        (40)        (46)         (56)       (45)
  Recoveries                                                            5           4           6            4          3
                                                                     ----        ----        ----         ----       ----
      Net charge-offs                                                 (29)        (36)        (40)         (52)       (42)
  Allocation to Nonaccretable Contractual
      Cash Flows of purchased auto loan portfolio                      --          (7)         --           --         --
  Reclassifications                                                    --          (1)         --           --         --
  Allowance for losses assigned to loans sold                          --          --          --           --         (6)
                                                                     ----        ----        ----         ----       ----
Balance at end of period                                             $526        $555        $589         $419       $247
                                                                     ====        ====        ====         ====       ====
</TABLE>

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

     The Company has  increased its allowance for loan losses over the past five
years both through  periodic  provisions (and charges to income) of $170 million
and through  balances of $359 million  acquired in  connection  with the various
acquisitions  which occurred during that time.  Charge-offs during the five-year
period  totalled $221 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 2000 totalled $196 million. On
a pro forma basis,  average annual charge-offs for the five years ended December
31, 2000 were $83 million,  which represents  approximately  six years of losses
based on the allowance for loan losses at December 31, 2000.

                                    Page 53

<PAGE>

     A summary of the activity in the  allowance for loan losses by loan type is
as follows for the years ended December 31, 2000, 1999 and 1998:
<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, 1997                         $202                $198              $ 19              $419
     Purchases and acquisitions, net                  50                  78                42               170
     Provisions for loan losses                       25                   9                 6                40
     Charge-offs                                     (27)                 (9)              (10)              (46)
     Recoveries                                        1                   2                 3                 6
                                                    ----                ----              ----              ----
Balance - December 31, 1998                          251                 278                60               589
     Provisions for loan losses                        2                   3                 5                10
     Charge-offs                                     (19)                 (7)              (14)              (40)
     Recoveries                                        1                   1                 2                 4
     Allocation to Nonaccretable
        Contractual Cash Flows
        of purchased auto loan portfolio              --                  --                (7)               (7)
     Reclassifications                                --                   1                (2)               (1)
                                                    ----                ----              ----              ----
Balance - December 31, 1999                          235                 276                44               555
     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
                                                    ====                ====              ====              ====
</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,
                                       ------------------------------------
                                       2000    1999    1998    1997    1996
                                       ----    ----    ----    ----    ----

Real estate:
     1-4 unit residential              0.02%   0.07%   0.11%   0.25%   0.55%
     Multi-family residential and
           commercial real estate      0.09    0.10    0.18    0.15    0.09
Consumer and other                     0.64    0.67    0.50    1.72    1.86

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

                                    Page 54

<PAGE>

RISK MANAGEMENT

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

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

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

     ASSET AND LIABILITY MANAGEMENT

     Golden State,  through the Bank,  actively  pursues  investment and funding
strategies  to  minimize  the  sensitivity  of its  earnings  to  interest  rate
fluctuations.  The Company measures the interest rate sensitivity of its balance
sheet  through gap and duration  analysis,  as well as net  interest  income and
market value simulation. After taking into consideration both the variability of
rates and the maturities of various  instruments,  it evaluates strategies which
may reduce the  sensitivity  of its earnings  and market value to interest  rate
fluctuations.  An  important  decision  is  the  selection  of  interest-bearing
liabilities  and the  generation  of  interest-earning  assets  which best match
relative to interest rate changes.  In order to reduce  interest rate risk while
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
reprice  frequently  and  that on the  whole,  adjust  in  accordance  with  the
repricing of its  liabilities.  At December 31, 2000,  approximately  78% of the
Company's loan portfolio consisted of ARMs.

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

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

                                    Page 55

<PAGE>

     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 2000,  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 2000,  the Company's net interest  margin  decreased by $8.1 million as a
result of these interest rate swap agreements.

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

                                    Page 56

<PAGE>

     The  following  table  sets  forth  the  projected  maturities  based  upon
contractual  maturities as adjusted for  projected  prepayments  and  "repricing
mechanisms"  (provisions  for  changes  in the  interest  rates  of  assets  and
liabilities).  Prepayment rates are assumed in each period on the Company's loan
portfolio  based upon expected  loan  prepayments.  Repricing  mechanisms on the
Company's  assets are  subject to  limitations,  such as caps on the amount that
interest  rates and payments on its loans may adjust.  Accordingly,  such assets
may not  respond in the same manner or to the same extent to changes in interest
rates as the Company's  liabilities.  In addition, the interest rate sensitivity
of the assets and liabilities  illustrated in the table would vary substantially
if different  assumptions  were used or if actual  experience  differed from the
assumptions set forth. The Company's  estimated interest rate sensitivity gap at
December 31, 2000 was as follows:
<TABLE>
<CAPTION>

                                                                         Maturity/Rate Sensitivity
                                                        -----------------------------------------------------------
                                                        Within        1 - 5        Over 5     Noninterest
                                                        1 Year        Years        Years        Bearing       Total
                                                        ------        -----        -----        -------       -----
                                                                          (dollars in millions)
<S>                                                   <C>           <C>           <C>           <C>          <C>
INTEREST-EARNING ASSETS:
    Interest-bearing deposits in other banks and
        short term investment securities (1) (2)      $    86       $    --       $   --        $   --       $    86
    Securities held to maturity (1)                        71            --          517            --           588
    Securities available for sale (3)                     641            --           --            --           641
    Mortgage-backed securities available
        for sale (3)                                    9,867            --           --            --         9,867
    Mortgage-backed securities held
        to maturity (1) (4)                             1,911           424          550            --         2,885
    Loans held for sale, net (3)                          846            --           --            --           846
    Loans receivable, net (1) (5)                      22,168        13,767        4,071            --        40,006
    Investment in FHLB                                  1,361            --           --            --         1,361
                                                      -------       -------       ------        ------       -------
        Total interest-earning assets                  36,951        14,191        5,138            --        56,280
    Noninterest-earning assets                             --            --           --         4,237         4,237
                                                      -------       -------       ------        ------       -------
                                                      $36,951       $14,191       $5,138        $4,237       $60,517
                                                      =======       =======       ======        ======       =======

INTEREST-BEARING LIABILITES:
    Deposits (6)                                      $21,892       $ 1,536       $    2        $   --       $23,430
    Securities sold under agreements to
        repurchase (1)                                  4,311           200           --            --         4,511
    FHLB advances (1)                                  12,854        13,797           --            --        26,651
    Other borrowings (1)                                  406         1,651           93            --         2,150
                                                      -------       -------       ------        ------       -------
        Total interest-bearing liabilities             39,463        17,184           95            --        56,742
    Noninterest-bearing liabilities                        --            --           --         1,124         1,124
    Minority interest                                      --            --           --           500           500
    Stockholders' equity                                   --            --           --         2,151         2,151
                                                      -------       -------       ------        ------       -------

                                                      $39,463       $17,184       $   95        $3,775       $60,517
                                                      =======       =======       ======        ======       =======

    Gap before interest rate swap agreements          $(2,512)      $(2,993)      $5,043                     $  (462)
    Interest rate swap agreements                       3,700        (2,950)        (750)                         --
                                                      -------       -------       ------                     -------
    Gap                                               $ 1,188       $(5,943)      $4,293                     $  (462)
                                                      =======       =======       ======                     =======

    Cumulative gap                                    $ 1,188       $(4,755)      $ (462)
                                                      =======       =======       ======

    Gap as a percentage of total assets                  1.96%        (9.82)%       7.10%                      (0.76)%
                                                         ====         =====         ====                       =====

    Cumulative gap as a percentage of total assets       1.96%        (7.86)%      (0.76)%                     (0.76)%
                                                         ====         =====        =====                       =====

                                                                                                           (Continued)
</TABLE>

                                    Page 57

<PAGE>

------------------
(1)  Based upon (a)  contractual  maturity,  (b) instrument  repricing  date, if
     applicable,  and (c) projected repayments and prepayments of principal,  if
     applicable.  Prepayments  were estimated  generally by using the prepayment
     rates  forecast by various large  brokerage  firms as of December 31, 2000.
     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 $85 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 $2 million.

(5)  Excludes allowance for loan losses of $526 million and non-performing loans
     of $113 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,  2000,  Golden  State's  cumulative  gap  totalled  $(463)
million.  At December 31, 1999,  Golden  State's  cumulative  gap totalled  $688
million.

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

     MORTGAGE BANKING RISK MANAGEMENT

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

     The Company owned several derivative instruments at December 31, 2000 which
were used to hedge against prepayment risk in its mortgage servicing  portfolio.
These derivative  instruments  included interest rate swap agreements,  Constant
Maturity Swap interest rate floor contracts, swaptions and principal only swaps.
The estimated fair value of all  derivatives  used to hedge  prepayment risk was
$164.8  million at December 31, 2000.  The interest rate swap  agreements  had a
notional amount of $1.3 billion, pay rates of 6.40%, receive rates between 6.03%
and 6.39%,  mature in the years 2010 and 2011 and had an estimated fair value of
$5.1 million at December  31, 2000.  The  interest  rate floor  contracts  had a
notional amount of $2.3 billion, strike rates between 5.90% and 6.60%, mature in
the year 2005,  and had an estimated fair value of $52.8 million at December 31,
2000.  Premiums  paid to  counterparties  in exchange for cash payments when the
10-year Constant  Maturity Swap rate falls below the strike rate are recorded as
part of the MSR  asset  on the  balance  sheet.  The  swaption  contracts  had a
notional amount of $2.2 billion, strike rates between 5.90% and 6.85%, expire in
the years 2002 and 2003,  and had an estimated  fair value of $105.6  million at
December 31, 2000.  Premiums paid to counterparties in exchange for the right to
enter  into  swaption  contracts  are  recorded  as part of the MSR asset on the
balance sheet.  Principal only swap  agreements had a notional  amount of $193.1
million and an estimated fair value of $1.2 million at December 31, 2000.

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<PAGE>

     These instruments  effect a 75% hedge at December 31, 2000, 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, 1999 was 39%. A
reduction  in the hedge  during  early to mid-2000  was executed in light of the
reduction in overall prepayment rates on the servicing portfolio,  but the hedge
was increased  during the fourth  quarter of 2000 in  anticipation  of a general
decline in interest rates.

     For  information  on the  accounting for and activities in MSRs and the MSR
Hedge,  refer  to  notes 2, 19 and 38 of the  Company's  Notes  to  Consolidated
Financial Statements.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No.
133").  It  establishes  standards for  derivative  instruments  and for hedging
activities.  It  requires  that all  derivative  instruments  be recorded on the
balance  sheet at fair  value.  Changes  in the fair  value of  derivatives  are
recorded  each  period  in  current  earnings  or  other  comprehensive  income,
depending on the type of hedge transaction.

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

     SFAS No.  133,  as  amended  by SFAS No.  137,  ACCOUNTING  FOR  DERIVATIVE
INSTRUMENTS  AND  HEDGING  ACTIVITIES-DEFERRAL  OF THE  EFFECTIVE  DATE  OF FASB
STATEMENT  NO. 133-AN  AMENDMENT OF FASB  STATEMENT NO. 133, and further by SFAS
No. 138,  ACCOUNTING  FOR CERTAIN  DERIVATIVE  INSTRUMENTS  AND CERTAIN  HEDGING
ACTIVITIES, is effective for all fiscal quarters of fiscal years beginning after
June  15,  2000.  Initial  application  of this  statement  should  be as of the
beginning  of an  entity's  fiscal  quarter.  The Company  adopted  SFAS No. 133
effective  January 1, 2001;  it will not be applied  retroactively  to financial
statements  of  prior  periods.  For  more  information,  refer to note 2 of the
Company's Notes to Consolidated Financial Statements.

LIQUIDITY

     The standard  measure of liquidity in the savings  industry is the ratio of
cash and short-term U.S.  government and other specified  securities to deposits
and  borrowings  due within one year.  The OTS  established a minimum  liquidity
requirement  of  4.00%.  California  Federal  has  been in  compliance  with the
liquidity regulations during 2000 and 1999.

     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.  Net income generated by the Bank is used to meet its cash flow needs,
including paying dividends on its preferred stock owned by GS Holdings,  and may
be distributed,  subject to certain  restrictions,  to GS Holdings.  In turn, GS
Holdings  uses  distributions  received  from the Bank  primarily  to meet  debt
service  requirements,  pay any expenses it may incur, and make distributions to
Golden State, subject to certain restrictions.  For more information on dividend
restrictions  for the Bank and GS  Holdings,  refer to note 27 of the  Company's
Notes to Consolidated Financial Statements.

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

                                    Page 59

<PAGE>

     The  consolidated  Company's  primary uses of funds are the  origination or
purchase of loans, the purchase of  mortgage-backed  securities,  the funding of
maturing certificates of deposit,  demand deposit withdrawals,  the repayment of
borrowings  and  dividends  to  common  shareholders.  Certificates  of  deposit
scheduled  to mature  during the twelve  months  ending  December 31, 2001 total
$11.1 billion. The Company may renew these certificates, attract new replacement
deposits,  replace such funds with other  borrowings,  or it may elect to reduce
the size of the balance  sheet.  In addition,  at December 31, 2000, the Company
had FHLB  advances,  securities  sold under  agreements to repurchase  and other
borrowings aggregating $17.6 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.

     During 1994,  California  Federal  issued  3,007,300  shares of its 11 1/2%
noncumulative  perpetual  preferred stock (the "11 1/2% Bank Preferred  Stock").
Cash dividends on the 11 1/2% Bank  Preferred  Stock are  noncumulative  and are
payable at an annual rate of 11 1/2% if,  when,  and as declared by the Board of
Directors  of the Bank.  The  payment  of  dividends  by the Bank is  subject to
certain federal laws applicable to savings  associations.  Dividends paid by the
Bank on the 11 1/2% Bank  Preferred  Stock for each year ended December 31, 2000
and 1999 totalled  $34.6 million.  However,  GS Holdings  repurchased  2,688,959
shares of the 11 1/2% Bank Preferred Stock in connection with the Bank Preferred
Stock Tender Offers in 1998, and redeemed the remaining  318,341 shares in 1999.
At  December  31,  2000,  all of the 11  1/2%  Bank  Preferred  Stock  was  held
indirectly by Golden State.

     In the Cal Fed  Acquisition,  the Company assumed certain  indebtedness and
Old California  Federal's 10 5/8% noncumulative  perpetual  preferred stock (the
"10 5/8% Bank  Preferred  Stock" and  together  with the 11 1/2% Bank  Preferred
Stock, the "Bank Preferred  Stock"),  which have an annual interest cost of $0.6
million  and an  annual  dividend  cost of  $18.3  million,  respectively.  Cash
dividends on the 10 5/8% Bank Preferred Stock are  noncumulative and are payable
at an  annual  rate OF 10  5/8%,  if,  when,  and as  declared  by the  Board of
Directors of the Bank.  Similar to the 11 1/2% Bank Preferred Stock, the payment
of  dividends  by the Bank is subject  to certain  federal  laws  applicable  to
savings  associations.  Dividends paid by the Bank on the 10 5/8% Bank Preferred
Stock,  for each year ended  December 31, 2000 and 1999 totalled  $18.3 Million.
However,  GS Holdings  purchased  1,117,701 shares of the 10 5/8% Bank Preferred
Stock in connection  with the Bank  Preferred  Stock Tender Offers in 1998,  and
redeemed the remaining  607,299 shares in 1999. At December 31, 2000, all of the
10 5/8% Bank Preferred Stock was held indirectly by Golden State.

     The dividends,  net of tax benefits,  on the preferred  stock of California
Federal  Preferred Capital Corp. (the "REIT Preferred Stock") were $27.0 million
and $26.4 million for the years ended December 31, 2000 and 1999,  respectively.
The terms of the REIT Preferred Stock provide that California  Federal Preferred
Capital Corp.  ("Preferred  Capital Corp.") may not declare or pay any dividends
or other  distributions  (other  than in  shares of  common  stock of  Preferred
Capital Corp. or other Preferred  Capital Corp.  Junior Stock),  with respect to
any Preferred  Capital  Corp.  Junior Stock or  repurchase,  redeem or otherwise
acquire, or set apart funds for the repurchase,  redemption or other acquisition
of any Preferred  Capital Corp. Junior Stock (including the common stock held by
the Bank) through a sinking fund or otherwise,  unless and until:  (a) Preferred
Capital Corp. has paid full  dividends on the REIT Preferred  Stock for the four
most  recent  dividend  periods  or funds  have been  paid over to the  dividend
disbursing agent of Preferred  Capital Corp. for payment of such dividends,  and
(b) Preferred  Capital Corp.  has declared a cash dividend on the REIT Preferred
Stock  at the  annual  dividend  rate  for  the  current  dividend  period,  and
sufficient  funds  have  been  paid  over to the  dividend  disbursing  agent of
Preferred  Capital  Corp.  for the payment of a cash  dividend  for such current
dividend  period.  Preferred  Capital Corp. is currently in compliance with such
requirement.

     Interest on the GS Holdings Notes approximates  $141.6 million per year. On
August  1,  2001,  $350  million  principal  amount  of  the GS  Holdings  6.75%
fixed-rate notes becomes due.  Although GS Holdings  expects that  distributions
and tax  sharing  payments  from the Bank will be  sufficient  to make  required
interest and principal  payments,  there can be no assurance  that earnings from
the Bank  will be  sufficient  to make such  distributions  to GS  Holdings.  In
addition, there can be no assurance that such distributions will be permitted by
the terms of any debt instruments of GS Holdings'  subsidiaries  then in effect,
by the  terms  of any  class  of  preferred  stock  issued  by the  Bank  or its
subsidiaries,  including the REIT Preferred Stock, or under  applicable  federal
thrift laws.

                                    Page 60

<PAGE>

     During the year ended December 31, 1998, $914.5 million of the FN Holdings'
12 1/4% Senior Notes due 2001, 9 1/8% Senior  Subordinated Notes Due 2003 and 10
5/8% Senior  Subordinated  Notes due 2003 (collectively the "FN Holdings Notes")
were purchased in connection with the Debt Tender Offers, with related premiums,
fees and other expenses  totalling  $98.7  million,  on an after-tax  basis.  In
addition,  during the year ended December 31, 1998,  $455 million of the 12 1/2%
Senior  Notes due 2003 (the "Parent  Holdings  Notes")  were  defeased  ("Parent
Holdings Defeasance"),  with related premiums, fees and other expenses totalling
$51.6  million on an after-tax  basis.  An  additional  $225  thousand of the FN
Holdings 12 1/4% Senior Notes due 2001 was redeemed in 1999.

     The Company  anticipates  that cash and cash  equivalents on hand, the cash
flows  from  assets as well as other  sources  of funds  will  provide  adequate
liquidity  for its  operating,  investing  and  financing  needs and the  Bank's
regulatory   liquidity    requirements   for   the   foreseeable   future.   See
"Business--Regulation and Supervision." In addition to cash and cash equivalents
of $783.1 million at December 31, 2000, the Company has  substantial  additional
secured borrowing capacity with the FHLB and other sources.

     Net cash provided by operating  activities  for the year ended December 31,
2000 totalled $267.0 million  compared to $2.0 billion in 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 operating  activities  for the year ended December 31,
1999 totalled $2.0 billion  compared to net cash used of $572.2  million  during
the year ended December 31, 1998. The change was  principally due to an increase
in net proceeds from the sale of loans held for sale.

     Net cash used in 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 a net increase in
loans receivable of $3.8 billion, purchases of loans receivable of $1.6 billion,
purchases of mortgage servicing rights of $364.8 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 investing  activities for the year ended December 31, 1999
totalled $4.5 billion,  an increase of $1.5 billion from the year ended December
31,  1998.  Cash  flows  used in  investing  activities  included  purchases  of
mortgage-backed  securities  available  for sale of $4.8  billion,  purchases of
loans  receivable  of $2.2 billion,  a net increase in loans  receivable of $1.7
billion,  purchases of  securities  of $836.6  million and purchases of mortgage
servicing rights of $357.6 million.  Cash flows provided by investing activities
included  principal  payments  on  mortgage-backed   securities  totalling  $4.2
billion,  proceeds from  maturities of securities of $526.8 million and proceeds
from sales of mortgage-backed securities available for sale of $193.7 million.

     Net cash 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,  a 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.

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

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<PAGE>

OTHER ACTIVITIES

     LITIGATION TRACKING WARRANTS(TM)

     In  connection  with  the  Glendale  Goodwill   Litigation,   Golden  State
distributed  Litigation  Tracking  Warrants(TM)  ("LTW(TM)s")  to  its  security
holders representing the right to receive, upon exercise of the LTW(TM)s, Golden
State common stock equal in value to 85% of the net after-tax proceeds,  if any,
from the Glendale Goodwill Litigation.  For more information on LTW(TM)s,  refer
to note 28 of the Company's Notes to Consolidated Financial Statements.

     LITIGATION INTERESTS

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

     (a)  aggregate  expenses incurred by the Bank in prosecuting the California
          Federal Goodwill Litigation and obtaining such Cash Payment including,
          but not limited to, a portion of the annual  salaries in the aggregate
          amount of  $1,000,000,  an incentive fee in the amount of 0.25% of the
          aggregate  value of the pre-tax  recovery from the California  Federal
          Goodwill Litigation,  annual pension benefits aggregating  $1,325,000,
          and  certain  medical  benefits  and  expenses,   under  a  litigation
          management  agreement,  for two executives of the Company ("Litigation
          Management Agreement");
     (b)  any income tax  liability of the Bank,  computed on a pro forma basis,
          as a result of the  Bank's  receipt of such Cash  Payment  (net of any
          income tax benefit to the Bank from making the Recovery  Payment,  and
          disregarding (c) for purposes of this clause);
     (c)  the  effect  of any net  operating  loss  carryforwards  or other  tax
          attributes  held by the Bank or any of its  subsidiaries or affiliated
          entities; and
     (d)  the expenses  incurred by the Bank in  connection  with the  creation,
          issuance and trading of the Litigation  Interests,  including  without
          limitation, legal and accounting fees and the fees and expenses of the
          interest agent.

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

     (a)  the  aggregate  expenses  incurred  by the  Bank  in  prosecuting  the
          California Federal Goodwill Litigation and obtaining such Cash Payment
          including, but not limited to, a portion of the annual salaries in the
          aggregate  amount of  $1,000,000,  an  incentive  fee in the amount of
          0.25%  of  the  aggregate  value  of the  pre-tax  recovery  from  the
          California  Federal  Goodwill  Litigation,   annual  pension  benefits
          aggregating $1,325,000,  and certain medical benefits and expenses for
          two  executives  of  the  Company  under  the  Litigation   Management
          Agreement;
     (b)  any income tax  liability of the Bank,  computed on a pro forma basis,
          as a result of the  Bank's  receipt of such Cash  Payment  (net of any
          income tax benefit to the Bank,  computed on a pro forma  basis,  from
          the  payment of a portion  of the  Secondary  Recovery  Payment to the
          holders of Secondary Litigation Interests);

                                    Page 62

<PAGE>

     (c)  the expenses  incurred by the Bank in  connection  with the  creation,
          issuance and trading of the  Litigation  Interests  and the  Secondary
          Litigation   Interests,   including  without  limitation,   legal  and
          accounting fees and the fees and expenses of the interest agent;
     (d)  the payment due to the holders of the Litigation Interests; and
     (e)  one hundred twenty-five million dollars ($125,000,000).

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

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

     In connection with the Cal Fed  Acquisition,  the Bank recorded as an asset
part of the  estimated  after-tax  cash  recovery  from the  California  Federal
Goodwill  Litigation  that will  inure to the Bank,  net of  amounts  payable to
holders of the Litigation  Interests and the Secondary  Litigation  Interests in
any such recovery (the "Goodwill Litigation Asset"). In connection with the Glen
Fed Merger, the Bank recorded a second Goodwill  Litigation Asset related to the
estimated  after-tax cash recovery from the Glendale  Goodwill  Litigation  that
will inure to the Bank,  net of amounts  payable to the holders of the 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.

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

     Accordingly,  at September 11, 1998, the net carrying value of $100 million
of the California  Federal  Goodwill  Litigation  Asset was  "dividended" to GSB
Investments  and Hunter's  Glen, and a receivable  from them was  established to
reflect the required  "make whole"  value of the  Glendale  Goodwill  Litigation
Asset.  This  receivable  amounted  to $41.2  million,  and was  recorded  as an
increase in equity and  fluctuates  based upon the market value of the LTW(TM)s.
At December 31, 1999, the  equalization  adjustment was written down to its fair
value of $17.1  million.  Since  the  market  value of the  LTW(TM)s,  which the
Company  uses to estimate  the fair value of the  ultimate  goodwill  litigation
award,  increased from $.875 per share at December 31, 1999 to $1.1875 per share
at December 31, 2000,  the inherent value of the amount to be contributed by GSB
Investments and Hunter's Glen also increased, to $20.6 million,  resulting in an
increase in retained  earnings and the  contribution  receivable of $3.5 million
during the year ended December 31, 2000.

                                    Page 63

<PAGE>

CAPITAL MANAGEMENT

     At December 31, 2000, stockholders' equity was $2.2 billion, an increase of
$589.0  million  from  December 31, 1999.  The increase is  principally  the net
result of net  income of $350.5  million  for the year,  an  increase  of $180.7
million in the fair value of securities  available for sale,  $167.9  million in
issuable  shares and $131.9  million  from the  exercise of  warrants  and stock
options.  These amounts were partially offset by the  extinguishment of issuable
shares of $123.9 million,  $63.7 million in purchases of treasury  stock,  $39.3
million in adjustments to additional  paid-in  capital related to pre-merger tax
benefits  recorded to goodwill and $26.4 million in common stock dividends.  For
further  information,  see  note  27 of  the  Company's  Notes  to  Consolidated
Financial Statements.

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

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

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

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

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

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

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

     The OTS has adopted regulations incorporating an interest-rate risk ("IRR")
component into its risk-based capital rules. When implemented, these rules would
require a savings  association  with a greater than  "normal"  level of interest
rate  exposure to deduct an IRR component in  calculating  its total capital for
purposes of determining  whether it meets its risk-based  capital  requirements.
Interest   rate  exposure  is  measured,   generally,   as  the  decline  in  an
institution's  net  portfolio  value that would  result  from a  200-basis-point
increase or decrease in market interest rates  (whichever  would result in lower
net portfolio  value),  divided by the estimated  economic  value of the savings
association's assets. The interest rate risk component to be deducted from total
capital is equal to one-half of the difference between an institution's measured
exposure and "normal" IRR exposure  (which is defined as 2%),  multiplied by the
estimated economic value of the institution's assets.

     The OTS has indefinitely  delayed  implementation  of the IRR-based capital
deduction. However, based on internal measures of interest rate risk at December
31, 2000,  the Bank would not have been  required to deduct an IRR  component in
calculating  total  risk-based  capital  had the IRR  component  of the  capital
regulations been in effect.

     At December 31, 2000, the Bank's  regulatory  capital  levels  exceeded the
minimum  regulatory  capital  requirements,  with tangible,  core and risk-based
capital ratios of 6.30%, 6.30% and 13.08%, respectively.

                                    Page 64

<PAGE>

     The following is a  reconciliation  of the Bank's  stockholder's  equity to
regulatory capital as of December 31, 2000:
<TABLE>
<CAPTION>

                                                      Tangible           Core            Risk-based
                                                      Capital           Capital            Capital
                                                      -------           -------            -------
                                                                 (dollars in millions)
<S>                                                    <C>               <C>                <C>
Stockholder's equity of the Bank                       $4,166            $4,166             $4,166
Minority interest - REIT Preferred Stock                  500               500                500
Unrealized holding loss on securities, net                 90                90                 90
Non-allowable capital:
       Non-qualifying loan servicing rights               (84)              (84)               (84)
       Intangible assets                                 (691)             (691)              (691)
       Goodwill Litigation Assets                        (159)             (159)              (159)
       Investment in non-includable subsidiaries          (63)              (63)               (63)
Supplemental capital:
       Qualifying subordinated debentures                  --                --                 92
       General loan loss allowance                         --                --                406
Assets required to be deducted:
       Land loans with more than 80% LTV ratio             --                --                 (4)
       Equity in subsidiaries                              --                --                 (8)
       Low-level recourse deduction                        --                --                (10)
                                                       ------            ------             ------
Regulatory capital of the Bank                          3,759             3,759              4,235
Minimum regulatory capital requirement                    894             2,385              2,590
                                                       ------            ------             ------
Excess above minimum capital requirement               $2,865            $1,374             $1,645
                                                       ======            ======             ======

                                                        Tangible         Leverage           Risk-based
                                                        Capital           Capital            Capital
                                                         Ratio             Ratio              Ratio
                                                         -----             -----              -----
Regulatory capital of the Bank                           6.30%             6.30%              13.08%
Minimum regulatory capital requirement                   1.50              4.00                8.00
                                                         ----              ----               -----
Excess above minimum capital requirement                 4.80%             2.30%               5.08%
                                                         ====              ====               =====
</TABLE>

     The amount of adjusted  total  assets used for the  tangible  and  leverage
capital  ratios is $59.6 billion.  Risk-weighted  assets used for the risk-based
capital ratio amounted to $32.4 billion.

     At December 31, 2000, 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              6.30%      11.58%          13.08%
"Well capitalized" ratio                    5.00        6.00           10.00
                                            ----       -----           -----
Excess above "well capitalized" ratio       1.30%       5.58%           3.08%
                                            ====       =====           =====

     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, 2000, 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, 2000.

                                    Page 65

<PAGE>

     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 27 of the Company's Notes to
Consolidated  Financial  Statements.  For information on LTW(TM)s,  see "- Other
Activities - Litigation Tracking WarrantsTM."

     ISSUABLE  SHARES.  The Golden  State  Merger  agreement  provides  that GSB
Investments   and  Hunter's   Glen  will  be  entitled  to  receive   contingent
consideration,  through the  issuance by Golden  State of  additional  shares of
Golden State common stock,  par value of $1.00 per share  ("Golden  State Common
Stock"),  based on (a) the use by the combined company of certain  potential tax
benefits  resulting  from  certain  net  operating  loss  carryforwards  of  the
consolidated  group of which Parent  Holdings was a part, and the realization of
certain other  potential tax assets and  liabilities  of Golden State and Parent
Holdings  and  (b)  California  Federal's  net  after-tax  recovery  in  certain
specified  litigation,  including a percentage of the net after-tax recovery, if
any,  in the  California  Federal  Goodwill  Litigation  (following  payment  by
California  Federal of all amounts due, if any, to the holders of the CALGZs and
the CALGLs and the  retention of certain  amounts of such recovery by the Bank).
The Golden State Merger agreement  provides generally that the amount of the net
after-tax  recovery,  if any,  resulting  from the California  Federal  Goodwill
Litigation  which will be excluded in determining  the number of shares issuable
in respect of the California Federal Goodwill Litigation will be based on 15% of
the value of the net after-tax  recovery in the Glendale Goodwill  Litigation to
be excluded  for  purposes of  determining  the number of shares of Golden State
Common Stock issuable upon exercise of the LTW(TM)s, adjusted to reflect the PRO
FORMA ownership interest of GSB Investments and Hunter's Glen in Golden State at
the time of the Golden  State  Merger.  At December 31,  2000,  issuable  shares
valued at $172.3  million  were  included  in equity.  For more  information  on
issuable  shares,  refer  to  notes  2(r)  and  27 of  the  Company's  Notes  to
Consolidated Financial Statements.

IMPACT OF INFLATION AND CHANGING PRICES

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

YEAR 2000

     In 1999,  the Company  completed  all major  milestones  in  executing  its
comprehensive  plan to make its computer  systems,  applications  and facilities
Year 2000 ready. No significant Y2K-related events were reported, and it was not
necessary to activate any of the Bank's contingency plans.

     The costs related to making the Bank's computer  systems,  applications and
facilities  Year 2000 compliant  totalled  approximately  $17.4 million over the
years 1997 to 2000.  Noninterest  expense for the year ended  December  31, 2000
included  approximately  $0.1  million in  connection  with the Bank's Year 2000
efforts.

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

                                     2000          1999          1998
                                     ----          ----          ----
           Estimates                 $0.3          $7.5          $8.9
           Actual                     0.1           7.5           8.6

                                    Page 66

<PAGE>

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

                                    Page 67

<PAGE>

     The  following  table  presents  the Bank's NPV ratios for the various rate
shock  levels at  December  31,  2000.  All market  risk  sensitive  instruments
presented in this table are held to maturity or available for sale. The Bank has
no trading securities.

                 Change in
               Interest Rates              NPV Ratio
               --------------              ---------
           300 basis point rise              6.14%
           200 basis point rise              6.81
           100 basis point rise              7.31
           Base Scenario                     7.51
           100 basis point decline           7.33
           200 basis point decline           6.89
           300 basis point decline           6.68

     The preceding  table indicates that as of December 31, 2000, the Bank's NPV
ratio would be expected to decrease in the event that  prevailing  market  rates
either  increase  or  decrease  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 .70%.  This  sensitivity  measure is considered to be a minimal risk as
defined by the OTS regulations and is within the limits established by the Board
of Directors.

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

     The NPV ratio is calculated by the Bank pursuant to guidelines  established
by the OTS.  The  calculation  is based on the net  present  value of  estimated
discounted  cash  flows  utilizing  market  prepayment  assumptions  and  market
interest  rates  provided by  independent  broker  quotations  and other  public
sources as of December 31, 2000, with  adjustments  made to reflect the shift in
the Treasury yield curve as appropriate.

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

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

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

                                    Page 68

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

                                                              Page
                                                              ----
Independent Auditors' Report                                   F-1
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 69

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Those portions of Golden  State's  definitive  Proxy  Statement to be filed
with the Securities and Exchange  Commission  pursuant to Regulation 14A for use
in connection  with Golden State's Annual Meeting of  Stockholders to be held on
May 21, 2001 ("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,
2001) concerning the executive officers of Golden State.
<TABLE>
<CAPTION>

Name                         Age      Position
----                         ---      --------
<S>                          <C>      <C>
Gerald J. Ford               56       Chairman of the Board, Chief Executive Officer and Director
Carl B. Webb                 51       President, Chief Operating Officer and Director
Richard H. Terzian           64       Executive Vice President and Chief Financial Officer
Christie S. Flanagan         62       Executive Vice President and General Counsel
Richard A. Fink              60       Executive Vice President
Richard P. Hodge             46       Executive Vice President
Scott A. Kisting             53       Executive Vice President
James R. Staff               53       Executive Vice President
Stephen J. Trafton           54       Executive Vice President
Renee Nichols Tucei          44       Executive Vice President and Controller
</TABLE>

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

Name                         Age      Position
----                         ---      --------

Walter C. Klein, Jr.         57       Group Executive Vice President
Dennis L. Verhaegen          49       Group Executive Vice President

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

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

     Mr. Terzian has been Executive Vice President and Chief  Financial  Officer
of  Golden  State  since  1998 and  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.

                                    Page 70

<PAGE>

     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  Director,  Corporate  Development  from  April 1994 until
February  1996 and  served as Chief  Credit  Officer  from  February  1996 until
September 1998.

     Mr. Hodge has been  Executive  Vice President and Corporate Tax Director of
Golden State since  September 1998 and of the Bank since January 1996. Mr. Hodge
has been employed with the Bank since November 1995.  Prior to joining the Bank,
Mr. Hodge was a tax partner of the public accounting firm of KPMG 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 1993 to 1997, most recently as Group
Executive Vice President.

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

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

     Mr. 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 71

<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 72
<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.

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

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

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

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

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

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

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

                                    Page 73
<PAGE>

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

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

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

       4.9    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).)

       4.10   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).)

       4.11   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.)

       4.12   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).)

       4.13   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).)

       4.14   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).)

       4.15   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).)

       4.16   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).)

       4.17   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).)

                                    Page 74

<PAGE>

       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).)

       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.

       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.)

                                    Page 75

<PAGE>

       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.)

       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.

       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 George Bramblett, Jr.

       24.2   Power of Attorney executed by Ronald O. Perelman.

       24.3   Power of Attorney executed by Cora M. Tellez.

       27.1   Financial Data Schedule.

(C)    REPORTS ON FORM 8-K

       None.

                                    Page 76

<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 20, 2001

                                                       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 20, 2001
---------------------------------------    Executive Officer and Director
         Gerald J. Ford                    (Principal Executive Officer)


      /s/Carl B. Webb                      President, Chief Operating Officer     March 20, 2001
---------------------------------------    and Director
         Carl B. Webb


      /s/Richard H. Terzian                Executive Vice President               March 20, 2001
---------------------------------------    and Chief Financial Officer
         Richard H. Terzian                (Principal Financial Officer)


      /s/Renee Nichols Tucei               Executive Vice President and           March 20, 2001
---------------------------------------    Controller
         Renee Nichols Tucei               (Principal Accounting Officer)


      /s/Paul M. Bass, Jr.                 Director                               March 20, 2001
---------------------------------------
         Paul M. Bass, Jr.


                  *                        Director                               March 20, 2001
---------------------------------------
         George W. Bramblett, Jr.


      /s/Brian P. Dempsey                  Director                               March 20, 2001
---------------------------------------
         Brian P. Dempsey
</TABLE>

                                    Page 77

<PAGE>
<TABLE>
<CAPTION>

<S>                                        <C>                                    <C>
      /s/Howard Gittis                     Director                               March 20, 2001
---------------------------------------
         Howard Gittis


      /s/John F. King                      Director                               March 20, 2001
---------------------------------------
         John F. King


      /s/John F. Kooken                    Director                               March 20, 2001
---------------------------------------
         John F. Kooken


      /s/Gabrielle K. McDonald             Director                               March 20, 2001
---------------------------------------
         Gabrielle K. McDonald


      /s/John A. Moran                     Director                               March 20, 2001
---------------------------------------
         John A. Moran


                  *                        Director                               March 20, 2001
---------------------------------------
         Ronald O. Perelman


      /s/B. M. Rankin, Jr.                 Director                               March 20, 2001
---------------------------------------
         B. M. Rankin, Jr.


      /s/Thomas S. Sayles                  Director                               March 20, 2001
---------------------------------------
         Thomas S. Sayles


      /s/Robert Setrakian                  Director                               March 20, 2001
---------------------------------------
         Robert Setrakian


                  *                        Director                               March 20, 2001
---------------------------------------
         Cora M. Tellez
</TABLE>

*  Vanessa L. Washington,  by signing her 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/Vanessa L. Washington
                                          --------------------------------------
                                                   Vanessa L. Washington
                                                     Attorney-in-fact

                                    Page 78
<PAGE>

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


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

We have audited the  accompanying  consolidated  balance  sheets of Golden State
Bancorp Inc. and subsidiaries  (the "Company") as of December 31, 2000 and 1999,
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, 2000. 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, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United States of America.






                                         KPMG LLP



San Francisco, California
January 16, 2001

                                      F-1

<PAGE>

                   GOLDEN STATE BANCORP INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                           December 31, 2000 and 1999
                  (dollars in thousands, except per share data)
<TABLE>
<CAPTION>

                      Assets                                                                 2000             1999
                      ------                                                             ------------     ------------
<S>                                                                                      <C>              <C>
Cash and due from banks                                                                  $   697,513      $   508,959
Interest-bearing deposits in other banks                                                         123                5
Short-term investment securities                                                              85,510           84,061
                                                                                         -----------      -----------
     Cash and cash equivalents                                                               783,146          593,025

Securities available for sale, at fair value (includes securities pledged to
     creditors with the right to sell or repledge of zero and $37,397
     at December 31,2000 and 1999, respectively)                                             641,205        1,075,766
Securities held to maturity (fair value $590,571 and $180,449 at December 31,
     2000 and 1999, respectively)                                                            587,503          185,357
Mortgage-backed securities available for sale, at fair value (includes securities
     pledged to creditors with the right to sell or repledge of $2,620,399
     and $3,799,962 at December 31, 2000 and 1999, respectively)                           9,866,823       13,764,565
Mortgage-backed securities held to maturity (fair value $2,959,677 and
     $2,150,014 at December 31, 2000 and 1999,  respectively)(includes securities
     pledged to  creditors  with  the  right  to  sell or repledge of $2,053,070
     and  $1,855,163 at December 31, 2000 and 1999, respectively)                          2,886,612        2,149,696
Loans held for sale, net                                                                     845,763          729,062
Loans receivable, net                                                                     39,592,814       33,953,461
Investment in Federal Home Loan Bank ("FHLB") System                                       1,361,066        1,167,144
Premises and equipment, net                                                                  327,329          324,582
Foreclosed real estate, net                                                                   19,080           45,091
Accrued interest receivable                                                                  364,414          321,596
Intangible assets (net of accumulated amortization of $246,150 and $183,433
     at December 31, 2000 and 1999, respectively)                                            691,288          819,561
Mortgage servicing rights                                                                  1,559,323        1,272,393
Other assets                                                                                 990,512          617,761
                                                                                         -----------      -----------
         Total assets                                                                    $60,516,878      $57,019,060
                                                                                         ===========      ===========


         Liabilities, Minority Interest and Stockholders' Equity
         -------------------------------------------------------

Deposits                                                                                 $23,429,754      $23,035,757
Securities sold under agreements to repurchase                                             4,511,309        5,481,747
Borrowings                                                                                28,800,557       25,668,626
Other liabilities                                                                          1,124,524          771,147
                                                                                         -----------      -----------
         Total liabilities                                                                57,866,144       54,957,277
                                                                                         -----------      -----------

Commitments and contingencies                                                                     --               --

Minority interest                                                                            500,000          500,000

Stockholders' equity
     Common stock, $1.00 par value, (250,000,000 shares authorized;  150,703,716
         and 134,720,685 shares issued at December 31, 2000
         and 1999, respectively)                                                             150,704          134,721
     Issuable shares                                                                         172,308          204,681
     Additional paid-in capital                                                            1,534,736        1,378,735
     Accumulated other comprehensive loss                                                    (89,874)        (275,209)
     Retained earnings (substantially restricted)                                            698,597          371,096
     Treasury stock (16,383,058 and 12,478,097 shares at
         December 31, 2000 and 1999, respectively)                                          (315,737)        (252,241)
                                                                                         -----------      -----------
     Total stockholders' equity                                                            2,150,734        1,561,783
                                                                                         -----------      -----------
         Total liabilities, minority interest and stockholders' equity                   $60,516,878      $57,019,060
                                                                                         ===========      ===========

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, 2000, 1999 and 1998
                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                         2000           1999            1998
                                                                                     -----------    -----------     -----------
<S>                                                                                  <C>            <C>             <C>
Interest income:
     Loans receivable                                                                $2,852,971     $2,332,500      $1,739,294
     Mortgage-backed securities available for sale                                      800,444        872,823         482,567
     Mortgage-backed securities held to maturity                                        206,469        177,644         134,537
     Loans held for sale                                                                 62,591        109,486         115,714
     Securities available for sale                                                       55,917         76,669          49,736
     Securities held to maturity                                                         29,499         11,459           4,702
     Interest-bearing deposits in other banks                                             5,034         12,049          22,263
     Dividends on FHLB stock                                                             92,872         59,639          36,042
                                                                                     ----------     ----------      ----------
         Total interest income                                                        4,105,797      3,652,269       2,584,855
                                                                                     ----------     ----------      ----------
Interest expense:
     Deposits                                                                           928,407        888,286         791,112
     Securities sold under agreements to repurchase                                     352,100        265,467         153,697
     Borrowings                                                                       1,678,491      1,312,629         874,736
                                                                                     ----------     ----------      ----------
         Total interest expense                                                       2,958,998      2,466,382       1,819,545
                                                                                     ----------     ----------      ----------
         Net interest income                                                          1,146,799      1,185,887         765,310
Provision for loan losses                                                                    --         10,000          40,000
                                                                                     ----------     ----------      ----------
         Net interest income after provision for loan losses                          1,146,799      1,175,887         725,310
                                                                                     ----------     ----------      ----------
Noninterest income:
     Loan servicing fees, net                                                           176,159        127,834         109,203
     Customer banking fees and service charges                                          196,969        187,022         121,283
     Gain on sale, settlement and transfer of loans, net                                 49,730         32,885          54,217
     (Loss) gain on sale of assets, net                                                 (13,426)        21,699             193
     Gain on sale of branches, net                                                           --          2,343         108,825
     Other income                                                                        31,333         28,211          23,896
                                                                                     ----------     ----------      ----------
         Total noninterest income                                                       440,765        399,994         417,617
                                                                                     ----------     ----------      ----------
Noninterest expense:
     Compensation and employee benefits                                                 427,362        391,597         293,982
     Occupancy and equipment                                                            160,820        148,411          99,746
     Professional fees                                                                   41,381         52,667          56,360
     Loan expense                                                                        17,018         17,200          24,843
     Foreclosed real estate operations, net                                              (4,690)        (6,411)         (6,152)
     Amortization of intangible assets                                                   62,717         69,724          53,415
     Merger and integration costs                                                            --          7,747          59,162
     Other expense                                                                      208,631        225,674         159,307
                                                                                     ----------     ----------      ----------
         Total noninterest expense                                                      913,239        906,609         740,663
                                                                                     ----------     ----------      ----------

Income before income taxes, minority interest and extraordinary items                   674,325        669,272         402,264
Income tax expense (benefit)                                                            136,781        186,483        (106,351)
Minority interest: provision in lieu of income tax expense                              161,688        122,684              --
Minority interest: other                                                                 28,376         39,390         110,527
                                                                                     ----------     ----------      ----------
     Income before extraordinary items                                                  347,480        320,715         398,088
Extraordinary items - gain (loss) on early extinguishment of debt, net of
     applicable taxes of $2,083, $1,801 and $(103,823) in 2000,
     1999 and 1998, respectively                                                          3,014          2,472        (150,333)
                                                                                     ----------     ----------      ----------
         Net income                                                                  $  350,494     $  323,187      $  247,755
                                                                                     ==========     ==========      ==========
Earnings per share:
Basic
     Income before extraordinary items                                                    $2.50          $2.45           $5.00
     Extraordinary items                                                                   0.02           0.02           (1.89)
                                                                                          -----          -----           -----
         Net income                                                                       $2.52          $2.47           $3.11
                                                                                          =====          =====           =====
Diluted
     Income before extraordinary items                                                    $2.44          $2.29           $4.88
     Extraordinary items                                                                   0.02           0.02           (1.84)
                                                                                          -----          -----           -----
         Net income                                                                       $2.46          $2.31           $3.04
                                                                                          =====          =====           =====

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, 2000, 1999 and 1998
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                              2000            1999           1998
                                                                            --------       ----------      ---------
<S>                                                                         <C>            <C>             <C>
Net income                                                                  $350,494       $ 323,187       $247,755

Other comprehensive income (loss), net of tax:
    Unrealized holding gain (loss) on securities available for sale:
        Unrealized holding gain (loss) arising during the period             170,729        (280,618)       (28,167)
        Less: reclassification adjustment for loss (gain) included
             in net income                                                     9,976            (742)          (844)
                                                                            --------       ---------       ---------
                                                                             180,705        (281,360)       (29,011)
    Amortization of market adjustment for securities
        transferred from available for sale to held to maturity                4,630              --             --
                                                                            --------       ---------       --------

Other comprehensive income (loss)                                            185,335        (281,360)       (29,011)
                                                                            --------       ---------       --------

Comprehensive income                                                        $535,829       $  41,827       $218,744
                                                                            ========       =========       ========

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, 2000, 1999 and 1998
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                   Preferred Stock
                                                      Series A                   Common Stock                          Additional
                                                ------------------------    ------------------------      Issuable      Paid-in
                                                  Shares         Amount        Shares        Amount        Shares       Capital
                                                  ------         ------        ------        ------       --------     ----------
<S>                                             <C>              <C>        <C>             <C>             <C>        <C>
Balance at December 31, 1997                            --       $   --      56,722,988     $ 56,723        $--        $       --

Net income                                              --           --              --           --         --                --
Golden State Acquisition                         4,183,599        4,184      61,880,950       61,881         --         1,400,332
Conversion of Series A Preferred Stock          (4,181,061)      (4,181)     10,051,200       10,051         --            (5,870)
Redemption of Additional FN Holdings
    Preferred Stock                                     --           --              --           --         --               787
Change in net unrealized holding gain
    on securities available for sale                    --           --              --           --         --                --
Liability reflecting value of Golden State
    Common Stock to be distributed to
    GSB Investments and Hunter's Glen in
    respect of their proportionate ownership
    of the California Federal Goodwill
    Litigation Asset                                    --           --              --           --         --                --
Liability reflecting value of Golden State
    Common Stock to be distributed to
    GSB Investments and Hunter's Glen upon
    use of Parent Holdings' pre-merger
    tax benefits                                        --           --              --           --         --                --
GS Escrow Merger                                        --           --              --           --         --            (3,535)
Dividend of tax benefits to parent due to
    deconsolidation                                     --           --              --           --         --                --
Pre-merger dividends to parent                          --           --              --           --         --                --
Redemption of Series A Preferred Stock              (2,538)          (3)             --           --         --               (61)
Exercise of stock options                               --           --          32,625           33         --               611
Capital contribution                                    --           --              --           --         --                22
Sale of common stock in treasury                        --           --              --           --         --              (131)
                                                ----------       ------     -----------     --------        ---        ----------
Balance at December 31, 1998                            --       $   --     128,687,763     $128,688        $--        $1,392,155

                                                                                                                        (Continued)


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

<PAGE>
<TABLE>
<CAPTION>

                                                     Accumulated         Retained             Common Stock
                                                        Other            Earnings             in Treasury              Total
                                                    Comprehensive     (Substantially       -------------------      Stockholders'
                                                    Income (Loss)       Restricted)        Shares       Amount         Equity
                                                    -------------     --------------       ------       ------      -------------
<S>                                                    <C>               <C>             <C>           <C>          <C>

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

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

                                                                                                                    (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, 2000, 1999 and 1998
                             (dollars in thousands)
<TABLE>
<CAPTION>

                                                   Preferred Stock
                                                      Series A                 Common Stock                        Additional
                                                 --------------------    ------------------------     Issuable       Paid-in
                                                   Shares     Amount        Shares       Amount        Shares        Capital
                                                   ------     ------        ------       ------       --------     ----------
<S>                                                  <C>       <C>       <C>            <C>          <C>           <C>
Balance at December 31, 1998                         --        $--       128,687,763    $128,688     $     --      $1,392,155

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          --         --                --          --           --              --
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

                                                                                                                   (Continued)


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

<PAGE>
<TABLE>
<CAPTION>
                                                     Accumulated         Retained             Common Stock
                                                        Other            Earnings             in Treasury              Total
                                                    Comprehensive     (Substantially      ---------------------      Stockholders'
                                                    Income (Loss)       Restricted)        Shares       Amount         Equity
                                                    -------------     --------------       ------       ------      ------------

<S>                                                  <C>                 <C>              <C>         <C>            <C>
Balance at December 31, 1998                         $   6,151           $ 56,471         (89,994)    $  (1,687)     $1,581,778

Net income                                                  --            323,187              --            --         323,187
Golden State Acquisition - see note 3                       --                 --              --            --         (12,380)
Adjustment to initial dividend of tax
    benefits to former parent
    due to deconsolidation                                  --             15,519              --            --          15,519
Adjustment to contribution receivable
    from GSB Investments and Hunter's Glen
    in respect of their proportionate
    ownership of the California Federal
    Goodwill Litigation Asset                               --            (24,081)             --            --         (24,081)
Reclassification of Litigation Tracking
    Warrants owned by the Bank                              --                 --              --        (1,987)         (1,987)
Change in net unrealized holding gain
    (loss) on securities available for sale           (281,360)                --              --            --        (281,360)
Issuable shares (1999 usage of pre-merger
    NOLs)                                                   --                 --              --            --         197,562
Issuable shares (1998 tax benefits)                         --                 --              --            --              --
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                         $(275,209)          $371,096     (12,478,097)    $(252,241)     $1,561,783

                                                                                                                     (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, 2000, 1999 and 1998
                             (dollars in thousands)

<TABLE>
<CAPTION>

                                                    Preferred Stock
                                                      Series A                Common Stock                        Additional
                                                   -----------------     ----------------------     Issuable       Paid-in
                                                   Shares     Amount       Shares       Amount       Shares        Capital
                                                   ------     ------       ------       ------       ------        -------
<S>                                                  <C>        <C>      <C>           <C>         <C>            <C>
Balance at December 31, 1999                         --         $--      134,720,685   $134,721    $ 204,681      $1,378,735

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                 --          --               --         --           --              --
Amortization of unrealized holding loss
    on securities held to maturity                   --          --               --         --           --              --
Issuable shares (1999 usage of pre-merger            --          --               --         --        3,919              --
    NOLs)
Issuable shares (2000 usage of pre-merger            --          --               --         --      162,565              --
    NOLs)
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
                                                     ==         ===    ===========     ========    =========      ==========

                                                                                                                  (Continued)


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

<PAGE>
<TABLE>
<CAPTION>

                                                  Accumulated         Retained              Common Stock
                                                     Other            Earnings              in Treasury               Total
                                                 Comprehensive     (Substantially     -------------------------    Stockholders'
                                                 Income (Loss)       Restricted)        Shares         Amount         Equity
                                                 -------------     --------------       ------         ------      ------------
<S>                                                <C>                <C>             <C>             <C>           <C>
Balance at December 31, 1999                       $(275,209)         $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               --                 --            --        180,705
Amortization of unrealized holding loss
    on securities held to maturity                      4,630               --                 --            --          4,630
Issuable shares (1999 usage of pre-merger                  --               --                 --            --          3,919
    NOLs)
Issuable shares (2000 usage of pre-merger                  --               --                 --            --        162,565
    NOLs)
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                       $  (89,874)        $698,597        (16,383,058)    $(315,737)     $2,150,734
                                                   ==========         ========        ===========     =========      ==========


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, 2000, 1999 and 1998
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                          2000               1999               1998
                                                                       ----------         ----------         ----------
<S>                                                                    <C>                <C>                <C>
Cash flows from operating activities:
Net income                                                             $  350,494         $  323,187         $  247,755
Adjustments to reconcile net income to net cash provided by
      (used in) operating activities:
      Amortization of intangible assets                                    62,717             69,724             53,415
      Provision (benefit) for deferred income taxes                        48,106             94,780           (206,931)
      Accretion of discount on borrowings                                   1,093              1,018                832
      Amortization (accretion) of purchase accounting
          premiums and discounts, net                                         269              7,541               (236)
      Amortization of mortgage servicing rights                           204,032            212,310            158,163
      Provision for loan losses                                                --             10,000             40,000
      Loss (gain) on sale of assets, net                                   13,426            (21,699)              (193)
      Gain on sale of branches, net                                            --             (2,343)          (108,825)
      Gain on sale of foreclosed real estate                               (8,950)           (13,069)           (13,559)
      Loss on sale, settlement and transfer of loans, net                  76,918            160,970            115,755
      Capitalization of originated mortgage servicing rights             (126,648)          (193,855)          (169,972)
      Extraordinary items - (gain) loss on early
          extinguishment of debt, net                                      (3,014)            (2,472)           150,333
      Depreciation and amortization of premises and
          equipment                                                        54,465             40,895             26,720
      Amortization of deferred debt issuance costs                          7,354              7,295              8,592
      FHLB stock dividends                                                (92,872)           (59,639)           (36,042)
      Purchases and originations of loans held for sale                (5,344,219)        (8,345,470)        (8,843,499)
      Net proceeds from the sale of loans held for sale                 5,059,241          9,703,072          7,892,122
      (Increase) decrease in other assets                                (491,670)            47,793            155,037
      Increase in accrued interest receivable                             (41,580)            (4,141)           (17,630)
      Increase (decrease) in other liabilities                            305,850           (183,181)          (134,531)
      Amortization of deferred compensation expense -
          restricted common stock                                           1,897                477                 --
      Minority interest: provision in lieu of income taxes                161,688            122,684                 --
      Minority interest: other                                             28,376             39,390            110,527
      Other operating activity                                                 36                 --                --
                                                                       ----------         ----------         ----------
          Net cash provided by (used in) operating activities             267,009          2,015,267           (572,167)
                                                                       ----------         ----------         ----------
Cash flows from investing activities:
      Acquisitions and divestitures:
          Downey Acquisition                                             (379,314)                --                 --
          Nevada Purchase                                                      --            458,943                 --
          Golden State Acquisition                                             --                 --            782,228
          GSAC Acquisition                                                     --                 --            (13,577)


                                                                                                             (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, 2000, 1999 and 1998
                                 (in thousands)
<TABLE>
<CAPTION>

                                                                                     2000               1999             1998
                                                                                  -----------       -----------       -----------
<S>                                                                               <C>               <C>               <C>
Cash flows from investing activities (continued):
     Purchases of securities available for sale                                   $   (54,789)      $  (807,690)      $  (891,643)
     Proceeds from maturities of securities available for sale                         58,022           431,934           975,288
     Purchases of securities held to maturity                                          (4,199)          (28,869)             (384)
     Principal payments and proceeds from maturities of securities
         held to maturity                                                              51,289            94,820             2,827
     Purchases of mortgage-backed securities available for sale                      (115,256)       (4,832,344)       (8,955,882)
     Principal payments on mortgage-backed securities available for sale            1,878,401         3,623,918         3,261,363
     Proceeds from sales of mortgage-backed securities available for sale           1,367,666           193,732            25,292
     Principal payments on mortgage-backed securities held to maturity                428,067           621,179           468,544
     Proceeds from sales of loans                                                      68,713            18,528            10,875
     Net (increase) decrease in loans receivable                                   (3,774,409)       (1,694,325)        2,280,576
     Purchases of loans receivable                                                 (1,648,599)       (2,197,573)         (593,378)
     Purchases of FHLB stock, net                                                    (107,570)         (110,477)         (278,955)
     Purchases of premises and equipment                                              (60,787)          (49,241)          (71,361)
     Proceeds from disposal of premises and equipment                                   4,170            14,549            30,634
     Proceeds from sales of foreclosed real estate                                     75,312           136,565           164,278
     Purchases of mortgage servicing rights                                          (364,754)         (357,557)         (157,224)
     Proceeds from sales of mortgage servicing rights                                     774            30,802                --
                                                                                  -----------       -----------       -----------
         Net cash used in investing activities                                     (2,577,263)       (4,453,106)       (2,960,499)
                                                                                  -----------       -----------       -----------

Cash flows from financing activities:
     Branch sales                                                                          --           (69,340)       (1,267,517)
     Net increase (decrease) in deposits                                              395,412        (2,052,128)       (1,449,687)
     Proceeds from additional borrowings                                           43,513,455        33,029,009        25,559,922
     Principal payments on borrowings                                             (40,367,906)      (29,717,967)      (20,496,018)
     Net (decrease) increase in securities sold under agreements
         to repurchase                                                               (970,438)        1,243,352         1,945,646
     Proceeds from the GS Escrow Merger                                                    --                --         1,970,285
     Bank Preferred Stock Tender Offers                                                    --           (97,621)         (423,509)
     Debt Tender Offers                                                                    --              (253)       (1,089,885)
     Defeasance of Parent Holdings Notes                                                   --                --          (553,667)
     Redemption of FN Holdings Preferred Stock                                             --                --           (25,000)
     Redemption of Series A Preferred Stock                                                --                --               (68)
     Dividends on common stock                                                        (26,444)               --                --
     Dividends paid to minority stockholders, net of taxes                            (26,987)          (30,752)          (80,506)
     Exercise of stock options and warrants                                           131,873             7,880               644
     Purchases of treasury stock                                                      (63,724)         (250,245)               --
     Sales of treasury stock                                                              134               979               218
     Capital distribution                                                                  --                --            (2,553)
     Extinguishment of issuable shares                                                (85,000)               --                --
                                                                                  -----------       -----------       -----------
         Net cash provided by financing activities                                  2,500,375         2,062,914         4,088,305
                                                                                  -----------       -----------       -----------

Net change in cash and cash equivalents                                               190,121          (374,925)          555,639
Cash and cash equivalents at beginning of year                                        593,025           967,950           412,311
                                                                                  -----------       -----------       -----------
Cash and cash equivalents at end of year                                          $   783,146       $   593,025       $   967,950
                                                                                  ===========       ===========       ===========

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

                                      F-9

<PAGE>

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

(1)    Organization
       ------------

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

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

(2)    Summary of Significant Accounting Policies
       ------------------------------------------

       The accounting and reporting policies of the Company conform to generally
accepted  accounting  principles  ("GAAP") and prevailing  practices  within the
banking and thrift industries.  The following summarizes the more significant of
these policies.

       (a)  Basis of Presentation

       The accompanying  consolidated  financial statements include the accounts
of Golden State,  which owns all of the common stock of GS Holdings,  which owns
all of the common and preferred stock of the Bank.  Unless the context otherwise
indicates,  "Golden  State" or "Company"  refers to Golden State Bancorp Inc. as
the surviving entity after the consummation of the Golden State  Acquisition (as
defined herein).  On September 11, 1998,  Glendale Federal Bank, Federal Savings
Bank ("Glendale Federal") merged with and into the Bank pursuant to the Glen Fed
Merger (as defined herein). Unless the context otherwise indicates,  "California
Federal" or "Bank"  refers to California  Federal as the surviving  entity after
the consummation of the Golden State Merger (as defined herein). 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, 2000 was $57.8 million,  which was met with vault cash of $108.5
million and cash reserves of $21.6 million.

                                      F-10

<PAGE>

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

       (c)  Securities and Mortgage-backed Securities

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

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

       (d)  Loans Held for Sale, Net

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

       (e)  Loans Receivable, Net

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

       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.

       A  significant  portion of the  Company's  real estate loan  portfolio is
comprised of adjustable-rate  mortgages.  The interest rate and payment terms of
these mortgages adjust on a periodic basis in accordance with various  published
indices. The majority of these adjustable-rate  mortgages have terms which limit
the amount of  interest  rate  adjustment  that can occur each year and over the
life of the mortgage. When such limits are applied, negative amortization occurs
on certain adjustable-rate mortgages. See note 35.

       The  allowance  for loan  losses is  adjusted  by  charges  to income and
decreased by charge-offs (net of recoveries).  Management's  periodic evaluation
of the adequacy of the allowance is based on such factors as the Company's  past
loan  loss  experience,  known  and  inherent  risks in the  portfolio,  adverse
situations  that  have  occurred  but are not yet  known  that  may  affect  the
borrower's ability to repay, the estimated value of underlying  collateral,  and
economic conditions.  Management's methodology for assessing the adequacy of the
allowance  includes the evaluation of the following three key elements:  (a) the
formula allowance,  (b) specific allowances for identified problem loans and (c)
the  unallocated   allowance.   As  management  utilizes  information  currently
available to make such  evaluation,  the allowance for loan losses is subjective
and may be adjusted in the future depending on changes in economic conditions or
other  factors.  Additionally,  regulatory  authorities,  as an integral part of
their regular  examination  process,  review the Bank's  allowance for estimated
losses on a periodic basis.  These authorities may require the Bank to recognize
adjustments to the allowance based on their judgment of information available to
them at the time of their examination.

                                      F-11

<PAGE>

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

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

       (f)  Securitized Loan Sales

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

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

       (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   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,  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.

                                      F-12

<PAGE>

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

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

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

       (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.

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

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

       (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 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.

       (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.

                                      F-13

<PAGE>

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

       (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.

       (m)  Mortgage Servicing Rights

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

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

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

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

       The Company employs hedging  techniques  through the use of interest rate
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
declining  interest rates and borrower  prepayments as further discussed in note
38. The Company uses hedge accounting  because mortgage  servicing rights expose
the Company to interest rate risk. At the inception of the hedge and  throughout
the hedge period,  high  correlation of changes in the market value of the hedge
instruments  and the fair  value of the  mortgage  servicing  rights  due to the
designated hedge risk is probable. Therefore, changes in the market value of the
hedge instruments due to interest rate changes will substantially offset changes
in the market value of mortgage  servicing  rights due to interest rate changes.
If high correlation does not exist,  the hedge  instruments  would be considered
speculative and would be marked to market with changes in market value reflected
in current income.

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

                                      F-14

<PAGE>

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

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

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

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

       (o)  Servicing Fee Income

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

       (p)  Derivatives

       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  prepayment  risk in its mortgage  servicing
portfolio  caused by declining  interest rates and to hedge against the interest
rate risk inherent in  fixed-rate  FHLB  advances.  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  correlation  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.

                                      F-15

<PAGE>

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

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

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

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

       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.

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

       In connection with the Golden State Acquisition (as defined herein),  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.

                                      F-16

<PAGE>

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

       (r)  Issuable Shares

       The Golden State  Merger  agreement  provides  that GSB  Investments  (as
defined  herein),  as  successor to First  Gibraltar  (as defined  herein),  and
Hunter's  Glen (as  defined  herein)  will be  entitled  to  receive  contingent
consideration,  through the  issuance by Golden  State of  additional  shares of
Golden  State  Common  Stock (as  defined  herein)  ("Issuable  Shares")  to GSB
Investments and Hunter's Glen,  based on (a) the use by the combined  company of
certain tax benefits  resulting  from net operating  loss  carryforwards  of the
consolidated  group of which Parent  Holdings was a part, and the realization of
certain other tax assets and liabilities of Golden State and Parent Holdings and
(b) California Federal's net after-tax recovery in certain specified litigation,
including a percentage of the net after-tax recovery,  if any, in the California
Federal Goodwill Litigation (as defined herein) (following payment by California
Federal of all amounts due, if any, to the holders of the Contingent  Litigation
Recovery  Participation   Interests  ("CALGZs")  and  the  Secondary  Contingent
Litigation  Recovery  Participation  Interests  ("CALGLs")  and the retention of
certain amounts of such recovery by the Bank). The Golden State Merger agreement
provides  generally  that the  amount  of the net  after-tax  recovery,  if any,
resulting from the California Federal Goodwill Litigation which will be excluded
in  determining  the  number of  Issuable  Shares  issuable  in  respect  of the
California Federal Goodwill  Litigation will be based on 15% of the value of the
net after-tax  recovery in the Glendale Goodwill  Litigation (as defined herein)
to be excluded for purposes of determining  the number of shares of Golden State
Common  Stock  issuable  upon  exercise of the  LTW(TM)s  (as  defined  herein),
adjusted to reflect the pro forma  ownership  interest  of GSB  Investments  and
Hunter's Glen in Golden State at the time of the Golden State Merger.

       The total number of Issuable  Shares  cannot be determined at the present
time, as such number depends upon factors that are not subject to  determination
at this time.  These factors  include,  among other things,  the market price of
Golden State Common  Stock,  the net value to the Company of certain  assets and
liabilities of Golden State and Parent Holdings,  including potential recoveries
in the Glendale Goodwill Litigation,  the California Federal Goodwill 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

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

                                      F-17

<PAGE>

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

       (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 and  warrants.  The
dilutive effect of stock options and warrants issued prior to September 11, 1998
(which are  convertible  into the right to receive  both shares of Golden  State
Common Stock and LTW(TM)s) used to compute diluted  earnings per share, is based
ON the average market prices of Golden State's Common Stock and LTW(TM)s for the
period.  The  dilutive  effect of  issuable  shares  (used IN both the basic and
diluted earnings per share computation) and stock options issued after September
11, 1998 is based solely on the average  market price of Golden  State's  Common
Stock for the period as such shares are not  eligible to receive  LTW(TM)s  upon
issuancE.  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 and warrants outstanding during the period.

       (u)  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.
Actual results could differ from those estimates.

       (v)  Recent Accounting Pronouncements

       ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

       In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No.
133"). SFAS No. 133 was amended by Statement of Financial  Accounting  Standards
No. 137, ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  ACTIVITIES-DEFERRAL
OF THE EFFECTIVE DATE OF FASB  STATEMENT No. 133 ("SFAS No. 137").  SFAS No. 137
mandates  that SFAS No. 133 shall be  effective  for all fiscal  quarters of all
fiscal years  beginning  after June 15, 2000. SFAS NO. 133 has also been amended
by Statement of Financial  Accounting  Standards No. 138, ACCOUNTING FOR CERTAIN
DERIVATIVE  INSTRUMENTS AND CERTAIN HEDGING ACTIVITIES,  which addresses certain
implementation  issues that arise in the  application  of SFAS No. 133. SFAS No.
133 requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive  income,  depending on the type of hedge
transaction.

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

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

                                      F-18

<PAGE>

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

       The  Company  has  identified  various  types of  instruments  which will
qualify as  derivatives  pursuant to SFAS No. 133.  The  derivative  instruments
(interest  rate floors,  interest rate swaps,  principal only swaps and interest
rate  swaptions)  used to hedge the  change in the fair  value of the  Company's
mortgage  servicing rights will be reported as fair value hedges.  The Bank also
hedges its mortgage loans held for sale and its rate-locked pipeline of mortgage
loans,  primarily with  mandatory  forward loan sale  commitments  which will be
reported as fair value hedges. The rate-locked pipeline is a derivative pursuant
to SFAS No. 133 and will be reported in the financial  statements at fair market
value. The derivative instruments (interest rate swaps) used to hedge the change
in the cash flows of the  Company's  Federal Home Loan Bank advances and reverse
repurchase agreements will be reported as cash flow hedges.

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

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

       Generally,  the  high-effectiveness  requirement has been  interpreted to
mean that the cumulative  changes in the value of the hedging  instrument  since
hedge  inception  due to the hedged  risk  should be between 80% and 125% of the
inverse  cumulative change since hedge inception in the fair value or cash flows
of the hedged  items.  Alternatively,  a  regression  analysis  that yields an r
squared  of  0.8 or  greater  is  considered  to  meet  the  high  effectiveness
requirement.

       SFAS No.  133,  as  amended,  will  significantly  change the  accounting
treatment  of  derivative  instruments  used by the  Company.  Depending  on the
underlying  risk  management  strategy,  these  accounting  changes  will affect
reported net income, assets,  liabilities and stockholders' equity. As a result,
the Company has reviewed its risk management strategies, since SFAS No. 133 will
not  reflect  the  results  of many of those  strategies  in the same  manner as
current  accounting  practice.  SFAS No.  133  will be  adopted  by the  Company
effective  January 1, 2001 and will not be applied  retroactively  to  financial
statements of prior periods.

       The  transition  adjustment  recorded  on  January 1, 2001 did not have a
material impact on net income and resulted in a decrease in other  comprehensive
income  of $45  million.  As of  January  1,  2001,  assets of $16  million  and
liabilities  of $90 million,  excluding the impact of taxes,  were recorded as a
result of the implementation of SFAS No. 133.

       ACCOUNTING   FOR   TRANSFERS   AND   SERVICING   FINANCIAL   ASSETS   AND
       EXTINGUISHMENTS OF LIABILITIES

       On September 29, 2000, the FASB issued Statement of Financial  Accounting
Standards No. 140,  ACCOUNTING  FOR TRANSFERS AND SERVICING OF FINANCIAL  ASSETS
AND  EXTINGUISHMENTS OF LIABILITIES ("SFAS No. 140"). SFAS No. 140 replaces SFAS
No.  125,  which was  issued  in June of 1996.  It  revises  the  standards  for
accounting  for  securitizations  and other  transfers of  financial  assets and
collateral  and requires  certain  disclosures,  but it carries over most of the
provisions of SFAS No. 125 without reconsideration.  In general, SFAS No. 140 is
effective for transfers of financial  assets  occurring after March 31, 2001 and
for  disclosures  relating to  securitization  transactions  and  collateral for
fiscal years ending after December 15, 2000.

       The  implementation  of SFAS No. 140 is not expected to materially impact
the Company's financial results.

                                      F-19

<PAGE>

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

       RECOGNITION  OF INTEREST  INCOME AND IMPAIRMENT ON PURCHASED AND RETURNED
       BENEFICIAL INTERESTS IN SECURITIZED FINANCIAL ASSETS

       On September  21, 2000,  the EITF issued EITF No. 99-20,  RECOGNITION  OF
INTEREST INCOME AND IMPAIRMENT ON PURCHASED AND RETAINED BENEFICIAL INTERESTS IN
SECURITIZED  FINANCIAL  ASSETS  ("EITF  No.  99-20").  This  document,  which is
effective  in  the  second  quarter  of  2001,   establishes  guidance  for  (1)
recognizing interest income (including amortization of premiums or discounts) on
(a) all  credit-sensitive  mortgage and asset-backed  securities and (b) certain
prepayment-sensitive  securities  including agency  interest-only strips and (2)
determining  when these securities must be written down to fair value because of
impairment.  Existing GAAP did not provide  interest  recognition and impairment
guidance  for  securities  on  which  cash  flows  change  as a  result  of both
prepayments and credit losses and, in some cases, interest rate adjustments.

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

(3)    Acquisitions and Divestitures
       -----------------------------

       GOLDEN STATE ACQUISITION

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

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

                                      F-20

<PAGE>

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

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

                                                                                                          Estimated
                                                         Carrying        Fair Value          Fair         Remaining
                                                          Value          Adjustments         Value          Lives
                                                         --------        -----------         -----        ---------
                                                                    (dollars in thousands)                (in years)
<S>                                                    <C>                <C>             <C>               <C>
Cash and cash equivalents                              $   782,233        $      --       $   782,233         --
Securities and mortgage-backed securities                2,354,263           16,015         2,370,278        1-5
Loans receivable, net                                   14,432,389          129,718        14,562,107        6-9
Office premises and equipment, net                         158,446           (9,692)          148,754        2-12
Investment in FHLB System                                  314,591               --           314,591          --
Foreclosed real estate, net                                 47,504               --            47,504          --
Accrued interest receivable                                115,165               --           115,165          --
Mortgage servicing rights                                  230,764          (17,831)          212,933         2-7
Goodwill                                                   271,743         (271,743)               --          --
Other assets                                               204,372           77,709           282,081         2-5
Deposits                                               (11,293,173)         (10,547)      (11,303,720)        1-8
Borrowings                                              (5,877,574)         (45,310)       (5,922,884)        1-5
Other liabilities                                         (399,737)         (65,017)         (464,754)       1-10
                                                       -----------        ---------       -----------
                                                       $ 1,340,986        $(196,698)        1,144,288
                                                       ===========        =========
Purchase price                                                                              1,451,982
                                                                                          -----------
Excess cost over fair value of net assets acquired                                        $   307,694          15
                                                                                          ===========
</TABLE>

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

       Merger and integration costs associated with the Golden State Acquisition
were $7.7  million and $59.2  million for the years ended  December 31, 1999 and
1998,  respectively,  including  severance  for  terminated  California  Federal
employees,  expenses for California Federal branch closures,  and conversion and
consolidation  costs,  as well as transition  expenses for duplicate  personnel,
facilities and computer systems during the integration  period. No such expenses
were incurred during 2000.

       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.

       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.

       DOWNEY ACQUISITION

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

                                      F-21

<PAGE>

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

       NEVADA BRANCH PURCHASE

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

       FLORIDA BRANCH SALE

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

       GSAC ACQUISITION

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

       CAL FED ACQUISITION

       On January 3, 1997,  pursuant  to an  Agreement  and Plan of Merger  (the
"Merger  Agreement")  among FN Holdings,  Cal Fed Bancorp  Inc.  ("Cal Fed") and
California Federal Bank, A Federal Savings Bank ("Old California  Federal"),  FN
Holdings  acquired 100% of the  outstanding  stock of Cal Fed and Old California
Federal,  and First Nationwide merged with and into Old California  Federal (the
"Cal Fed  Acquisition").  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.  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.

       Excess  cost  over  fair  value  of net  assets  acquired  in the Cal Fed
Acquisition  totalled  $397.6  million.  During 1998, the Company  recorded fair
value adjustments to reduce other liabilities and excess cost over fair value of
net assets  acquired by $71.2 million  related to (a) to receipt of a tax refund
related to periods prior to January 3, 1997 and (b) previously accrued severance
and contract  termination  costs (which had not been utilized upon completion of
the integration plan). During 1999, the Company recorded an adjustment to reduce
other  liabilities  and excess  cost over fair value of net assets  acquired  by
$38.2  million,  also  related to a tax refund for  periods  prior to January 3,
1997. 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.

       SERVICING SALE

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

                                      F-22

<PAGE>

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

       PRO FORMA FINANCIAL INFORMATION

       The following  unaudited  pro forma  financial  information  combines the
historical  results  of the  Company  as if the Golden  State  Acquisition,  the
issuance  of the GS  Holdings  Notes (as  defined  herein)  and the  Refinancing
Transactions  (as defined  herein) had occurred as of the  beginning of 1998 (in
thousands, except per share data):

                                                       Year Ended
                                                     December 31, 1998
                                                     -----------------

               Net interest income                       $1,053,314
               Net income                                   556,834

               Earnings per Share:
                  Basic                                       $4.21
                  Diluted                                      3.68

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

       PURCHASE ACCOUNTING ADJUSTMENTS

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

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

       On August 6, 1998,  GS Escrow  Corp,  ("GS  Escrow"),  an affiliate of GS
Holdings, issued $2 billion in debt securities (the "GS Holdings Notes"). The GS
Holdings  Notes were issued to fund, in part,  the cash tender offers  discussed
below,  that occurred  following the Golden State  Acquisition.  The GS Holdings
Notes  consist of (a) $250 million  aggregate  principal  amount of its Floating
Rate Notes Due 2003 (the  "Floating  Rate  Notes"),  (b) $350 million  aggregate
principal  amount of its 6 3/4% Senior  Notes due 2001 (the "2001  Notes"),  (c)
$600  million  aggregate  principal  amount of its 7% Senior Notes Due 2003 (the
"2003  Notes") and (d) $800  million  aggregate  principal  amount of its 7 1/8%
Senior  Notes Due 2005 (the "2005 Notes" and,  together  with the 2001 Notes and
the 2003 Notes,  the "Fixed Rates Notes" and,  together with the Floating  Rates
Notes,  the "GS  Holdings  Notes").  Interest on the Fixed Rate Notes is payable
semi-annually in arrears on February 1 and August 1 of each year,  commencing on
February 1, 1999.  The Floating  Rate Notes bear interest at a rate equal to the
three-month  LIBOR plus 100 basis point per annum,  except that the initial rate
was 6 3/4% per annum,  based on six-month  LIBOR (which  initial  interest  rate
resets on the first  interest  payment  date,  and,  thereafter,  on a quarterly
basis). The first interest payment date for the Floating Rate Notes was February
1,  1999.  Thereafter,  interest  is  payable,  and the  interest  rate  resets,
quarterly  on each May 1,  August 1,  November 1 and  February  1. The  weighted
average interest rate on the Floating Rate Notes during 2000 was 7.43%. The 2001
Notes, 2003 Notes and 2005 Notes will mature on August 1 of the respective year.

       The GS  Holdings  Notes were  issued to fund,  in part,  the  Refinancing
Transactions  that  occurred  following the Golden State  Acquisition.  Deferred
issuance costs of $38.6 million related to the GS Holdings Notes are included in
the Company's  other assets and are being amortized over the life of such notes.
See note 22.

                                      F-23

<PAGE>

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

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

       On August 17, 1998, FN Holdings  commenced  cash tender offers (the "Bank
Preferred Stock Tender Offers") for each of the Bank's two outstanding series of
Bank  Preferred  Stock  (as  defined  herein),   which  had  a  total  aggregate
liquidation preference of $473.2 million. The Bank Preferred Stock Tender Offers
expired on  September  14,  1998,  at which time  222,721  shares of the 10 5/8%
Preferred  Stock (as defined herein) and 995,437 shares of the 11 1/2% Preferred
Stock (as defined  herein) were  purchased  for an aggregate  purchase  price of
$135.8 million.  During the remainder of 1998 and 1999, GS Holdings continued to
purchase Bank Preferred Stock through privately negotiated transactions. Through
December 31, 1998,  894,980 additional shares of the 10 5/8% Preferred Stock and
1,693,522  shares  of the 11 1/2%  Preferred  Stock  had been  purchased  for an
aggregate  purchase  price of $287.7  million.  On April 1,  1999,  GS  Holdings
redeemed all of the remaining 607,299  outstanding  shares of the Bank's 10 5/8%
Preferred  Stock not already  owned by it for  $105.313  per share,  for a total
redemption  price of $63.9 million.  On September 1, 1999, GS Holdings  redeemed
all of the remaining 318,341  outstanding shares of the Bank's 11 1/2% Preferred
Stock not already owned by it for $105.75 per share for a total redemption price
of $33.7 million.  The net tender  premiums and expenses paid in connection with
the Bank Preferred  Stock Tender Offers  totalled $5.1 million and $36.9 million
for the years ended December 31, 1999 and 1998, respectively,  and are reflected
as minority  interest on the Company's  consolidated  statements of income.  See
note 26.

       On September  14, 1998,  GS Holdings  commenced  cash tender  offers (the
"Debt Tender  Offers" and together with the Bank  Preferred  Stock Tender Offers
and the  Parent  Holdings  Defeasance  (as  defined  herein),  the  "Refinancing
Transactions")  for the FN Holdings 12 1/4% Senior Notes, the FN Holdings 9 1/8%
Senior Sub Notes and the FN Holdings  10 5/8% Notes (each as defined  herein and
collectively,  the "FN Holdings  Notes"),  which together had a total  aggregate
principal  amount of $915  million.  Through  December  31,  1998,  GS  Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an  aggregate  purchase  price,  including  accrued  interest  payable,  of $1.1
billion.  On May 15,  1999,  GS Holdings  redeemed  the  remaining  $0.2 million
aggregate  principal  amount  of the FN  Holdings  12 1/4%  Senior  Notes for an
aggregate  redemption  price,  including  accrued  interest  payable,  of $252.6
thousand.  At December  31,  2000,  only $0.3 million of the FN Holdings 10 5/8%
Notes remained  outstanding.  The after tax tender premiums and expenses paid in
connection  with the Debt Tender Offers totalled $98.7 million and are reflected
as an extraordinary loss, net of taxes, on the Company's  consolidated statement
of income for the year ended December 31, 1998.

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

(6)    GS Escrow Merger
       ----------------

       On September  14,  1998,  GS Escrow was merged with and into GS Holdings,
pursuant to a merger agreement by and between GS Escrow and GS Holdings (the "GS
Escrow Merger"). In connection therewith,  GS Holdings acquired the net proceeds
of $2.0 billion from the Refinancing  Transactions and became successor  obligor
on the GS  Holdings  Notes.  GS  Escrow  was a newly  formed  subsidiary  of GSB
Investments,  an indirect parent company of FN Holdings,  and had no significant
assets.  GS Escrow had not  engaged in any  business  operations,  acquired  any
assets or incurred any  liabilities,  other than in connection with the issuance
of the GS Holdings Notes.

                                      F-24
<PAGE>

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

<TABLE>
<CAPTION>

(7)    Supplemental Disclosure of Cash Flow Information
       ------------------------------------------------
                                                                                       Year Ended December 31,
                                                                            --------------------------------------------
                                                                               2000              1999            1998
                                                                            ----------        ----------      ----------
                                                                                            (in thousands)
<S>                                                                         <C>               <C>             <C>
Cash paid (received) for:
     Interest                                                               $2,881,704        $2,255,685      $1,783,032
     Income taxes, net                                                         (37,858)            9,608        (142,012)

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                           47,175           101,692         118,801
     Loans made to facilitate the sale of real estate                            5,433            10,039          10,898
     Loans exchanged for mortgage-backed securities                            116,517           227,099       1,905,274
     Reclassification of loans from loans held
       for sale to loans receivable                                             77,913           110,313              --
     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                --              --
     Initial dividend of tax benefits to former parent
       due to deconsolidation                                                       --                --         230,161
     Adjustment to initial dividend of tax benefits to
       former parent due to deconsolidation                                         --           (15,519)             --
     Reclassification of Litigation Tracking Warrants
       owned by the Bank                                                            --            (1,987)             --
     Adjustment to contribution receivable from
       GSB Investments and Hunter's Glen in respect
       of their proportionate ownership of the
       California Federal Goodwill Litigation Asset                              3,451           (24,081)             --
     Issuable Shares (usage of pre-mergers NOLs)                               166,484           197,562              --
     Issuable Shares adjustment for tax refund and related interest              1,389                --              --
     Adjustment to pre-merger tax benefits retained by previous
       owners of FN Holdings                                                   (39,305)               --              --
     Impact of restricted common stock                                           3,175               477              --
     Distribution of Issuable Shares                                          (100,000)           (5,540)             --
     Extinguishment of Issuable Shares:
       Reduction of Issuable Shares                                            (53,312)               --              --
       Increase to other liabilities                                            38,911                --              --
       Increase to additional paid-in capital                                   14,401                --              --
     Adjustment to Golden State Acquisition
       purchase price                                                               --           (12,380)             --
     Preferred stock dividends reinvested                                           --                --             107

</TABLE>

                                      F-25

<PAGE>

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

(8)    Reclassification of Securities
       ------------------------------

       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.

(9)    Securities Available for Sale
       -----------------------------

       At December  31,  2000 and 1999,  securities  available  for sale and the
related unrealized gain or loss consisted of the following (in thousands):
<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>

<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 6.21% and 6.24% at December 31, 2000 and 1999, respectively.

                                      F-26

<PAGE>

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

       The following  represents a summary of the amortized cost, estimated fair
value (carrying  value) and weighted  average yield of securities  available for
sale with related maturities (dollars in thousands):
<TABLE>
<CAPTION>

                                                                             December 31, 2000
                                                               --------------------------------------------
                                                                                Estimated          Weighted
                                                               Amortized           Fair            Average
                                                                Cost              Value             Yield
                                                               ---------        ---------          --------
      <S>                                                       <C>             <C>                 <C>
      Marketable equity securities                              $  4,779        $  5,100            0.53%
      U.S. government and agency obligations:
           Maturing within 1 year                                 36,685          36,720            6.87
           Maturing after 1 year but within 5 years              601,803         599,385            6.21
                                                                --------        --------
              Total                                             $643,267        $641,205            6.21%
                                                                ========        ========
</TABLE>

       At December 31, 2000, U.S.  government and agency  obligations  available
for sale of $40.4  million were pledged as collateral  for various  obligations.
See notes 22 and 35.

(10)   Securities Held to Maturity
       ---------------------------
       At December 31, 2000 and 1999,  securities held to maturity  consisted of
the following (in thousands):

<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>

                                           December 31, 1999
                         -----------------------------------------------------
                         Amortized    Unrealized     Unrealized     Estimated
                           Cost         Gains         Losses        Fair Value
                         ---------    ----------     ----------     ----------

Municipal securities      $ 84,727       $415         $(5,323)       $ 79,819
Commercial paper           100,630         --              --         100,630
                          --------       ----         -------        --------
         Total            $185,357       $415         $(5,323)       $180,449
                          ========       ====         =======        ========

       The weighted average stated interest rates on securities held to maturity
were 5.95% and 4.89% at December 2000 and 1999, respectively.

                                      F-27

<PAGE>

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

       The  following  represents  a summary  of the  amortized  cost  (carrying
value),  estimated fair value,  and weighted average yield of securities held to
maturity with related maturities (dollars in thousands):

                                                 December 31, 2000
                                     ------------------------------------------
                                                       Estimated       Weighted
                                     Amortized           Fair          Average
                                       Cost              Value          Yield
                                     ---------         ---------       --------
Municipal securities
    Maturing after 5 years
       through 10 years              $  4,640          $  4,627         4.66%
    Maturing after 10 years           506,892           509,973         7.48
Commercial paper
    Maturing within 1 year             75,971            75,971         6.21
                                     --------          --------
       Total                         $587,503          $590,571         7.29%
                                     ========          ========

       At December 31, 2000,  commercial paper investments of $75.7 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
35.

(11)   Mortgage-backed Securities Available for Sale
       ---------------------------------------------

       At December 31, 2000 and 1999,  mortgage-backed  securities available for
sale and the related  unrealized  gain or loss  consisted of the  following  (in
thousands):
<TABLE>
<CAPTION>

                                                                       December 31, 2000
                                            ------------------------------------------------------------------------
                                                              Gross          Gross           Net
                                             Amortized      Unrealized     Unrealized     Unrealized        Carrying
                                               Cost           Gains          Losses          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>

<TABLE>
<CAPTION>

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

                                      F-28

<PAGE>

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


       The following  represents a summary of the amortized cost, estimated fair
value (carrying value) and weighted average yield of mortgage-backed  securities
available for sale (dollars in thousands):

                                                   December 31, 2000
                                         --------------------------------------
                                                        Estimated      Weighted
                                         Amortized        Fair         Average
                                           Cost           Value         Yield
                                         ---------      ---------      --------
GNMA                                     $  385,906     $  382,008       7.24%
FNMA                                      1,327,352      1,323,133       7.38
FHLMC                                       534,498        536,426       7.70
Other mortgage-backed securities            338,405        337,508       7.50
Collateralized mortgage obligations       7,330,167      7,287,748       6.64
                                         ----------     ----------
       Total                             $9,916,328     $9,866,823       6.84%
                                         ==========     ==========

       The weighted average stated interest rates on mortgage-backed  securities
available  for  sale  were  6.89%  and  6.62% at  December  31,  2000 and  1999,
respectively.   At  December  31,  2000  and  1999,  mortgage-backed  securities
available for sale included securities  totalling $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, 2000 and 1999,  mortgage-backed  securities available for
sale  included  $3.0 billion and $4.3 billion,  respectively,  of  variable-rate
securities.

       At December 31, 2000,  mortgage-backed  securities  available for sale of
$6.5 billion were pledged as collateral  for FHLB advances and  securities  sold
under agreements to repurchase,  $2.6 billion of which were pledged to creditors
who have the right to sell or repledge the collateral.  See notes 21, 22 and 35.
Further,  at December 31, 2000,  mortgage-backed  securities  available for sale
with a carrying value of $525 million were pledged for various other obligations
and include $135 million in securities pledged to FNMA associated with the sales
of certain securitized multi-family loans as further discussed in note 35.

(12)   Mortgage-backed Securities Held to Maturity
       -------------------------------------------

       At  December  31,  2000  and  1999,  mortgage-backed  securities  held to
maturity consisted of the following (in thousands):
<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>

                                      F-29

<PAGE>

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

<TABLE>
<CAPTION>

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

       The  following  represents  a summary  of the  amortized  cost  (carrying
value),  estimated  fair value and  weighted  average  yield of  mortgage-backed
securities held to maturity (dollars in thousands):

                                                  December 31, 2000
                                      ----------------------------------------
                                                      Estimated       Weighted
                                       Amortized        Fair          Average
                                         Cost           Value          Yield
                                       ---------      ---------       --------
GNMA                                  $  237,437     $  242,542         7.11%
FHLMC                                    234,969        242,752         8.12
FNMA                                   2,413,331      2,473,513         7.73
Other mortgage-backed securities             875            870        14.15
                                      ----------     ----------
       Total                          $2,886,612     $2,959,677         7.71%
                                      ==========     ==========

       The weighted average stated interest rates on mortgage-backed  securities
held  to  maturity  were  7.45%  and  6.92%  at  December  31,  2000  and  1999,
respectively.  At December 31, 2000 and 1999, mortgage-backed securities held to
maturity  included  securities with carrying  values  totalling $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,  2000  and  1999,  mortgage-backed  securities  held to
maturity included $1.8 billion and $2.1 billion,  respectively, of variable-rate
securities.

       At December 31, 2000, mortgage-backed securities held to maturity of $2.1
billion were pledged as collateral for various obligations, substantially all of
which  were  pledged to  creditors  who have the right to sell or  repledge  the
collateral.   See  notes  21,  22  and  35.  Further,   at  December  31,  2000,
mortgage-backed  securities  held to  maturity  with a  carrying  value  of $298
million were pledged for various other obligations. See note 35.

                                      F-30

<PAGE>

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

(13)   Loans Receivable, Net
       ---------------------

       At December  31,  2000 and 1999,  loans  receivable,  net,  included  the
following (in thousands):
<TABLE>
<CAPTION>

                                                                 2000                  1999
                                                              -----------           -----------
<S>                                                           <C>                   <C>
Real estate loans:
   1-4 unit residential                                       $30,828,368           $26,965,684
   Multi-family residential                                     3,569,228             2,881,462
   Commercial real estate                                       2,487,093             2,564,644
   Land                                                            22,384                32,421
   Construction                                                     7,416                 7,804
                                                              -----------           -----------
      Total real estate loans                                  36,914,489            32,452,015
                                                              -----------           -----------
Equity-line                                                       538,524               433,366
Other consumer loans                                              302,559               237,090
Auto loans, net                                                 1,567,257               697,667
Commercial loans                                                  557,796               507,082
                                                              -----------           -----------
      Total consumer and other loans                            2,966,136             1,875,205
                                                              -----------           -----------
      Total loans receivable                                   39,880,625            34,327,220
Deferred loan fees, costs, discounts and premiums, net            229,962               173,719
Allowance for loan losses                                        (526,308)             (554,893)
Purchase accounting adjustments, net                                8,535                 7,415
                                                              -----------           -----------
      Total loans receivable, net                             $39,592,814           $33,953,461
                                                              ===========           ===========
</TABLE>

       At December 31, 2000, $27.2 billion in residential loans, $3.0 billion in
multi-family loans and $1.7 billion in commercial real estate loans were pledged
as collateral for FHLB advances as discussed in notes 22 and 35.

       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, 2000 totalled $2.5 billion.
No loans were sold with recourse  during the years ended December 31, 2000, 1999
and 1998. 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,  2000,  such
liability totalled $48.9 million.

       Auto loans purchased at a discount related to credit quality are included
in the balance sheet amount of loans receivable as follows (in thousands):
<TABLE>
<CAPTION>

                                                                              December 31,
                                                                        ------------------------
                                                                           2000          1999
                                                                        -----------   ----------
<S>                                                                     <C>           <C>
Auto loans:  contractual payments receivable                            $2,124,182    $1,024,612
Accretable Yield                                                          (232,635)     (123,944)
Nonaccretable Contractual Cash Flows                                      (334,878)     (203,001)
                                                                        ----------     ---------

Loans purchased at a discount relating to credit quality, net           $1,556,669    $  697,667
                                                                        ==========    ==========
</TABLE>

                                      F-31

<PAGE>

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

       Nonaccretable Contractual Cash Flows represents contractual principal and
interest cash flows that the Company determined, at acquisition, it was probable
the  Company  would  be  unable  to  collect.   The  increase  in  Nonaccretable
Contractual Cash Flows in 1999 includes $7.3 million, representing an allocation
from the  allowance  for loan  losses.  The  actual  cash  flows  for one of the
purchased  pools plus the expected cash payments were determined to be less than
the  expected  cash flows  estimated at the time of  purchase.  Accordingly,  an
allocation  from the  allowance  for loan losses was made in the amount by which
the carrying  value of this  purchased  pool  exceeded the present  value of the
expected  cash flows from such pool.  The increase in  Accretable  Yield in 2000
includes $6.4 million representing charge-offs as a result of pool impairment.


                                                                  Nonaccretable
                                                  Accretable       Contractual
                                                    Yield          Cash Flows
                                                  ----------      -------------
                                                          (in thousands)

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)
                                                  =========         =========

       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.  Throughout  the year 2000, the Company
incurred  losses  totalling  $6.4 million on loans  purchased at a discount as a
result of pool  impairment.  These losses are reflected as charge-offs.  No loss
allowance  was acquired from  predecessor  institutions  in connection  with the
Downey Acquisition. No loss accruals were reversed in 2000 or 1999.

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

                                                   At December 31,
                                             -------------------------
Nonaccrual loans:                               2000           1999
                                                ----           ----
    Real estate loans:
       1-4 unit residential                  $ 88,650        $125,238
       Multi-family residential                 3,253           5,820
       Commercial and other                     1,509           8,279
       Land                                        84              --
       Construction                                68             150
                                             --------        --------
          Total real estate                    93,564         139,487
    Non-real estate                            21,475          11,267
                                             --------        --------
          Total nonaccrual loans             $115,039        $150,754
                                             ========        ========

                                      F-32

<PAGE>

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

       At December 31, 2000,  $31.5  billion,  or 85.3%,  of the Company's  real
estate loan portfolio was  collateralized  by properties  located in California.
The financial condition of the Company is subject to general economic conditions
such as the volatility of interest rates and real estate market  conditions and,
in particular,  to conditions in the California  residential real estate market.
Any downturn in the economy  generally,  and in California in particular,  could
reduce real estate  values.  An increase in the general level of interest  rates
may adversely affect the ability of certain borrowers to pay the interest on and
principal of their obligations. Accordingly, in the event interest rates rise or
real estate market values decline,  particularly in California,  the Company and
the Bank may find it  difficult  to maintain  its asset  quality and may require
additional  allowances  for  loss  above  the  amounts  currently  estimated  by
management.

       For nonaccrual  loans, the following table summarizes the interest income
recognized  ("Recognized")  and  total  interest  income  that  would  have been
recognized  had the borrowers  performed  under the original  terms of the loans
("Contractual") for the years ended December 31, 2000 and 1999 (in thousands):


                               2000                              1999
                     --------------------------       --------------------------
                     Recognized     Contractual       Recognized     Contractual
                     ----------     -----------       ----------     -----------

Nonaccrual loans       $6,752         $7,478           $7,111          $10,937

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

                                                            2000               1999              1998
                                                         ----------         ---------         ----------
<S>                                                       <C>               <C>                <C>
Balance - beginning of year                               $554,893          $588,533           $418,674
Purchases, net                                                  --                --            170,014
Provision for loan losses                                       --            10,000             40,000
Charge-offs                                                (33,477)          (40,312)           (46,126)
Recoveries                                                   4,892             4,681              5,971
Reclassifications                                               --              (670)                --
Allocation to Nonaccretable Contractual
    Cash flows of purchased auto loan portfolio                 --            (7,339)                --
                                                          --------          --------           --------
Balance - end of year                                     $526,308          $554,893           $588,533
                                                          ========          ========           ========
</TABLE>

                                      F-33

<PAGE>

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

(14)   Securitized Loan Sales
       ----------------------

       At December 31, 2000,  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):

                                                                   Residential
                                                                 Adjustable-Rate
                                                                  Mortgage Loans
                                                                 ---------------

Carrying amount/fair value of retained interests (a)                $222,206
Weighted average life (in years)                                        3.73

Prepayment speed assumption (annual rate)                              16.55%
   Impact on fair value of 10% adverse change                       $   (128)
   Impact on fair value of 20% adverse change                       $   (267)

Expected credit losses (annual rate)                                    0.63%
   Impact on fair value of 10% adverse change                       $   (235)
   Impact on fair value of 20% adverse change                       $   (375)

Bond equivalent effective yield discount rate (semi-annual)             7.06%
   Impact on fair value of 10% adverse change                       $ (1,349)
   Impact on fair value of 20% adverse change                       $ (2,653)

-----------
(a)  Excludes cash reserve accounts of $75,689.

       The   following   table   presents    quantitative    information   about
delinquencies,  net credit losses and components of securitized financial assets
and other assets managed together with them (dollars in thousands):
<TABLE>
<CAPTION>

                                                              Principal Amount of
                                       Total Principal          Loans 60 Days or                 Net Credit
                                       Amount of Loans          More Past Due (a)                Losses (b)
                                    ---------------------      -------------------     ----------------------------------
                                                  At December 31,                      During the Year Ended December 31,
                                    ----------------------------------------------     ----------------------------------
                                      2000         1999         2000         1999           2000              1999
                                    --------     --------      -------     -------          ----              ----
<S>                                 <C>          <C>           <C>         <C>               <C>               <C>
Residential adjustable-rate
     mortgage loans managed
     or securitized (c):
     Total                          $304,366     $381,068      $10,402     $13,023           --                12
     Loans held in portfolio        $223,632     $279,988      $ 7,643     $ 9,569           --                12
</TABLE>

------------
(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.

                                      F-34

<PAGE>

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

(15)   Impaired Loans
       --------------

       At December 31, 2000 and 1999,  the balance of loans that are  considered
to be impaired totalled $97.2 million and $123.6 million, respectively (of which
$19.5 million and $18.9 million,  respectively,  were on nonaccrual status). The
average  recorded  investment in impaired  loans during the years ended December
31, 2000,  1999 and 1998 was  approximately  $91.3  million,  $139.3 million and
$137.1  million,  respectively.  For the years ended December 31, 2000, 1999 and
1998,  the Company  recognized  interest  income on those impaired loans of $8.3
million,  $9.5  million and $9.0  million,  respectively,  which  included  $1.6
million,  $2.7 million and $1.2 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.

(16)   Investment in FHLB
       ------------------

       The  Company's  investment  in FHLB stock is  carried  at cost.  The FHLB
provides a central credit facility for member  institutions.  As a member of the
FHLB system,  the Bank is required to own capital stock in the FHLB in an amount
equal to the greater of (a) 1% of the aggregate  outstanding principal amount of
its residential  mortgage loans, home purchase contracts and similar obligations
at the beginning of each calendar  year,  (b) .3% of total assets,  or (c) 5% of
its  advances  (borrowings)  from  the  FHLB of San  Francisco.  The Bank was in
compliance  with this  requirement  at  December  31,  2000,  1999 and 1998.  At
December 31, 2000, the Bank's investment in FHLB stock was pledged as collateral
for FHLB advances as further discussed in note 22.

(17)   Premises and Equipment, Net
       ---------------------------

       Premises and equipment,  net, at December 31, 2000 and 1999 is summarized
as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                                         Estimated
                                                                                     Depreciable Lives at
                                                      2000            1999            December 31, 2000
                                                   ---------        --------         ---------------------
<S>                                                <C>              <C>                    <C>
Land                                               $  46,155        $ 47,266                 --
Buildings and leasehold improvements                 157,893         144,787               1 - 39
Furniture and equipment                              250,771         215,577               1 - 7
Construction in progress                              12,169           4,496                 --
                                                   ---------        --------
                                                     466,988         412,126
Accumulated depreciation and amortization           (139,659)        (87,544)
                                                   ---------        --------
    Total premises and equipment, net              $ 327,329        $324,582
                                                   =========        ========
</TABLE>

       Depreciation and  amortization  expense related to premises and equipment
for the years ended  December 31, 2000,  1999 and 1998 totalled  $54.5  million,
$40.9 million and $26.7 million, respectively.

                                      F-35

<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.
Rental expenses under such operating leases, included in occupancy and equipment
expense,  for the years ended  December 31, 2000,  1999 and 1998 totalled  $39.1
million,  $41.5  million and $36.0  million,  respectively.  Rental  income from
sublease  agreements  for the  years  ended  December  31,  2000,  1999 and 1998
totalled $5.1 million, $5.6 million and $3.0 million,  respectively. At December
31, 2000, 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
       -----------
       2001                         $ 43,907             $ 25,971
       2002                           39,969               23,642
       2003                           36,967               21,866
       2004                           32,508               19,228
       2005                           28,246               16,708
       Thereafter                     73,165               43,277
                                    --------             --------
          Total                     $254,762             $150,692
                                    ========             ========

       The effect of lease  commitments on net income is different from the cash
commitment  primarily as a result of lease  commitments  assumed in acquisitions
with  related  purchase  accounting  adjustments  and accrued  facilities  costs
recorded in connection with branch consolidations. See note 23.

       On November  15,  1999,  the Bank sold a complex  consisting  of a retail
branch, a parking lot and administrative offices totalling approximately 139,608
square feet. As part of the sale agreement, the Bank agreed to lease back 16,253
square feet under two separate lease  agreements.  The lease covering the branch
and parking lot is cancellable with six months' notice with a final  termination
date of  November,  2009.  The lease  covering  the  administrative  offices  is
non-cancellable  with a  termination  date of November,  2004.  It is the Bank's
intent to occupy these facilities until the lease termination.

       At December 31, 2000, 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
-----------
2001                   $  116                 $205             $  321
2002                      116                  205                321
2003                      116                  205                321
2004                      116                  188                304
2005                      116                   --                116
Thereafter                453                   --                453
                       ------                 ----             ------
      Total            $1,033                 $803             $1,836
                       ======                 ====             ======

       The  sale   discussed   above   resulted  in  a  gain  of  $5.3  million.
Approximately  $1.8  million of this gain was  deferred  and will be  recognized
using the interest method over the life of the respective leases.

                                      F-36

<PAGE>

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

(18)   Accrued Interest Receivable
       ---------------------------

       Accrued  interest  receivable at December 31, 2000 and 1999 is summarized
as follows (in thousands):

                                                        2000             1999
                                                      --------         --------

Cash and cash equivalents and securities              $ 54,637         $ 65,443
Mortgage-backed securities                              38,858           43,492
Loans receivable and loans held for sale               270,919          212,661
                                                      --------         --------
   Total accrued interest receivable                  $364,414         $321,596
                                                      ========         ========

(19)   Mortgage Servicing Rights
       -------------------------

       The  following  is a summary of activity for  mortgage  servicing  rights
("MSRs")  and the hedge  against the change in value of the  mortgage  servicing
rights ("MSR  Hedge") for the years ended  December 31, 2000,  1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>

                                                                                        MSR
                                                                     MSR               Hedge           Total
                                                                 -----------         ---------      -----------
      <S>                                                        <C>                 <C>            <C>
      Balance at December 31, 1997                               $  529,691          $  7,012       $  536,703
           Additions from Glen Fed Merger                           212,933                --          212,933
           Originated servicing                                     169,972                --          169,972
           Additions - other purchases                              160,619                --          160,619
           Sales                                                     (1,057)               --           (1,057)
           Gain on termination                                      (16,089)               --          (16,089)
           Interest rate floor sales                                (43,924)          (16,141)         (60,065)
           Premiums paid                                                 --           107,412          107,412
           Payments received from counterparties, net                (8,684)               --           (8,684)
           Amortization                                            (147,734)          (10,429)        (158,163)
                                                                 ----------          --------       ----------
      Balance at December 31, 1998                                  855,727            87,854          943,581
           Additions - purchases                                    334,842                --          334,842
           Originated servicing                                     193,855                --          193,855
           Sales                                                    (18,604)               --          (18,604)
           Swaption sales                                            28,727           (58,553)         (29,826)
           Interest rate floor sales                                 21,208           (38,242)         (17,034)
           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
                                                                 ==========          ========       ==========
</TABLE>

                                      F-37

<PAGE>

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

       At December 31, 2000, 1999 and 1998, the outstanding  balance of 1-4 unit
residential  loan   participations,   whole  loans  and  mortgage   pass-through
securities  serviced  for  other  investors  (not  including  the  Bank) by FNMC
totalled  $84.1  billion,  $72.9  billion and $65.4  billion,  respectively.  In
addition,  FNMC had $11.1  billion,  $10.4  billion and $10.4  billion of master
servicing at December 31, 2000, 1999 and 1998, respectively.

       The  percentage of principal  outstanding  in the Company's  portfolio of
loans serviced for others,  secured by properties located in California,  Texas,
and Florida was 46%, 7% and 6%,  respectively,  at December 31, 2000 and 53%, 7%
and 7%, respectively, at December 31, 1999.

       The estimated fair value of the MSRs was $1.5 billion for the years ended
December 31, 2000 and 1999. See discussion of valuation  assumptions at note 40.
The  estimated  market  value of  interest  rate  floors,  interest  rate swaps,
principal  only swaps and interest rate  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. The estimated market value of interest rate floor
contracts,  principal only swaps and swaptions designated as hedges against MSRs
at December 31, 1999 were $10.4  million,  $(15.8)  million,  and $24.3 million,
respectively.   At  December  31,  1999,  there  were  no  interest  rate  swaps
outstanding  to hedge MSRs.  At December  31, 2000 and 1999,  no  allowance  for
impairment of the MSRs was necessary.

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

       At December 31, 2000,  the Company,  through FNMC, was a party to several
interest rate floors maturing in 2005. The Company paid counterparties a premium
in exchange for cash  payments in the event that the 10-year  Constant  Maturity
Swap rate fell below the strike  prices.  At December  31,  2000,  the  notional
amount of the interest  rate floors was $2.3 billion and the strike  prices were
between 5.9% and 6.6%. In addition,  the Company,  through  FNMC,  held interest
rate swap agreements and principal only swap agreements with notional amounts of
$1.3 billion and $193.1 million,  respectively.  Further,  at December 31, 2000,
the  Company,  through  FNMC,  was a party to  swaption  contracts  in which the
Company paid to the  counterparties  premiums in exchange for the right, but not
the  obligation,  to purchase an interest rate swap.  At December 31, 2000,  the
notional  amount of the  underlying  interest  rate swaps was $2.2  billion.  At
December 31, 2000,  the Company  through FNMC,  was a party to several  interest
rate swap  contracts  maturing  in 2010 and 2011.  These  contracts  require the
Company to make a series of floating  rate  payments in exchange for receiving a
series of fixed-rate  payments.  The notional amount of these contracts was $1.3
billion at December 31, 2000. See note 38 for further discussion.

       Servicing  advances  and other  receivables  (included  in other  assets)
related to 1-4 unit residential loan servicing,  net of valuation  allowances of
$16.1 million and $20.1 million in 2000 and 1999, respectively, consisted of the
following (in thousands):

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

  Servicing advances                            $106,120         $138,071
  Checks in process of collection                    745            1,123
  Other                                            6,287            8,393
                                                --------         --------
                                                $113,152         $147,587
                                                ========         ========

                                      F-38

<PAGE>

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

(20)   Deposits
       --------

       A summary of the carrying value of deposits at December 31, 2000 and 1999
follows (in thousands):

                                                 2000                1999
                                             -----------          -----------

Passbook accounts                            $ 3,086,852          $ 3,666,206
Demand deposits:
     Interest-bearing                          2,063,185            1,974,120
     Noninterest-bearing                       2,542,179            2,197,691
Money market deposit accounts                  3,033,008            3,144,084
Term accounts                                 12,611,389           11,989,663
                                             -----------          -----------
                                              23,336,613           22,971,764
Accrued interest payable                          91,878               61,313
Purchase accounting adjustments                    1,263                2,680
                                             -----------          -----------
     Total deposits                          $23,429,754          $23,035,757
                                             ===========          ===========

       The aggregate  amount of jumbo  certificates  of deposit (term  deposits)
with a minimum  denomination of $100,000 was approximately $3.3 billion and $2.7
billion at December 31, 2000 and 1999,  respectively.  Brokered  certificates of
deposit  totalling  $454 million and $390  million were  included in deposits at
December 31, 2000 and 1999,  respectively.  Total  deposits at December 31, 2000
and 1999 include  escrow  balances for loans serviced for others of $825 million
and $814 million, respectively.

       A summary of interest expense by deposit category follows (in thousands):

                                          2000           1999           1998
                                        --------       --------       --------

Passbook accounts                       $116,321       $124,618       $ 96,942
Interest-bearing demand deposits          13,914         17,772         13,770
Money market deposit accounts            120,683        124,368         65,234
Term accounts                            677,489        621,528        615,166
                                        --------       --------       --------
    Total                               $928,407       $888,286       $791,112
                                        ========       ========       ========

       At December 31, 2000,  term accounts had scheduled  maturities as follows
(in thousands):

      Year Ending
      -----------

      2001                              $11,082,911
      2002                                1,197,543
      2003                                   87,151
      2004                                   49,354
      2005                                  192,311
      Thereafter                              2,119
                                        -----------
          Total                         $12,611,389
                                        ===========

                                      F-39

<PAGE>

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

(21)   Securities Sold Under Agreements to Repurchase
       ----------------------------------------------

       A summary of information  regarding  securities sold under  agreements to
repurchase follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                         December 31, 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>

<TABLE>
<CAPTION>

                                                         December 31, 1999
                                      -------------------------------------------------------
                                        Underlying Collateral          Repurchase Liability
                                      --------------------------      -----------------------
                                       Recorded         Market                       Interest
                                       Value (a)        Value           Amount         Rate
                                      ----------      ----------      ----------     --------
<S>                                   <C>             <C>             <C>              <C>
Maturing within 30 days               $   33,564      $   34,044      $       --         --%
Maturing in 30 to 90 days              2,731,295       2,709,851       2,573,574       5.35
Maturing after 90 days to 1 year       2,796,083       2,781,442       2,633,514       5.61
Maturing over 1 year                     167,214         165,972         150,000       6.13
                                      ----------      ----------      ----------
    Total (b)                          5,728,156       5,691,309       5,357,088       5.50%
Accrued interest payable                      --              --         124,659
                                      ----------      ----------      ----------
                                      $5,728,156      $5,691,309      $5,481,747
                                      ==========      ==========      ==========
</TABLE>

--------------
(a)  Recorded value includes  accrued interest at December 31, 2000 and 1999. In
     addition,  the  recorded  values  at  December  31,  2000 and 1999  include
     adjustments for the unrealized gain or loss on  mortgage-backed  securities
     available for sale.

(b)  Total  mortgage-backed  securities collateral at December 31, 2000 and 1999
     includes  $1.7  billion  and $2.1  billion,  respectively,  in  outstanding
     balances of loans  securitized  with full recourse to the Bank.  The market
     value of such  collateral was $1.7 billion and $2.1 billion at December 31,
     2000 and 1999, respectively.

       At December 31, 2000 and 1999,  these  agreements  had  weighted  average
stated  interest  rates  of  6.93%  and  5.50%,  respectively.   The  underlying
securities  were  delivered  to, and are being held under the control of,  third
party securities dealers.  These dealers may have loaned the securities to other
parties in the normal course of their operations, but all agreements require the
dealers  to  resell  to  California  Federal  the  identical  securities  at the
maturities of the agreements. The average daily balance of securities sold under
agreements to repurchase was $5.4 billion and $5.1 billion during 2000 and 1999,
respectively,  the  weighted  average  rate was 6.45% and 5.18%  during 2000 and
1999,  respectively,  and the maximum amount outstanding at any month-end during
these periods was $8.5 billion and $6.2 billion, respectively.

       At December 31, 2000, securities sold under agreements to repurchase were
collateralized  with $2.6 billion of  mortgage-backed  securities  available for
sale and $2.1 billion of mortgage-backed securities held to maturity.

                                      F-40

<PAGE>

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

(22)   Borrowings
       ----------

       Borrowings are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                                       December 31,
                                                 --------------------------------------------------------
                                                           2000                            1999
                                                 -------------------------       ------------------------
                                                  Carrying         Average        Carrying        Average
                                                   Value            Rate           Value           Rate
                                                 -----------       -------       -----------      -------
<S>                                              <C>                 <C>         <C>                <C>
Fixed-rate borrowings from FHLB                  $21,337,878         6.08%       $19,977,878         5.61%
Variable-rate borrowings from FHLB                 5,090,000         6.71          3,365,000         6.04
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              2,635         6.50
10% Subordinated Debentures due 2003                   4,299        10.00              4,299        10.00
Floating Rate Notes due 2003                         250,000         7.76            250,000         7.21
6 3/4% Senior Notes due 2001                         350,000         6.75            350,000         6.75
7% Senior Notes due 2003                             600,000         7.00            600,000         7.00
7 1/8% Senior Notes due 2005                         800,000         7.13            800,000         7.13
Federal funds purchased                                   --           --             55,000         5.50
Other borrowings                                         406         7.57                209         6.69
                                                 -----------                     -----------
     Total borrowings                             28,525,093         6.28         25,497,371         5.79
Discount on borrowings                                (8,564)
                                                                                     (11,481)
Purchase accounting adjustments, net                   7,420                          21,742
                                                 -----------                     -----------
     Subtotal                                     28,523,949         6.28%        25,507,632         5.79%
Accrued interest payable                             276,608                         160,994
                                                 -----------                     -----------
                                                 $28,800,557                     $25,668,626
                                                 ===========                     ===========
</TABLE>

       Maturities and weighted  average  stated  interest rates of borrowings at
December 31, 2000, not including discounts, accrued interest payable or purchase
accounting adjustments, are as follows (dollars in thousands):

                                                                Weighted
                                  Balances Maturing           Average Rates
Maturities during the Years    -------------------------     ---------------
   Ending December 31,            FHLB           Other       FHLB      Other
---------------------------    -----------    ----------     ----      -----
  2001                         $ 8,790,833    $  350,465     6.56%     6.75%
  2002                           5,985,000            37     5.87      8.58
  2003                           8,650,000       854,299     6.11      7.24
  2004                           2,350,000            --     5.84        --
  2005                             651,625       800,250     6.99      7.13
  Thereafter                           420        92,164     7.74     10.00
                               -----------    ----------
      Total                    $26,427,878    $2,097,215     6.20%     7.24%
                               ===========    ==========

                                      F-41

<PAGE>

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

       Interest  expense on  borrowings  for the years ended  December 31, 2000,
1999 and 1998 is summarized as follows (in thousands):
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                               -------------------------------------------
                                                                  2000              1999            1998
                                                                  ----              ----            ----
<S>                                                            <C>               <C>              <C>
FHLB advances                                                  $1,521,806        $1,165,010       $706,299
Interest rate swap agreements                                       7,188             5,940         (2,536)
12 1/2% Parent Holdings Notes due 2003                                 --                --         45,420
10% Subordinated Debentures due 2006                                9,210             9,210          9,209
11.20% Senior Notes due 2004                                           --               651            672
FN Holdings 12 1/4% Senior Notes due 2001                              --                --         18,093
FN HOLDINGS 9 1/8% Senior Subordinated Notes
    due 2003                                                           --                --          9,337
FN HOLDINGS 10 5/8% Senior Subordinated Notes
    due 2003                                                           27                26         44,353
10.668% Subordinated Notes due 1998                                    --                --          5,203
6 1/2% Convertible Subordinated Debentures due 2001                    32               172            171
10% Subordinated Debentures due 2003                                  430               430            430
Floating Rate Notes due 2003                                       18,942            15,931          5,006
6 3/4% Senior Notes due 2001                                       23,625            23,625          7,031
7% Senior Notes due 2003                                           42,000            42,000         12,441
7 1/8% Senior Notes due 2005                                       57,000            57,000         16,882
Federal funds purchased                                             4,747             2,750          3,987
Other borrowings                                                       53                25            271
Discount accretion                                                  2,060             1,031             --
Purchase accounting adjustments                                    (8,629)          (11,172)        (7,533)
                                                               ----------        ----------       --------
     Total                                                     $1,678,491        $1,312,629       $874,736
                                                               ==========        ==========       ========
</TABLE>

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

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

Loans receivable                                          $31,950,508
Mortgage-backed securities available for sale               3,898,334
Mortgage-backed securities held to maturity                    13,411
Securities available for sale                                  19,993
FHLB stock                                                  1,361,066
                                                          -----------
     Total                                                $37,243,312
                                                          ===========

       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.

                                      F-42

<PAGE>

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

       12 1/2% SENIOR NOTES DUE 2003

       On April 17,  1996,  Parent  Holdings  issued $445  million of its Parent
Holdings  Notes.  During 1998, all of the Parent Holdings Notes were redeemed in
connection  with the Parent  Holdings  Defeasance  for an  aggregate  redemption
price, including accrued interest payable, of $553.7 million.

       10% SUBORDINATED DEBENTURES DUE 2006

       As part of its 1994 acquisition of First  Nationwide ("FN  Acquisition"),
California  Federal  assumed  $92.1  million  principal  amount of  subordinated
debentures,  which bear  interest at 10% per annum and mature on October 1, 2006
(the "10% Subordinated Debentures Due 2006").

       Events of Default  under the  indenture  governing  the 10%  Subordinated
Debentures Due 2006 (the "Old FNB Indenture") include, among other things: (a) a
default in the payment of interest  when due and such default  continues  for 30
days, (b) a default in the payment of any principal when due, (c) the failure to
comply with  covenants in the Old FNB  Indenture,  provided  that the trustee or
holders of at least 25% in principal  amount of the outstanding 10% Subordinated
Debentures  Due 2006  notify the Bank of the  Default and the Bank does not cure
the default  within 60 days after receipt of such notice,  (d) certain events of
bankruptcy,  insolvency or  reorganization  of the Bank,  (e) the FSLIC/RF (or a
comparable entity) is appointed to act as conservator,  liquidator,  receiver or
other legal custodian for the Bank and (f) a default under other indebtedness of
the Bank in excess of $10 million  resulting in such  indebtedness  becoming due
and payable, and such default or acceleration has not been rescinded or annulled
within 60 days after the date on which  written  notice of such failure has been
given by the  trustee  to the Bank or by  holders  of at least 25% in  principal
amount of the outstanding 10%  Subordinated  Debentures Due 2006 to the Bank and
the trustee.

       11.20% SENIOR NOTES DUE 2004

       As  part of its  1996  acquisition  of San  Francisco  Federal  ("SFFed")
("SFFed  Acquisition"),  California Federal assumed $50 million principal amount
of SFFed 11.20% Senior Notes due September 1, 2004 (the "11.20% Senior  Notes").
On December 20, 1999,  the Bank  repurchased  all of the remaining  $6.0 million
outstanding  principal amount of the 11.20% Senior Notes at a price of 113.9% of
the principal amount,  plus the accrued interest  thereon.  The Bank recorded an
extraordinary  loss,  net of tax,  of  $0.2  million  in  connection  with  this
repurchase.

       FN HOLDINGS 12 1/4% SENIOR NOTES DUE 2001

       In connection  with the FN  Acquisition,  the Company issued $200 million
principal  amount of 12 1/4% Senior Notes due 2001 ("FN  Holdings 12 1/4% Senior
Notes"),  including $5.5 million  principal amount of FN Holdings 12 1/4% Senior
Notes to certain directorS AND officers of the Bank.

       During 1998, a total of $199.8 million aggregate  principal amount of the
FN Holdings  12 1/4% Senior  Notes were  redeemed  IN  connection  with the Debt
Tender Offers for an aggregate  redemption  price,  including  accrued  interest
payable,  of $228.3 million. On May 15, 1999, GS Holdings redeemed the remaining
$0.2 million aggregate  principal amount of the FN Holdings 12 1/4% Senior Notes
for an aggregate redemption price, including accrued interest payable, of $252.6
thousand.

       FN HOLDINGS 9 1/8% SENIOR SUBORDINATED NOTES DUE 2003

       On January 31, 1996, FN Holdings issued $140 million  principal amount of
the 9 1/8%  Senior  Sub Notes  due 2003  (the "FN  Holdings  9 1/8%  Senior  Sub
Notes").

       During 1998, all of the FN Holdings 9 1/8% Senior Sub Notes were redeemed
in  connection  with the Debt Tender  Offers for an  aggregate  purchase  price,
including accrued interest payable, of $159.9 million.

                                      F-43
<PAGE>

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

       FN HOLDINGS 10 5/8% SENIOR SUBORDINATED NOTES DUE 2003

       In connection with the Cal Fed Acquisition,  GS Holdings acquired the net
proceeds  from the issuance of $575 million  principal  amount of FN Escrow's 10
5/8% Senior Sub Notes due 2003 (the "FN  Holdings 10 5/8% Notes") and assumed FN
Escrow's  obligations under the FN Holdings 10 5/8% Notes and indenture.  During
1998, a total of $574.8 million aggregate principal amount of the FN Holdings 10
5/8%  Notes were  redeemed  in  connection  with the Debt  Tender  Offers for an
aggregate purchase price, including accrued interest payable, of $692.7 million.
At December  31,  2000,  $0.3  million of the FN  Holdings 10 5/8% Notes  remain
outstanding.

       The FN  Holdings  10  5/8%  Notes  are  redeemable  at the  option  of GS
Holdings,  in whole or in part, during the twelve-month period beginning January
1, 2001, at a redemption  price of 105.313% plus accrued and unpaid  interest to
the date of redemption, during the twelve-month period beginning January 1, 2002
at a redemption  price of 102.656% plus accrued and unpaid  interest to the date
of redemption,  and  thereafter at 100% plus accrued and unpaid  interest to the
date of redemption.

       The FN Holdings 10 5/8% Notes are  subordinate in right of payment to all
existing and future subordinated debt, if any is issued, of GS Holdings.  The FN
Holdings 10 5/8% Notes are subordinated to all existing and future  liabilities,
including deposits,  indebtedness and trade payables,  of the subsidiaries of GS
Holdings,  including  California  Federal and all preferred  stock issued by the
Bank, including the Bank Preferred Stock.

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

       10.668% SUBORDINATED NOTES DUE 1998

       California  Federal  assumed  $50  million  of 10.668%  unsecured  senior
subordinated  notes which  matured and were repaid in full on December  22, 1998
(the "10.668% Subordinated Notes").

       6 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2001

       In 1986, Cal Fed Inc., Old California  Federal's  former parent  company,
issued $125 million of 6.5% convertible subordinated debentures due February 20,
2001  (the "6 1/2%  Convertible  Subordinated  Debentures").  As a  result  of a
corporate  restructuring IN December 1992, Cal Fed Inc. was merged with and into
XCF Acceptance  Corporation ("XCF"), a subsidiary of Old California Federal. The
6 1/2% Convertible  Subordinated Debentures 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.

       Events of Default  under the indenture  governing the 6 1/2%  Convertible
Subordinated Debentures include, among other things: (a) any failure to make any
payment of interest  when due and such  payment is not made within 30 days after
the date such payment was due; (b) failure to make any payment of principal when
due; (c) default in the performance,  or breach,  of any covenant or warranty in
the indenture,  provided that such default or breach  continues for more than 60
days after notice is delivered to the Bank; or (d) certain events of bankruptcy,
insolvency, or reorganization of the Bank or its subsidiaries.

       10% SUBORDINATED DEBENTURES DUE 2003

       On December 16, 1992,  Old  California  Federal  issued $13.6  million of
10.0%  unsecured  subordinated   debentures  due  2003  (the  "10%  Subordinated
Debentures").

                                      F-44

<PAGE>

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

       Events of Default  under the  indenture  governing  the 10%  Subordinated
Debentures  include,  among  other  things:  (a)  failure to make any payment of
principal when due; (b) any failure to make any payment of interest when due and
such payment is not made within 30 days after the date such payment was due; (c)
failure to comply with certain covenants in the indenture; (d) failure to comply
with certain covenants in the indenture provided that such failure continues for
more than 60 days after notice is delivered to the Bank;  (e) certain  events of
bankruptcy,  insolvency or reorganization of the Bank; or (f) the default or any
event  which,  with the  giving  of  notice  or  lapse  of time or  both,  would
constitute  a  default  under  any  indebtedness  of the  Bank  and  cause  such
indebtedness  with an  aggregate  principal  amount  exceeding  $15  million  to
accelerate.

       GS HOLDINGS NOTES

       On August 6, 1998, GS Escrow, which subsequently merged into GS Holdings,
issued $2  billion  principal  amount  of fixed  and  floating  rate  notes,  as
described  below.  The  GS  Holdings  Notes  are  unsecured  and  unsubordinated
obligations  of GS  Holdings  and  rank in  right  of  payment  with  all  other
unsubordinated  and  unsecured  indebtedness  of  GS  Holdings.  The  terms  and
conditions of the notes indentures impose restrictions that affect,  among other
things,  the  ability  of GS  Holdings  to incur  debt,  pay  dividends  or make
distributions,  engage in a business  other than holding the common stock of the
Bank and similar banking  institutions,  make  acquisitions,  create liens, sell
assets and make certain investments.

       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, 2000,  the interest rate on the Floating Rate
Notes Due 2003 was 6.33%.  Deferred  costs  associated  with the issuance of the
Floating Rate Notes totalling $3.1 million were recorded in other assets and are
being amortized over the term of the Floating Rate Notes.

       The Floating Rate Notes are  redeemable at the option of GS Holdings,  in
whole or in part,  after August 1, 2000 at a price of 101.5% of the  outstanding
principal amount during the  twelve-month  period beginning August 1, 2000; at a
price of 101% of the outstanding principal amount during the twelve-month period
beginning August 1, 2001; and at a price of 100.5% of the outstanding  principal
amount  during the  twelve-month  period  beginning  August 1,  2002;  including
accrued and unpaid interest, if any, to the date of redemption.  In the event of
a change in control,  the  Floating  Rate Notes are  redeemable  in whole at the
option of GS Holdings.  The redemption price includes principal plus accrued and
unpaid interest, if any, to the date of redemption,  plus the excess, if any, of
(a) the sum of the present value of the  redemption  price for the Floating Rate
Notes and the remaining  scheduled  interest  payments over (b) the  outstanding
principal amount of the Floating Rate Notes to be redeemed.

       Fixed Rate Notes
       ----------------

       On August 6, 1998,  GS Escrow,  an affiliate of GS Holdings,  issued $350
million principal amount of the 2001 Notes, $600 million principal amount of the
2003 Notes and $800 million  principal  amount of the 2005 Notes. The Fixed Rate
Notes  will  mature on August 1 of the  respective  year with  interest  payable
semiannually  on February 1 and August 1.  Deferred  costs  associated  with the
issuance of the Fixed Rate Notes totalling $3.5 million, $12.5 million and $19.5
million  for the 2001 Notes,  the 2003 Notes and the 2005  Notes,  respectively,
were  recorded  in other  assets and are being  amortized  over the terms of the
notes.

       The Fixed Rate Notes are  redeemable  at the  option of GS  Holdings,  in
whole or in part,  at a  redemption  price equal to  principal  plus accrued and
unpaid interest, if any, to the date of redemption,  plus the excess, if any, of
(a) the sum of the present value of the  redemption  price for the notes and the
remaining scheduled interest payments over (b) the outstanding  principal amount
of the notes to be redeemed.

                                      F-45

<PAGE>

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

(23)   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 reflects a summary of the activity in the liability
for the costs related to such plan (in thousands):
<TABLE>
<CAPTION>

                                                               Severance and
                                               Branch           Termination       Contract
                                            Consolidations       Benefits       Terminations     Total
                                            --------------     -------------    ------------    --------
<S>                                            <C>               <C>              <C>           <C>
Balance at December 31, 1997                   $     --          $     --         $    --       $     --
       Initial liabilities recorded              29,870            48,303          14,455         92,628
       Charges to liability account                  --           (14,823)         (2,640)       (17,463)
                                               --------          --------         -------       --------
Balance at December 31, 1998                     29,870            33,480          11,815         75,165
       Additional liabilities recorded            9,401                71              --          9,472
       Charges to liability account             (15,220)           (4,140)         (9,523)       (28,883)
       Reversal of accrual                           --           (16,641)         (2,267)       (18,908)
                                               --------          --------         -------       --------
Balance at December 31, 1999                     24,051            12,770              25         36,846
       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
                                               ========          ========         =======       ========
</TABLE>

       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,  2000
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 have been
eliminated.  The balance relating to accrued severance and termination  benefits
remaining at December  31, 2000  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.

                                      F-46

<PAGE>

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

       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
                                                      --------            -------         --------
    Net liability recorded from
        Golden State Acquisition                      $ 62,829            $22,867         $ 85,696
                                                      ========            =======         ========
</TABLE>

(24)   Segment Reporting
       -----------------

       The Company  has two  reportable  segments,  the  community  bank and the
mortgage bank. The community bank operates retail deposit branches in California
and Nevada.  The  community  bank  segment  provides  retail  consumer and small
businesses  with: (a) deposit  products such as demand,  transaction and savings
accounts,  (b) investment products such as 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 to various investors in the secondary market
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 income,  noninterest
income,  and  noninterest  expense.  The  total  of  these  three  items  is the
reportable segment's net (pre-tax) contribution.

       The Company's reportable segments are strategic business units that offer
different  services in different  geographic areas. They are managed  separately
because each segment  appeals to different  markets and,  accordingly,  requires
different technology and marketing strategies.

                                      F-47

<PAGE>

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

       Since the Company  derives a  significant  portion of its  revenues  from
interest  income,  and interest  expense is the most  significant  expense,  the
segments are reported below using net interest income.  Because the Company also
evaluates performance based on noninterest income and noninterest expense goals,
these measures of segment profit and loss are also  presented.  The Company does
not allocate income taxes to the segments.

                               Community         Mortgage
                                Banking           Banking          Total
                              -----------       -----------     -----------
                                            (in thousands)
Net interest income: (1)
2000                          $ 1,360,062       $ (102,839)     $ 1,257,223
1999                            1,357,271          (61,785)       1,295,486
1998                              919,512          (52,830)         866,682

Noninterest income: (2)
2000                              245,127          242,034          487,161
1999                              244,964          201,661          446,625
1998                              284,142          168,366          452,508

Noninterest expense: (3)
2000                              767,507          150,372          917,879
1999                              752,190          159,059          911,249
1998                              594,440          150,863          745,303

Segment assets:  (4)
2000                           60,151,543        3,498,106       63,649,649
1999                           56,784,582        3,459,880       60,244,462
1998                           54,574,640        4,847,633       59,422,273

------------
(1)  Includes $110.4  million,  $109.6 million and $101.4 million for 2000, 1999
     and 1998,  respectively,  in earnings  credit provided to FNMC by the Bank,
     primarily  for  custodial  bank account  balances  generated by FNMC.  Also
     includes $253.2  million,  $235.6 million and $198.9 million for 2000, 1999
     and 1998,  respectively,  in interest  income and  expense on  intercompany
     loans.

(2)  Includes $46.4 million,  $46.6 million and $34.9 million for 2000, 1999 and
     1998, respectively, in intercompany servicing fees.

(3)  Includes  $4.6  million  for  2000,   1999  and  1998,   respectively,   in
     intercompany noninterest expense.

(4)  Includes  $3.1  billion,  $3.2 billion and $4.5 billion for 2000,  1999 and
     1998,  respectively,  in intercompany  borrowings and $43.6 million,  $30.2
     million  and $29.2  million  for  2000,  1999 and  1998,  respectively,  in
     intercompany deposits maintained with the Bank.

                                      F-48

<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>

                                                              2000             1999             1998
                                                           -----------      -----------      -----------
<S>                                                        <C>              <C>              <C>
Net interest income:
Total net interest income for reportable segments          $ 1,257,223      $ 1,295,486      $   866,682
Elimination of intersegment net interest income               (110,424)        (109,599)        (101,372)
                                                           -----------      -----------      -----------
   Total                                                   $ 1,146,799      $ 1,185,887      $   765,310
                                                           ===========      ===========      ===========

Noninterest income:
Total noninterest income for reportable segments           $   487,161      $   446,625      $   452,508
Elimination of intersegment servicing fees                     (46,396)         (46,631)         (34,891)
                                                           -----------      -----------      -----------
   Total                                                   $   440,765      $   399,994      $   417,617
                                                           ===========      ===========      ===========

Noninterest expense:
Total noninterest expense for reportable segments          $   917,879      $   911,249      $  745,303
Elimination of intersegment expense                             (4,640)          (4,640)         (4,640)
                                                           -----------      -----------      ----------
   Total                                                   $   913,239      $   906,609      $   740,663
                                                           ===========      ===========      ===========

Total assets:
Total assets for reportable segments                       $63,649,649      $60,244,462      $59,422,273
Elimination of intersegment borrowings                      (3,089,139)      (3,195,180)      (4,524,072)
Elimination of intersegment deposits                           (43,632)         (30,222)         (29,217)
                                                           -----------      -----------      -----------
   Total                                                   $60,516,878      $57,019,060      $54,868,984
                                                           ===========      ===========      ===========
</TABLE>

       The Company  typically reviews the results of operations for the mortgage
banking  segment based on that segment's  contribution  as opposed to its income
before  income  taxes,  extraordinary  item  and  minority  interest.  The  main
difference  between the two measures of profitability  is that  contribution for
the mortgage  banking segment includes  custodial  earnings that are reported in
the community  banking  segment when computing net income and that  intercompany
interest  expense is computed  using an internal cost of funds rate instead of a
market rate. The mortgage  banking  segment's  contribution  for the years ended
December  31, 2000,  1999 and 1998 was $99.2  million,  $90.4  million and $66.0
million, respectively.

                                      F-49

<PAGE>

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

(25)   Comprehensive Income
       --------------------

       Accounting   principles   generally  require  that  recognized   revenue,
expenses,  gains, and losses be included in net income. Although certain changes
in  assets   and   liabilities,   such  as   unrealized   gains  and  losses  on
available-for-sale  securities,  are  reported  as a separate  component  of the
equity  section  of the  balance  sheet,  such  items  along with net income are
components of comprehensive income.

       The tax effect  associated  with unrealized gain (loss) on securities for
the years ended  December 31, 2000,  1999 and 1998 is  summarized as follows (in
thousands):
<TABLE>
<CAPTION>

                                                                          Before-tax       Tax benefit        Net-of-tax
                                                                            amount          (expense)           amount
                                                                          ----------       -----------        ----------
<S>                                                                       <C>               <C>                <C>
2000
----
Unrealized gain (loss) on securities:
    Unrealized holding gain (loss) arising during the period              $ 299,092         $(128,363)         $ 170,729
    Less: reclassification adjustments for (losses) gains 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
                                                                          ---------         ---------          ---------
        Other comprehensive income (loss)                                 $ 323,784         $(138,449)         $ 185,335
                                                                          =========         =========          =========

1999
----
Unrealized (loss) gain on securities:
    Unrealized holding (loss) gain arising during the period              $(484,866)        $ 204,248          $(280,618)
    Less: reclassification adjustments for gains in net income               (1,283)              541               (742)
                                                                          ---------         ---------          ---------
        Other comprehensive (loss) income                                 $(486,149)        $ 204,789          $(281,360)
                                                                          =========         =========          =========

1998
----
Unrealized (loss) gain on securities:
    Unrealized holding (loss) gain arising during the period              $ (28,761)        $     594          $ (28,167)
    Less: reclassification adjustments for gains in net income               (1,131)              287               (844)
                                                                          ---------         ---------          ---------
        Other comprehensive (loss) income                                 $ (29,892)        $     881          $ (29,011)
                                                                          =========         =========          =========
</TABLE>

(26)   Minority Interest
       -----------------

       REIT PREFERRED STOCK

       In November 1996, the Bank formed  California  Federal  Preferred Capital
Corporation  ("Preferred  Capital Corp.") for the purpose of acquiring,  holding
and managing real estate mortgage assets.  Preferred Capital Corp. is a Maryland
corporation and qualifies as a real estate investment trust ("REIT") for federal
income tax purposes.  All of Preferred  Capital Corp.'s common stock is owned by
the Bank. FNMC services  Preferred Capital Corp.'s mortgage assets pursuant to a
subservicing agreement.

       On January 31, 1997,  Preferred  Capital Corp.  issued to the public $500
million  of  its  9  1/8%  Noncumulative  Exchangeable  Preferred  Stock  ("REIT
Preferred  Stock"),  which is reflected in the  Company's  consolidated  balance
sheet as minority interest.  Preferred Capital Corp. used the proceeds from such
offering to acquire  mortgage assets from the Bank. The REIT Preferred Stock has
a stated liquidation value of $25 per share, plus declared and unpaid 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 2000, 1999
and 1998 were $27.0 million, $26.4 million and $33.1 million,  respectively, net
of the income tax benefit.

                                      F-50

<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 preferred stock of the Bank having  substantially  the
same terms as the REIT  Preferred  Stock (the "9 1/8%  Preferred  Stock") if the
appropriate  federal  regulatory agency directs in writing such exchange because
(a)  the  Bank  becomes   "undercapitalized"   under  prompt  corrective  action
regulations,  (b) the Bank is placed into conservatorship or receivership or (c)
the appropriate  federal regulatory agency, in its sole discretion,  anticipates
the Bank becoming  "undercapitalized"  in the near term.  if issued,  the 9 1/8%
Preferred Stock will rank on a parity with the Bank Preferred Stock.

       AUTO ONE COMMON STOCK

       In connection  with the GSAC  Acquisition,  Auto One issued 250 shares of
its common stock, par value $1.00 per share, representing a 20% interest in Auto
One. The carrying value of Auto One's common  stockholders'  equity attributable
to the minority  stockholders  at December 31, 2000 and 1999 has been reduced to
zero as a result of realized operating losses of Auto One.

       11 1/2% PREFERRED STOCK

       During the year ended  December 31,  1998,  in  connection  with the Bank
Preferred Stock Tender Offers,  2,688,959 shares of California Federal's 11 1/2%
noncumulative  perpetual  preferred  stock  ("11  1/2%  Preferred  Stock")  were
purchased by GS Holdings for a total redemption  price of $301.3 million.  These
transactions  reduced  minority  interest  by $268.9  million  on the  Company's
consolidated balance sheet and resulted in a charge of $32.4 million to minority
interest expense.

       During the year ended  December 31, 1999,  all of the  remaining  318,341
outstanding  shares of 11 1/2%  Preferred  Stock were  redeemed  at $105.75  per
share, for a total redemption price of $33.7 million.  This transaction  reduced
minority interest by $31.8 million on the Company's  consolidated  balance sheet
and resulted in a charge of $1.8 million to minority interest expense.  See note
5.

                                      F-51

<PAGE>

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

       Dividends  are  payable  quarterly  at an annual rate of 11.50% per share
when  declared by the Bank's Board of Directors.  Dividends  paid on the 11 1/2%
Preferred  Stock for each year ended  December 31, 2000,  1999 and 1998 totalled
$34.6 million,  of which $1.8 million and $26.8 million was included in minority
interest expense in 1999 and 1998, respectively.

       10 5/8% PREFERRED STOCK

       During the year ended  December 31,  1998,  in  connection  with the Bank
Preferred Stock Tender Offers,  1,117,701 shares of California Federal's 10 5/8%
noncumulative perpetual preferred stock ("10 5/8% Preferred Stock" and, together
with the 11 1/2% Preferred Stock, the "Bank Preferred  Stock") were purchased by
GS Holdings for a total redemption price of $121.7 million.  These  transactions
reduced  minority  interest  by $111.8  million  on the  Company's  consolidated
balance  sheet and  resulted in a charge of $9.9  million to  minority  interest
expense.

       During the year ended  December 31, 1999,  all of the  remaining  607,299
outstanding  shares of 10 5/8%  Preferred  Stock were  redeemed at $105.313  per
share, for a total redemption price of $63.9 million.  This transaction  reduced
minority interest by $60.7 million on the Company's  consolidated  balance sheet
and resulted in a charge of $3.2 million to minority interest expense.  See note
5.

       Cash dividends on the 10 5/8% Preferred Stock are  noncumulative  and are
payable at an annual rate of 10 5/8% per share if, when,  and as declared by the
Board of Directors of the Bank.  Dividends paid on the 10 5/8%  Preferred  Stock
for each year ended December 31, 2000, 1999 and 1998 totalled $18.3 million,  of
which $15.3 million was included in minority interest expense in 1998.

        FN HOLDINGS PREFERRED STOCK

       On September  19, 1996,  FN Holdings  issued  10,000  shares of preferred
stock ("FN Holdings  Preferred  Stock") with a liquidation value of $150 million
to a corporation  owned by the Chairman of the Board of the Bank. Cash dividends
on the FN Holdings  Preferred Stock were cumulative and payable:  (a) in cash at
an annual rate of the cost of funds to an  affiliate  of FN Holdings  under such
affiliate's  bank credit  facility  (the "Cost of Funds  Rate") and (b) in newly
issued shares of another series of cumulative  perpetual  preferred  stock of FN
Holdings  ("Additional FN Holdings  Preferred Stock") at an annual rate of 2% of
the stated  liquidation value of the FN Holdings  Preferred Stock, if, when, and
as  declared  by  the  Board  of  Directors  of FN  Holdings.  Dividends  on the
Additional  FN Holdings  Preferred  Stock were  cumulative  and accrued and were
payable in shares of  Additional FN Holdings  Preferred  Stock at an annual rate
equal to the Cost of Funds Rate plus 2% of the stated  liquidation  value of the
Additional FN Holdings Preferred Stock if, when, and as declared by the Board of
Directors  of  FN  Holdings.   Additional  FN  Holdings   Preferred   Stock  had
substantially the same relative rights, terms and preferences as the FN Holdings
Preferred  Stock  except as set forth  above  with  respect  to the  payment  of
dividends.  Dividends on the FN Holdings  Preferred Stock were payable quarterly
each year, commencing January 1, 1997, out of funds legally available therefor.

       In March 1998,  FN Holdings  redeemed all remaining  1,666.7  outstanding
shares of the FN Holdings Preferred Stock. The redemption price was equal to the
liquidation  value of $15,000  per share.  Upon  redemption  of the FN  Holdings
Preferred  Stock,  all  remaining  52.5  shares of the  Additional  FN  Holdings
Preferred Stock totalling $.8 million  liquidation value were contributed to the
capital of FN Holdings  without any payment  therefor.  Such shares were retired
and cancelled.

       Dividends on the FN Holdings  Preferred Stock totalled $.6 million during
1998,  including the issuance of Additional FN Holdings  Preferred Stock of $0.1
million.

       PRE-MERGER TAX BENEFITS

       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 31.

                                      F-52

<PAGE>

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

(27)   Stockholders' Equity
       --------------------

       SERIES A PREFERRED STOCK

       In connection with the Golden State  Acquisition,  the Company  converted
4,181,061  shares of Series A  Preferred  Stock  into  10,051,200  shares of the
Company's common stock and an equal number of LTW(TM)s (as defined herein).  The
Series A Preferred  Stock,  with par value of $1.00 per share and a  liquidation
preference of $25 per share, provided for noncumulative dividends,  when, as and
if declared,  at an annual rate of 8.75% of its  liquidation  preference and was
convertible,  at the option of the holders  thereof,  into  common  stock and an
equal number of LTW(TM)s at any time at a  conversion  ratio of 2.404 per share,
subject to adjustment in certain events. On October 1, 1998, the remaining 2,538
shares of Series A Preferred  Stock were  redeemed at a price of  $26.09375  per
share plus an amount equal to any  dividends  declared but unpaid as of the date
of redemption.

       COMMON STOCK

       The Company has 250 million shares of common stock  authorized with a par
value of $1.00 per share.  Pursuant to the Golden State Merger agreement,  First
Gibraltar  and  Hunter's  Glen  received  56,722,988  shares of the Golden State
Common Stock,  which  represented  47.9% of the common stock  outstanding  as of
September 11, 1998, and provided for existing  Golden State  shareholders to own
61,880,950 shares of the Golden State Common Stock. GSB Investments subsequently
became the owner of the shares  received by First  Gibraltar.  At  December  31,
2000, GSB Investments and Hunter's Glen owned 61,710,008  shares of Golden State
Common Stock, representing 45.9% of the total shares outstanding.

       During  September  1998,  10,051,200  shares were issued  resulting  from
conversions of the Series A Preferred  Stock.  In addition,  Golden State common
shares have been issued during the years 2000, 1999 and 1998 for the exercise of
stock options and warrants,  and for restricted  stock. See note 32. In 2000 and
1999,  Golden  State  common  shares were  distributed  to GSB  Investments  and
Hunter's Glen in settlement of their 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,  subject to
the superior  rights of the holders of any series of preferred stock that may be
issued.  During 2000, cash dividends on Golden State Common Stock totalled $26.4
million.

       At December 31, 2000 and 1999,  there were  134,320,658  and  122,242,588
shares, respectively of Golden State Common Stock issued and outstanding (net of
treasury  stock),  which included  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 32 and 39.

       ISSUABLE SHARES

       During 1998, net tax benefits  totalling  $102.7 million were realized by
California Federal with respect to its gain from the Florida Branch Sale and the
receipt of a federal income tax refund in excess of the amount  reflected on the
Company's  consolidated  balance sheet.  Consistent with the terms of the Golden
State  Merger  agreement,  a total of  5,687,996  shares of Golden  State Common
Stock, valued at $102.7 million, became issuable to GSB Investments and Hunter's
Glen as a result of these benefits.

       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.

                                      F-53

<PAGE>

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

       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 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  (as  discussed  below)  and  38,734  shares due to
Hunter's  Glen,  valued at $0.8  million,  are  expected to be issued in January
2001.

       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.  During 2000, the Company
also  recorded  $162.6  million of  Issuable  Shares  related  to the  Company's
pro-rata  usage in 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.

       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 agreed to pay $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 is being 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.

       Issuable Shares are included, as appropriate, in the calculation of basic
and diluted earnings per share. See note 39.

       ADDITIONAL PAID-IN CAPITAL

       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 31. 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

       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 31.

                                      F-54

<PAGE>

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

       At September 11, 1998, in connection  with the Golden State  Acquisition,
certain assets were recorded representing the fair value of each of the Goodwill
Litigation Assets (as defined herein) that each of the former shareholder groups
(pre-merger   Golden  State  and  GSB   Investments   and  Hunter's  Glen)  were
contributing to the merged entity. The Golden State Merger agreement contained a
mechanism for proportionately allocating these values between the two groups. At
September 11, 1998, the fair value of the Glendale Federal  Goodwill  Litigation
Asset (as defined  herein)  contributed by the former Golden State  shareholders
was  $56.9  million,  and the fair  value  of the  California  Federal  Goodwill
Litigation  equalization  adjustment due from GSB  Investments and Hunter's Glen
was $41.2  million.  The $41.2 million,  recorded as a contribution  receivable,
increased  retained  earnings  during  the  year  ended  December  31,  1998 and
fluctuates  based upon the market value of the  LTW(TM)s.  At December 31, 1999,
the equalization adjustment was written down to its fair value of $17.1 million.
Since the market value of the LTWs,  which the Company uses to estimate the fair
value of the ultimate goodwill litigation award,  increased to $1.1875 per share
at December  31, 2000 from $.875 per share at December  31,  1999,  the inherent
value of the amount to be contributed by GSB  Investments and Hunter's Glen also
increased,  to $20.6 million,  resulting in an increase in retained earnings and
the  contribution  receivable of $3.5 million during the year ended December 31,
2000.

       TREASURY STOCK

       At December 31,  2000,  the Company had  16,383,058  shares of its common
stock in treasury at an aggregate cost of $19.27 per share.

       During the fourth  quarter of 1998, the board of directors of the Company
authorized a $150 million  common stock  repurchase  program.  During the second
quarter of 1999, this  authorization  was further expanded to include up to $250
million of all publicly traded  securities  issued by the Company and any of its
subsidiaries.

       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 fourth  quarter of 2000, the board of directors of the Company
authorized a new share repurchase  program for 2001. The new program  authorizes
the repurchase of up to $250 million of all publicly traded securities issued by
the  Company  and any of its  subsidiaries  beginning  January  2, 2001  through
December 31, 2001.

       During  the  years  ended   December  31,  2000  and  1999,  the  Company
repurchased 3,916,411 and 12,463,800 shares, respectively, of common stock at an
aggregate purchase price of $63.7 million and $250 million,  respectively, or an
average of $16.27 and $20.08 per share,  respectively.  In  connection  with the
Golden State  Acquisition  on September 11, 1998, the Company  acquired  108,574
shares of Golden State Common Stock held in treasury  with an aggregate  cost of
$2.0 million.  During the years ended December 31, 2000,  1999 and 1998,  shares
totalling 11,450, 75,697 and 18,580,  respectively,  were issued out of treasury
in  connection  with  options   exercised  by  holders  related  to  an  earlier
acquisition by the former Golden State prior to the Golden State Acquisition.

       During  1999,   the  Company   recorded  a  $2.0  million   reduction  in
stockholders'  equity  representing a  reclassification  of the value associated
with 708,767  LTW(TM)s that have been  withdrawn by holders,  net of tax,  which
were previously recorded in other assets.

       PAYMENT OF DIVIDENDS

       The terms of the GS  Escrow  Notes  indenture  generally  will  permit GS
Holdings to make  distributions  of up to 75% of the Consolidated Net Income (as
defined  therein) of GS Holdings  since July 1, 1998 if after  giving  effect to
such  distribution,  (a) the Bank is "well  capitalized"  under  applicable  OTS
regulations and (b) the  Consolidated  Common  Stockholder's  Equity (as defined
therein) of the Bank is at least equal to the Minimum  Common  Equity Amount (as
defined  therein).  The  Federal  thrift laws and  regulations  of the Office of
Thrift  Supervision (the "OTS") limit the Bank's ability to pay dividends on its
preferred or common stock. The Bank generally may not pay dividends  without the
consent  of the OTS if,  after the  payment  of the  dividends,  it would not be
deemed "adequately

                                      F-55

<PAGE>

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

capitalized" under the prompt corrective action standards of the Federal Deposit
Insurance Corporation Improvement Act of 1991.

       As of December 31, 2000,  the Bank could pay dividends of $523.4  million
without the consent of the OTS and it could pay dividends of $777.6  million and
still be  "well-capitalized."  As of December  31, 2000,  GS Holdings  could pay
dividends,  in  addition  to those  already  paid,  of  $519.9  million  without
violating the most restrictive terms of the GS Escrow Notes indenture.

       On September  1, 2000 and December 1, 2000,  Golden State paid a dividend
of  $0.10  per  common  share   totalling   $13.0  million  and  $13.4  million,
respectively,  to  stockholders  of record as of July 31,  2000 and  November 3,
2000, respectively.  There were no dividends on the common stock of Golden State
during 1999 or 1998.

       WARRANTS

       The  Company  had  common  stock  purchase   warrants   outstanding  (the
"Warrants") that were issued by Golden State in March 1993 in connection with an
exchange of preferred stock for outstanding  subordinated debentures and capital
notes. Each Warrant entitled the registered  holders thereof to receive from the
Company  one  share of common  stock and one  LTW(TM)  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 (the "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.

(28)   Litigation Tracking Warrants
       ----------------------------

       In  connection  with  the  Glendale  Goodwill  Litigation,  Golden  State
distributed  Litigation  Tracking  Warrants(TM)  ("LTW(TM)s")  tO  ITS  security
holders representing the right to receive, upon exercise of the LTW(TM)s, Golden
State Common Stock equal in value to 85% OF the net after-tax proceeds,  if any,
from the Glendale Goodwill  Litigation.  The LTW(TM)s would be exercisable after
notification BY Golden State of its receipt of proceeds from a final judgment in
or settlement of the  litigation.  The LTW(TM)s  would expire 60 days after such
notice is given.

       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, 2000, 83,461,544 LTW(TM)s were issued.

       The LTW(TM)s trade on the NASDAQ  national market system under the ticker
symbol "GSBNZ."

(29)   Regulatory Capital of the Bank
       ------------------------------

       The  Bank  is  subject  to  various   regulatory   capital   requirements
administered  by the Federal banking  agencies.  Failure to meet minimum capital
requirements   can  initiate  certain   mandatory  -  and  possibly   additional
discretionary - actions by regulators  that, if undertaken,  could have a direct
material  effect  on  the  Company's  and  the  Bank's  consolidated   financial
statements.  Under capital adequacy guidelines and the regulatory  framework for
prompt corrective  action,  the Bank must meet specific capital  guidelines that
involve  quantitative  measures of the Bank's assets,  liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Bank's  capital  amounts and  classifications  are also  subject to  qualitative
judgments  by the  regulators  about  components,  risk  weightings,  and  other
factors.

                                      F-56

<PAGE>

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

       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,  2000,  that the Bank meets all capital  adequacy
requirements to which it is subject.

       As of December 31, 2000 and 1999, 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.

       The Bank's actual capital  amounts and ratios as of December 31, 2000 and
1999 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
               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                    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>

                                      F-57

<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
            1999                             Amount        Assets           Amount        Assets          Amount         Assets
------------------------------------       ----------     ---------       ----------     ---------      ---------      ---------
<S>                                        <C>              <C>           <C>               <C>         <C>               <C>
Stockholder's equity of the Bank
        per financial statements           $3,555,851
Minority interest                             500,000
Net unrealized holding loss                   275,625
                                           ----------
                                            4,331,476
Adjustments for tangible and
        leverage capital:
        Goodwill litigation assets           (158,713)
        Intangible assets                    (819,561)
        Non-includable subsidiaries           (59,579)
                                           ----------
Total tangible capital                     $3,293,623        5.81%        $  849,649        1.50%              N/A         N/A
                                           ==========                     ==========
Total leverage capital                     $3,293,623        5.81%        $2,265,731        4.00%       $2,832,163        5.00%
                                           ==========                     ==========                    ==========
Tier 1 risk-based capital                  $3,293,623       11.36%               N/A         N/A        $1,734,619        6.00%
                                           ==========                                                   ==========

Adjustments for risk-based
        capital:
        Qualifying subordinated
              debt                             92,602
        General loan loss allowance           363,328
        Qualifying portion of
              unrealized holding gains             37
        Low level recourse                    (10,619)
        Assets required to be
              deducted                        (13,559)
                                           ----------
        Total risk-based capital           $3,725,412       12.89%        $2,312,825      8.00%         $2,891,031       10.00%
                                           ==========                     ==========                    ==========
</TABLE>

(30)   Other Noninterest Expense
       -------------------------

       Other noninterest expense amounts are summarized as follows for the years
ended December 31, 2000, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                                                              2000        1999          1998
                                                                            --------    --------      --------
<S>                                                                         <C>         <C>           <C>
Other noninterest expense:
    Telephone                                                               $ 24,574    $ 26,088      $ 19,640
    Marketing                                                                 35,426      31,994        19,597
    DP systems expense                                                        24,864      23,443        15,708
    Savings Association Insurance Fund deposit insurance premium               4,792      14,230        11,055
    Insurance and surety bonds                                                 7,198       7,412         6,027
    Postage                                                                   13,116      13,021        10,023
    Printing, copying and office supplies                                     13,541      12,968        11,179
    Employee travel                                                           15,183      13,855        10,386
    Other losses                                                               8,672      18,703        10,534
    Other expense                                                             61,265      63,960        45,158
                                                                            --------    --------      --------
                                                                            $208,631    $225,674      $159,307
                                                                            ========    ========      ========
</TABLE>

                                      F-58

<PAGE>

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

(31)   Income Taxes
       ------------

       Total income tax expense (benefit) for the years ended December 31, 2000,
1999 and 1998 was allocated as follows (in thousands):
<TABLE>
<CAPTION>

                                                        2000         1999        1998
                                                      --------     --------    ---------
<S>                                                   <C>          <C>         <C>
Income (loss) before income taxes, extraordinary
     items and minority interest                      $136,781     $186,483    $(106,351)
Extraordinary items                                      2,083        1,801     (103,823)
Net unrealized holding gain (loss) on securities
     available for sale                                138,449     (204,789)        (881)
Provision in lieu of income taxes -
     minority interest                                 161,688      122,684           --
                                                      --------     --------    ---------
                                                      $439,001     $106,179    $(211,055)
                                                      ========     ========    =========
</TABLE>

       Income tax expense (benefit)  attributable to income before income taxes,
extraordinary items and minority interest consisted of (in thousands):

                                             2000         1999         1998
                                           --------     --------     ---------
Federal
    Current                                $ 48,867     $ 31,013     $  51,443
    Deferred                                 22,114       74,722      (214,131)
                                           --------     --------     ---------
                                             70,981      105,735      (162,688)

State and local
    Current                                  48,783       60,690        49,137
    Deferred                                 17,017       20,058         7,200
                                           --------     --------     ---------
                                             65,800       80,748        56,337
                                           --------     --------     ---------
Income tax expense (benefit) before
    provision in lieu of income taxes       136,781      186,483      (106,351)
Provision in lieu of income taxes -
    minority interest                       161,688      122,684            --
                                           --------     --------     ---------
Total income tax expense (benefit)         $298,469     $309,167     $(106,351)
                                           ========     ========     =========

                                      F-59

<PAGE>

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

       The  consolidated  income  tax  expense  (benefit)  for the  years  ended
December 31, 2000,  1999 and 1998 differs from the amounts  computed by applying
the  statutory  federal  corporate  tax rate of 35% for  2000,  1999 and 1998 to
income before income taxes, extraordinary items and minority interest as follows
(in thousands):
<TABLE>
<CAPTION>

                                                                 2000          1999         1998
                                                               --------      --------     ---------
<S>                                                            <C>           <C>          <C>
Computed "expected" income tax expense                         $236,014      $234,245     $ 140,792
Increase (decrease) in taxes resulting from:
    State income taxes, net of federal income
          tax benefit                                            42,770        52,486        36,619
    Tax exempt income                                              (966)       (1,010)           --
    Amortization of excess cost over fair
          value of net assets acquired                           19,460        22,355        17,613
    Other                                                         1,191         1,091           109
    Adjustments to deferred tax asset fully offset by
          valuation allowance:
           Adjustment to deferred tax asset                          --       (18,602)       64,527
           REIT Preferred Stock dividends                            --            --        (6,700)
    Change in the beginning-of-the-year balance of
        the valuation allowance for deferred tax assets
        allocated to income tax expense                              --        18,602      (359,311)
                                                               --------      --------     ---------
                                                               $298,469      $309,167     $(106,351)
                                                               ========      ========     =========
</TABLE>

       The  significant  components  of  federal  deferred  income  tax  expense
(benefit)  attributable to income before income taxes,  extraordinary  items and
minority interest are as follows (in thousands):
<TABLE>
<CAPTION>

                                                                 2000          1999         1998
                                                              ---------     ---------     --------
<S>                                                           <C>            <C>          <C>
Deferred tax expense (exclusive of the effects
    of other components listed below)                         $ 233,852      $74,722      $  87,353
Adjustment to deferred tax asset fully offset by
    valuation allowance                                              --      (18,602)        57,827
Increase (decrease) in beginning-of-the-year balance
    of the valuation allowance for deferred tax assets         (211,738)      18,602       (359,311)
                                                              ---------      -------      ---------
                                                              $  22,114      $74,722      $(214,131)
                                                              =========      =======      =========
</TABLE>

                                      F-60

<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>

                                                             2000           1999
                                                           --------      ----------
<S>                                                        <C>           <C>
Deferred tax assets:
    Net operating loss carryforwards                       $140,381      $  299,491
    Foreclosed real estate                                      445             906
    Deferred interest                                            --           2,287
    Loans receivable                                        151,555         140,999
    Miscellaneous accruals                                   48,497          68,333
    Accrued liabilities                                      39,002          38,639
    State taxes                                              73,431          63,361
    Purchased mortgage servicing rights                      93,723         105,241
    Alternative minimum tax credit and other tax
        credit carryforwards                                108,087          70,150
    Unrealized losses on securities available for sale       62,069         200,518
    Other                                                    10,537          11,559
                                                           --------      ----------
         Total gross deferred tax assets                    727,727       1,001,484
         Less valuation allowance                           (39,496)       (251,234)
                                                           --------      ----------
         Net deferred tax assets                            688,231         750,250
                                                           --------      ----------

Deferred tax liabilities:
    Mortgage servicing rights                               177,600         182,466
    Purchase accounting adjustments                           7,684           5,288
    FHLB stock                                              173,338         126,904
    Deferred interest                                           322              --
    Goodwill litigation                                      43,171          41,356
    Contractual obligations                                  19,250          19,250
    Deferred loan fees                                      198,934         161,044
    Other                                                     7,446          12,407
                                                           --------      ----------
         Net deferred tax liabilities                       627,745         548,715
                                                           --------      ----------
         Net deferred tax assets and liabilities           $ 60,486      $  201,535
                                                           ========      ==========
</TABLE>

       The net  change  in the  total  valuation  allowance  for the year  ended
December  31,  2000  was a  decrease  of  $211.7  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.

       In 1998,  based on resolutions of federal income tax audits and favorable
future  earnings  expectations,   management  changed  its  judgment  about  the
realizability of the Company's net deferred tax assets and reduced the valuation
allowance by $250 million.

       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.

                                      F-61

<PAGE>

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

       In connection  with the Golden State Merger,  the Company  deconsolidated
from the Mafco Group. As a result,  only the amount of the net operating  losses
("NOLs") of the Company  not  utilized by the Mafco Group on or before  December
31, 1998 are available to offset  taxable income of the Company  thereafter.  At
September 11, 1998,  had the Company  filed a  consolidated  federal  income tax
return on behalf of itself and its  subsidiaries for each of the years since the
formation  of the  Company,  it would have had  regular  NOL  carryforwards  for
federal income tax purposes of approximately $1.8 billion. Upon deconsolidation,
the NOLs  available  to offset  taxable  income  of the  Company  was  initially
estimated to be reduced by $900  million.  This  reduction of NOLs and other tax
attributes  (the  "Deconsolidation  Adjustment")  resulted  in a $230.2  million
reduction in retained earnings during 1998.

       Based upon the  actual  filing of the Mafco  Group and Golden  State 1998
consolidated  federal  income tax returns  during  1999,  tax benefits of $122.7
million  were  recognized.  The tax  benefit is fully  offset by an  increase in
minority  interest expense,  since under the Golden State Merger agreement,  the
tax benefits from any NOLs and other tax  attributes of Parent  Holdings and its
subsidiaries are retained by GSB Investments and Hunter's Glen.

       In  addition,  the Company  recorded an  adjustment  of $15.5  million to
reduce the initial dividend of tax benefits to GSB Investments and Hunter's Glen
due to its  deconsolidation  from the  Mafco  Group,  which was  recorded  as an
increase to retained earnings during 1999.

       At December  31,  2000,  the Company  had regular NOL  carryforwards  for
federal income tax purposes of approximately  $401.1 million which are available
to offset future federal taxable income, if any, through 2018. In addition,  the
Company had alternative minimum tax credit  carryforwards of approximately $94.8
million which are available to offset future federal  regular  income taxes,  if
any,  over an  indefinite  period.  The IRS is  examining  the 1991 through 1995
federal income tax returns of the Company and any NOL  carryforwards are subject
to review and disallowance, in whole or in part, by the IRS.

       In accordance with SFAS NO. 109,  ACCOUNTING FOR INCOME TAXES, a deferred
tax  liability has not been  recognized  for the base year reserves of the Bank.
The base year  reserves are generally the balance of the tax bad debt reserve as
of December 31, 1987 reduced  proportionately  for reductions in the Bank's loan
portfolio  since that date. At December 31, 2000,  the amount of those  reserves
was $305  million.  The amount of the  unrecognized  deferred  tax  liability at
December 31, 2000 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.

(32)   Employee Benefit Plans
       ----------------------

       POSTRETIREMENT HEALTH CARE and DEFINED BENEFIT PLANS

       The Bank  provides  certain  postretirement  medical  benefits to certain
eligible  employees  and their  dependents  through  age 64. In  general,  early
retirement  is age 55 with 10 years of service.  Retirees  participating  in the
plans generally pay  Consolidated  Omnibus Budget Reduction Act premiums for the
period of time they participate.  The estimated cost for  postretirement  health
care benefits has been accrued on an actuarial net present value basis.

       In  connection  with the  Glen Fed  Merger,  the  Bank  assumed  Glendale
Federal's defined benefit pension plan (the "Glendale Federal  Retirement Plan")
and the Redlands Federal Bank defined benefit plan,  (collectively "the Glen Fed
Pension Plan"),  which covered  substantially all employees of Glendale Federal.
The Glen Fed Pension Plan was frozen upon the merger on  September  11, 1998 and
no additional benefits accrued after such time.  Effective October 15, 1998, the
Glen Fed  Pension  Plan was  merged  with  and into the Old  California  Federal
defined  benefit  plan.  The fair  value of the  assets  transferred  was $102.0
million.

                                      F-62

<PAGE>

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

       The  following  table  sets  forth  the  changes  in the  plan's  benefit
obligations  and fair  value of plan  assets,  as well as the  funded  status at
December 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>

                                                                        Non-Qualified Plans         Qualified Plan
                                           Postretirement Benefits       Pension Benefits           Pension Benefits
                                           -----------------------     ----------------------     ---------------------
                                              2000         1999          2000          1999         2000         1999
                                            --------      -------      --------      --------     --------     --------
<S>                                         <C>           <C>          <C>           <C>          <C>          <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year     $  8,248      $ 8,166      $ 15,355      $ 15,481     $111,923     $136,818
Service cost                                     601          612            --            --           --           --
Interest cost                                    624          539         1,041         1,000        7,933        8,059
Amendments                                        --           --            --            --           --           --
Actuarial loss (gain)                          1,279         (717)        1,229           868       (7,769)     (23,792)
Acquisitions                                      --           --            --            --           --           --
Settlements                                       --           --            --            --           --           --
Benefits paid                                   (382)        (352)       (1,893)       (1,994)      (8,496)      (9,162)
                                            --------      -------      --------      --------     --------     --------
Benefit obligation at end of year           $ 10,370      $ 8,248      $ 15,732      $ 15,355     $103,591     $111,923
                                            ========      =======      ========      ========     ========     ========

Change in Plan Assets
---------------------
Fair value at beginning of year             $     --      $    --      $     --      $     --     $145,777     $139,390
Actual return on plan assets                      --           --            --            --       (3,969)      15,548
Employer contribution                             --           --         1,893         1,994           --           --
Benefits paid                                     --           --        (1,893)       (1,994)      (8,496)      (9,161)
                                            --------      -------      --------      --------     --------     --------
Fair value at end of year                   $     --      $    --      $     --      $     --     $133,312     $145,777
                                            ========      =======      ========      ========     ========     ========

Funded status                               $(10,370)     $(8,248)     $(15,732)     $(15,355)    $ 29,721     $ 33,854
Unrecognized actuarial loss                       --           --            --            --       (1,565)     (10,660)
                                            --------      -------      --------      --------     --------     --------

Prepaid (accrued) benefit cost
   recognized in the consolidated
   balance sheet                            $(10,370)     $(8,248)     $(15,732)     $(15,355)    $ 28,156     $ 23,194
                                            ========      =======      ========      ========     ========     ========
</TABLE>

       Assumptions used in computing the funded status were:
<TABLE>
<CAPTION>

                                                                       Non-Qualified Plans       Qualified Plan
                                           Postretirement Benefits      Pension Benefits         Pension Benefits
Weighted Average Assumptions as of         -----------------------     --------------------      ----------------
          December 31,                         2000      1999            2000      1999           2000      1999
---------------------------------              ----      ----            ----      ----           ----      ----
<S>                                            <C>       <C>             <C>       <C>            C>        <C>
Discount rate                                  7.75%     6.75%           7.75%     7.25%          7.50%     7.25%
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 2001 is
assumed  to be  8.5%,  the  average  trend  rate is  assumed  to be 6.8% and the
ultimate trend rate is assumed to be 5.5%, which will be reached in 5 years.

       At  December  31,  2000,  an increase of 1% in the health care cost trend
rate would cause the accumulated  postretirement  benefit obligation to increase
by $0.7 million, and the service and interest cost to increase by less than $0.1
million.  At December  31,  2000, a decrease of 1% in the health care cost trend
rate would cause the accumulated  postretirement  benefit obligation to decrease
by $0.6 million, and the service and interest costs to decrease by $0.1 million.

                                      F-63

<PAGE>

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

       The net periodic benefit cost for the years ended December 31, 2000, 1999
and 1998 included the following components (in thousands):
<TABLE>
<CAPTION>

                                                                               Qualified and
                                                                               Non-Qualified
                                           Postretirement Benefits            Pension Benefits
                                           -----------------------     -------------------------------
                                            2000     1999    1998        2000        1999        1998
                                            ----     ----    ----        ----        ----        ----
<S>                                        <C>       <C>     <C>       <C>         <C>         <C>
Service cost                               $  601    $612    $309      $     --    $     --    $    --

Interest cost                                 624     539     317         8,974       9,059      4,880
Expected return on plan assets                 --      --      --       (12,895)    (12,320)    (5,648)
Recognized net actuarial loss (gain)        1,279    (717)    182         1,228       1,164      2,293
Settlement/curtailment gain                    --      --      --            --          --         --
                                           ------    ----    ----      --------    --------    -------
   Net periodic cost (income)              $2,504    $434    $808      $ (2,693)   $ (2,097)   $ 1,525
                                           ======    ====    ====      ========    ========    =======
</TABLE>

       DEFINED CONTRIBUTION PLAN

       The Bank  offers a  defined  contribution  plan,  which is  available  to
substantially  all employees  with at least six months of  employment.  Employee
contributions are voluntary.  The plan provides for the deferral of up to 12% of
eligible  compensation of plan participants not to exceed the maximum allowed by
the Internal Revenue Service. The Bank's matching contribution 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 $16.7 million,  $14.6
million and $9.3 million for the years ended  December 31, 2000,  1999 and 1998,
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 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 2000 were 217,166  shares for $4.5  million;  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 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,  2000 and 1999,  the Bank  administered  the  following
stock-based  compensation  plans:  pre-merger  stock option plans and the Golden
State Bancorp Inc. Omnibus Stock Plan (the "Omnibus Stock Plan").

       In  connection  with the Glen Fed  Merger,  the Bank  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.

                                      F-64

<PAGE>

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

       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
                                      =========
</TABLE>

       Information  about stock options  outstanding at December 31, 2000 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               281,750                3.8                $11.24            281,750            $11.24
   $12.94 - $17.75             1,681,316                8.2                $14.59            373,666            $16.64
   $18.75 - $23.50             1,325,332                8.4                $23.48            465,682            $23.50
   $28.50 - $35.00               383,000                6.7                $29.18            383,000            $29.18
</TABLE>

       No  compensation  cost was  recognized  by the Company for stock  options
granted during 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, 2000 and 1999,  options to acquire an  equivalent of
1,038,416 and 1,231,082 LTW(TM)s were outstanding under all plans.

       If compensation  cost during 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 $334.2 billion and $313.5  million,  respectively,  basic
earnings  per common  share would have been $2.40 and $2.40,  respectively,  and
diluted earnings per common share would have been $2.35 and $2.24, 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 2000 and 1999: risk-free interest rate
of 6.61% and 5.60%,  respectively;  expected  option life of seven years in both
2000 and 1999; expected volatility of 48.55% and 41.30%, respectively;  expected
dividend  yield  of  2.86%  in 2000 and no  expected  dividends  in 1999;  and a
forfeiture rate of 5% in both 2000 and 1999. Since pro forma  compensation  cost
relates to all periods over which the awards  vest,  the impact on pro forma net
income may not be  representative  of compensation cost in subsequent years when
the effect of the amortization of multiple awards would be reflected.

                                      F-65

<PAGE>

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

       The weighted  average grant date fair value of the options granted during
2000 and 1999 were $20.34 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 24, 2000 and July 19, 1999, the Company  awarded to certain of
its employees  shares of restricted  common stock totalling  220,327 and 56,908,
respectively.  The market  value on the date of each award was $14.00 and $22.38
per share, respectively. These shares vest over two years in one-half 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 the
award is recognized  on a straight  line basis over the vesting  period for each
tranche  of the  award  with a  corresponding  increase  to  additional  paid-in
capital. In addition, dividends on restricted stock are recorded as compensation
expense with a corresponding increase to additional paid-in capital. During 2000
and 1999, $1.9 million and $0.5 million,  respectively,  in compensation expense
was recognized  related to such awards.  At December 31, 2000 and 1999,  246,756
restricted shares and 56,908 restricted shares, respectively,  were outstanding.
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 39.

(33)   Incentive Plans
       ---------------

       On May 17, 1999,  the Golden State  Bancorp Inc.  Executive  Compensation
Plan ("ECP") was approved,  providing for performance-based  incentive awards to
senior executives of the Company.  Awards may be paid in cash; however up to 50%
may be payable in  restricted  common stock granted under the Omnibus Stock Plan
discussed  in note 32.  Compensation  expense  totalling  $8.7  million and $9.1
million  relating to the ECP was  recorded  during the years ended  December 31,
2000 and 1999, respectively.

       Pursuant to the ECP, the Golden State  Bancorp Inc.  Long Term  Incentive
Plan ("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 32.  Compensation  expense totalling $4.1 million and $2.0 million relating
to the LTIP was  recorded  during the years  ended  December  31, 2000 and 1999,
respectively.

       The Deferred  Executive  Compensation  Plan ("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  totaling $2.3 million relating to the DECP was recognized
in each of the years ended December 31, 2000 and 1999.

       In  addition,  effective  October 1, 1995,  FN  Holdings  entered  into a
management  incentive plan ("Incentive Plan") with certain executive officers of
the Bank ("Participants"). Awards under the Incentive Plan were made in the form
of performance units. Each performance unit entitled Incentive Plan Participants
to receive cash and/or stock options  ("Bonuses")  based upon the  Participants'
vested interest in a bonus pool. Generally,  the Incentive Plan provided for the
payment  of  Bonuses,  on a  quarterly  basis,  to  the  Participants  upon  the
occurrence of certain events.  Bonuses vested at 20% per year beginning  October
1, 1995 and were  subject to a cap of $50 million.  Bonuses  were  recorded by a
charge  to  compensation  and  employee   benefits  and  an  increase  to  other
liabilities. The Glen Fed Merger constituted a change of control pursuant to the
terms of the  Incentive  Plan  and,  as such,  cash  payments  were  made to the
Participants on September 11, 1998.

                                      F-66

<PAGE>

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

(34)   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.

       In  connection  with the Debt  Tender  Offers  during  1998,  GS Holdings
purchased $914.5 million aggregate principal amount of the FN Holdings Notes for
an aggregate purchase price, including accrued interest payable of $1.1 billion,
resulting  in an  extraordinary  loss of $98.7  million,  net of income taxes of
$68.2 million, on the early extinguishment of such debt.

       In  connection  with the  Parent  Holdings  Defeasance  during  1998,  GS
Financial  redeemed  $455  million  aggregate  principal  amount  of the  Parent
Holdings Notes for an aggregate  redemption  price,  including  accrued interest
payable, of $553.7 million.  The after-tax redemption premiums and expenses paid
in connection with the Parent Holdings Defeasance totalled $51.6 million and are
reflected as  extraordinary  loss, net of income taxes of $35.6 million,  on the
consolidated statement of income for the year ended December 31, 1998.

(35)   Commitments and Contingencies
       -----------------------------

       In the  ordinary  course of  business,  the Company has  commitments  and
contingent  liabilities that are not reflected in the accompanying  consolidated
financial  statements.   The  Company,   through  FNMC,  enters  into  financial
instruments  with  off-balance  sheet risk through the  origination  and sale of
mortgage  loans  and the  management  of the  related  loss  exposure  caused by
fluctuations in interest rates. These financial  instruments include commitments
to extend credit and purchase  loans  (mortgage loan pipeline) and mandatory and
optional forward commitments to sell loans.

       The following is a summary of the Company's  pipeline of loans in process
and mandatory  forward  commitments  to sell loans at December 31, 2000 and 1999
(in thousands):

                                                      December 31,
                                              ----------------------------
                                                 2000               1999
                                              ----------        ----------
Commitments to originate loans:
    Fixed rate                                $  914,225        $  394,923
    Variable rate                                542,610         1,078,909
Commitments to purchase loans                    867,867         1,434,893
Mandatory commitments to sell loans            1,121,604           903,526

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

                                      F-67

<PAGE>

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

       Loans in process for which rates were committed to the borrower  totalled
approximately $671.4 million at December 31, 2000. On a daily basis, the Company
determines  what  percentage of the portfolio of loans in process for which rate
commitments  have been  extended  to a borrower to hedge.  Both the  anticipated
percentage  of the  pipeline  that is  expected  to fund and the  inherent  risk
position of the portfolio are considered in making this determination.

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

       Realized  gains and losses on  mandatory  and  optional-delivery  forward
commitments  are  recognized in the period  settlement  occurs.  At December 31,
2000,  unrealized  losses resulting from the use of forward  commitments to sell
loans  were  $5.3  million.   Unrealized  gains  and  losses  on  mandatory  and
optional-delivery  forward  commitments  are  included  in the  lower of cost or
market valuation adjustment to mortgage loans held for sale.

       The  Company is party to an  agreement  with FNMA  pursuant to which FNMA
provided  credit  enhancements  for certain  bond-financed  real estate projects
originated  by Old FNB. The agreement  requires that the Company  pledge to FNMA
collateral in the form of certain eligible  securities which are held by a third
party  trustee.  The collateral  requirement  varies based on the balance of the
bonds  outstanding,  losses  incurred  (if any),  as well as other  factors.  At
December  31, 2000,  the Company had pledged as  collateral  certain  securities
available  for  sale,   mortgage-backed   securities   available  for  sale  and
mortgage-backed  securities  held to  maturity  with  carrying  values  of $16.7
million, $14.5 million and $11.1 million, respectively.

       At  December  31,  2000,  the  Bank had  pledged  as  collateral  certain
securities available for sale, mortgage-backed securities available for sale and
held to maturity with carrying values of $1.0 million,  $130.7 million and $49.2
million,  respectively,  to guarantee credit  enhancements on multi-family  bond
issues and loans securitized by FNMA and FHLMC.

       At December 31, 2000, commercial paper investments in the amount of $75.7
million  were held in reserve  with  third-party  trustees to  guarantee  credit
enhancements on loans transferred as part of securitization  transactions by the
Bank.

       At  December  31,  2000,  the  Bank had  pledged  as  collateral  certain
securities available for sale, mortgage-backed securities available for sale and
held to maturity with carrying values of $2.7 million, $127.0 million and $121.4
million, respectively, to guarantee state and local agency deposits, and certain
deposits with the Federal Reserve Bank.

       At  December  31,  2000,  the  Bank had  pledged  as  collateral  certain
mortgage-backed  securities  available  for  sale and  held to  maturity  with a
carrying  value of $34.9  million  and  $46.1  million  to cover  the  margin on
interest rate swap agreements.

       In addition, the Bank retains principal and interest funds on securitized
loans with appropriate  collateral held and monitored by the trustee. The pledge
agreement requires the collateral to be 150% of the average  remittances for the
prior twelve months,  to be adjusted  quarterly.  At December 31, 2000, the Bank
had pledged as collateral certain mortgage-backed  securities available for sale
and held to maturity with carrying  values of $218.0  million and $70.0 million,
respectively.

       In  addition,  at  December  31,  2000,  securities  available  for sale,
mortgage-backed  securities  available for sale and  mortgage-backed  securities
held to maturity of $20.0 million, $6.5 billion and $2.1 billion,  respectively,
were pledged as collateral for various  obligations as discussed in notes 9, 11,
12, 21 and 22. At December 31, 1999,  mortgage-backed  securities  available for
sale and  mortgage-backed  securities  held to maturity of $9.9 billion and $1.9
billion, respectively, were pledged as collateral for various obligations.

                                      F-68

<PAGE>

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

       At December 31, 2000, $27.2 billion in residential loans, $3.0 billion in
multifamily  loans and $1.7 billion in commercial real estate loans were pledged
as collateral for FHLB advances.

       At December 31, 2000 and 1999,  loans receivable  included  approximately
$7.9 billion and $6.4 billion,  respectively, of loans that had the potential to
experience negative amortization.

(36)   Legal Proceedings
       -----------------

       CALIFORNIA FEDERAL GOODWILL LITIGATION

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

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

       On April 16,  1999,  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 $23.0 million.
The summary judgment  liability  decision by the first Court of Claims Judge has
been  appealed by the  Government  and the damage  award by the second  Court of
Claims  Judge has been  appealed by the Bank.  After all  appellate  briefs were
filed,  oral  argument in the  Federal  Circuit  Court of Appeals  took place in
conjunction with the appellate argument in the Glendale Goodwill  Litigation (as
defined herein) on July 7, 2000, but the Court of Appeals has not yet rendered a
decision.

       GLENDALE GOODWILL LITIGATION

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

     The trial began in February 1997 and concluded in September  1998. On April
9,  1999,  the  Claims  Court  issued  its  decision  in the  Glendale  Goodwill
Litigation,  ruling that the Government  must  compensate the Bank in the sum of
$908.9  million.  This decision was appealed by the Government and the Bank, and
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.  No
further  proceedings  have been  taken in the case  since the Court of  Appeals'
February 16 decision,  and the Bank continues to pursue  vigorously its case for
damages against the Government  under the reliance  damages theories as outlined
by the Court of Appeals' decision.

                                      F-69

<PAGE>

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

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

       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 Trustee Service
Corporation ("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 defendants.
In June  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.  The Bank believes that it has meritorious defenses to
the claim and intends to continue to contest it 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 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.

(37)   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  Contingent   Litigation   Recovery   Participation   Interests
("Litigation  Interests")  and  the  Secondary  Contingent  Litigation  Recovery
Participation  Interests ("Secondary Litigation Interests") in any such recovery
(the "Goodwill  Litigation  Asset"). In connection with the Glen Fed Merger, the
Bank  recorded a second  Goodwill  Litigation  Asset  related  to the  estimated
after-tax cash recovery from the Glendale Goodwill Litigation that will inure to
the Bank,  net of  amounts  payable to holders  of the  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 27.

                                      F-70

<PAGE>

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


(38)   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 at December 31, 2000 and 1999 (in thousands):

                                                       Contract Amount
                                                ------------------------------
Commitments to extend credit                       2000                1999
----------------------------                    ----------          ----------

Unutilized consumer lines of credit             $1,225,572          $1,034,913
Unutilized commercial lines of credit              219,219             159,744
Commercial and standby letters of credit             2,112               3,892

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

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

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

       DERIVATIVE FINANCIAL INSTRUMENTS

       The    Company    utilizes    various    derivative    instruments    for
other-than-trading  purposes  such as  asset/liability  management.  The primary
focus of the  Company's  asset/liability  management  program is to measure  and
monitor the  sensitivity  of the Company's  net  portfolio  value and net income
under  varying  interest  rate  scenarios.  On a  quarterly  basis,  the Company
simulates  the net portfolio  value and net income  expected to be earned over a
twelve-month period following the date of simulation. The simulation is based on
a projection of market interest rates at varying levels and estimates the impact
of  such  market   rates  on   mortgage   prepayment   speeds,   the  levels  of
interest-earning assets and interest-bearing  liabilities during the measurement
period.  Based upon the  outcome of the  simulation  analysis,  the  Company may
consider the use of  derivatives  as a means of reducing the  volatility  of net
portfolio  value and  projected net income  within  certain  ranges of projected
changes in interest rates. The Company  evaluates the  effectiveness of entering
into  any  derivative  instrument  agreement  by  measuring  the cost of such an
agreement  in relation to the  reduction in net  portfolio  value and net income
volatility within an assumed range of interest rates.

                                      F-71

<PAGE>

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

       Derivative financial  instruments include swaps, futures,  forwards,  and
options  contracts,  all of which  derive their value from  underlying  interest
rates.  These  transactions  involve both credit and market  risk.  The notional
amounts  are  amounts  on which  calculations,  payments,  and the  value of the
derivative are based. Notional amounts do not represent direct credit exposures.
Direct credit  exposure is limited to the net difference  between the calculated
amounts to be received and paid, if any.

       The  Company  is  exposed  to  credit-related  losses  in  the  event  of
nonperformance by the  counterparties to those agreements.  The Company controls
the credit risk of its financial contracts through credit approvals,  limits and
monitoring  procedures,  but does not  expect any  counterparties  to fail their
obligations.  The Company  deals only with  primary  dealers and the FHLB of San
Francisco.

       Derivative  instruments are generally either negotiated  over-the-counter
("OTC") contracts or standardized  contracts executed on a recognized  exchange.
Negotiated  OTC  derivative  contracts  are  generally  entered into between two
counterparties that negotiate specific agreement terms, including the underlying
instrument, amount, exercise prices and maturity.

       MSR Hedges
       ----------

       At December 31, 2000, the Bank held cash  collateral in the amount of $20
million related to interest rate derivatives to hedge MSRs.

       INTEREST RATE SWAPS

       The Company utilizes interest rate swaps as an asset/liability management
strategy to hedge against  prepayment risk in its mortgage  servicing  portfolio
caused by declining  interest  rates.  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 monthly,  quarterly or semi-annually  by one of the parties  depending on
the  specific  terms  of  the  related  contract.  The  notional  amount  of the
contracts, on which the payments are based, are not exchanged. The primary risks
associated  with  interest  rate swaps are the exposure to movements in interest
rates and the ability of the counterparties to meet the terms of the contract.

       At December  31,  2000,  interest  rate swap  agreements  with a notional
amount  of $1.3  billion  and a  weighted  average  maturity  of 10  years  were
outstanding.  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.  At December  31,  2000,  the weighted
average pay rate was 6.40% and the weighted  average  receive rate was 6.21%. No
interest  rate swap  agreements  were  terminated  prior to maturity in 2000. At
December 31, 2000, there was a $5.1 million  unrealized gain relating to the use
of interest rate swaps.

       PRINCIPAL ONLY SWAPS

       The Company  utilizes  principal  only ("PO")  swap  agreements  to hedge
against prepayment risk in its mortgage servicing  portfolio caused by declining
interest  rates. PO swap  agreements  simulate the ownership of a PO strip,  the
value of which is affected directly by prepayment rates themselves in an inverse
manner to the servicing  rights,  which act in a manner similar to interest only
("IO") strips.  Under the terms of the PO swap  agreements,  the counterparty to
the  transaction  purchases  a PO strip and places the PO strip in a trust.  The
contracts  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 structure of this
instrument  results in increased cash flows and positive changes in the value of
the swap during a declining  interest rate environment.  This positive change in
the value of the swap is  highly  correlated  to  prepayment  activity.  PO swap
agreements present yield curve risk to the extent that short term interest rates
(which  impact  the  cash  amount

                                      F-72

<PAGE>

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

that the  Company  pays on the swap to the  counterparty)  rise  while long term
rates  (which  drive  prepayment  rates)  stay the  same.  A third  type of risk
associated with PO swaps is the ability of the  counterparties to meet the terms
of the contract.

       At December  31,  2000,  PO swap  agreements  with a notional  balance of
$193.1 million were  outstanding.  During 2000, the calculated amount to be paid
to and to be received from the PO swap counterparties was $8.4 million and $13.7
million,  respectively. At December 31, 1999, PO swap agreements with a notional
balance of $202.3 million were  outstanding.  During 1999, the calculated amount
to be paid to and to be  received  from  the PO swap  counterparties  was  $29.6
million and $19.2 million,  respectively.  No PO swap agreements were terminated
prior to maturity in 2000 or 1999.

       INTEREST RATE FLOORS

       The  Company  currently  uses  interest  rate  floors  to  hedge  against
prepayment risk in its mortgage servicing portfolio caused by declining interest
rates.  Interest  rate floors are  interest  rate  protection  instruments  that
involve payment from the seller to the buyer of an interest  differential.  This
differential  represents the difference between a long-term rate (E.G.,  10-year
Constant Maturity Swaps in 2000 and 1999,  10-year Constant Maturity Treasury in
1999) and an agreed-upon rate, the strike rate,  applied to a notional principal
amount.  By purchasing a floor,  the Company will be paid the  differential by a
counterparty,  should the current  long-term rate fall below the strike level of
the agreement.  The Company generally  receives cash monthly on purchased floors
(when the current  interest rate falls below the strike rate).  The  unamortized
premium,  if any, paid for interest rate purchased floor  agreements is included
with the assets  hedged.  Interest rate floors are subject to basis risk because
changes in the relationship  between  prepayment rates and the interest rate may
occur, as well as market  volatility and swap spread  movement.  In addition,  a
credit risk  associated  with  purchased  interest rate floor  agreements is the
ability of the counterparties to meet the terms of the contract.

       At December 31, 2000 and 1999,  the Company was a party to interest  rate
floor contracts with a weighted  average maturity of 4.9 years at each year end.
At December 31, 2000, the notional  amount of the remaining  interest rate floor
contracts was $2.3 billion,  the weighted  average strike rate was 6.25% and the
monthly floating rate was 6.15%. During 2000, the Company received cash from the
interest rate floor  counterparties in the amount of $0.2 million.  During 2000,
the Company received proceeds of $50.6 million from sales of interest rate floor
contracts with unamortized  premiums of $24.9 million. At December 31, 1999, the
notional amount of the remaining interest rate floor contracts was $950 million,
the weighted  average  strike rate was 5.84% and the monthly  floating  rate was
6.44%.  During 1999,  the Company  received  cash from the  interest  rate floor
counterparties in the amount of $0.1 million.  During 1999, the Company received
proceeds of $17.0  million  from sales of  interest  rate floor  contracts  with
unamortized  premiums of $38.2 million. The amount of the unamortized premium on
the  interest  rate floors at December  31, 2000 and 1999 was $36.9  million and
$13.7 million,  respectively. At December 31, 2000, the strike rate exceeded the
floating  rate by 0.10%.  At December 31, 1999,  the floating  rate exceeded the
strike rate by 0.60%.

       INTEREST RATE SWAPTIONS

       The Company also uses swaptions to hedge against the  prepayment  risk in
its mortgage servicing  portfolio caused by declining interest rates. 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.  The  unamortized  premiums,  if any,  paid  for
swaptions  are included with the assets  hedged.  Swaptions are subject to basis
risk  because  changes  in the  relationship  between  prepayment  rates and the
interest rate may occur, as well as market  volatility and swap spread movement.
In  addition,  credit  risk  associated  with  swaptions  is the  ability of the
counterparties to meet the terms of the contract.

                                      F-73

<PAGE>

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

       At  December  31,  2000 and 1999,  the  Company  was a party to  swaption
contracts  with  a  weighted  average  maturity  of 2.8  years  and  2.7  years,
respectively,  in which the Company paid the counterparties premiums in exchange
for the  right  but  not the  obligation  to  purchase  an  interest  rate  swap
agreement.  Under the terms of the underlying interest rate swap agreement,  the
Company  would pay the variable rate tied to three month LIBOR and would receive
the fixed rate.  At December 31, 2000,  the  notional  amount of the  underlying
interest rate swap contract was $2.2 billion,  the weighted  average strike rate
was 6.44% and the three month LIBOR rate was 6.40%.  At December 31,  2000,  the
strike rate exceeded the floating rate by 0.04%. The unamortized  premium on the
swaptions  at December  31, 2000 was $58.1  million.  During  2000,  the Company
received  proceeds of $50.5  million from the sales of swaption  contracts  with
unamortized premiums of $30.4 million. At December 31, 1999, the notional amount
of the  underlying  interest rate swap  contract was $834 million,  the weighted
average  strike  rate was 6.98% and the three  month  LIBOR rate was  6.00%.  At
December 31, 1999,  the strike rate  exceeded  the floating  rate by 0.98%.  The
unamortized  premium on the  swaptions at December  31, 1999 was $26.5  million.
During 1999,  the Company  received  proceeds of $29.8 million from the sales of
swaption contracts with unamortized premiums of $58.6 million.

       Balance Sheet Hedges
       --------------------

       INTEREST RATE SWAPS

       The Company utilizes interest rate swaps primarily as an  asset/liability
management  strategy  to hedge  against  the  interest  rate  risk  inherent  in
variable-rate  FHLB advances and securities sold under agreements to repurchase.
At December  31, 2000 and 1999,  interest  rate swap  agreements  with  notional
amounts of $3.2 billion and $2.6  billion,  respectively,  and weighted  average
maturities of 4.1 years and 5.2 years,  respectively,  were outstanding to hedge
these borrowings.  These agreements provided for the Company to receive payments
at a variable  rate  determined  by a specified  index  (three  month  LIBOR) in
exchange for making payments at a fixed rate. At December 31, 2000 and 1999, the
weighted average pay rates were 6.76% and 6.60%, respectively,  and the weighted
average receive rates were 6.73% and 6.11%, respectively.  No interest rate swap
agreements  were  terminated  prior to maturity in 2000 or 1999. At December 31,
2000 and 1999,  unrealized  (losses)  and gains  relating to the use of interest
rate swaps were $(75.5)  million and $51.9  million,  respectively.  These gains
(losses)  will be  recognized  over the life of the FHLB  advances or securities
sold under agreements to repurchase, as appropriate.

         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):
<TABLE>
<CAPTION>

                                      December 31, 2000                      December 31, 1999
                               -------------------------------        ------------------------------
                                Notional                               Notional
                                 Amount        Credit Risk (1)          Amount       Credit Risk (1)
                               ----------      ---------------        ----------     ---------------
<S>                            <C>                <C>                 <C>               <C>
Interest rate swaps            $4,564,670         $  5,099            $2,550,000        $51,882
Principal only swaps              193,099            1,202               202,316             --
Interest rate floors            2,338,000           52,839               950,000         10,431
Interest rate swaptions         2,178,000          105,626               834,000         24,294
                               ----------         --------            ----------        -------
            Total              $9,273,769         $164,766            $4,536,316        $86,607
                               ==========         ========            ==========        =======
</TABLE>

----------------
(1)  Credit risk represents  current  replacement cost  (effectively fair market
     value) after the effects of master netting agreements.

                                      F-74

<PAGE>

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

       The   maturity   of   derivative    financial    instruments   used   for
other-than-trading purposes at December 31, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>

                                                                 Notional Amounts
                              ---------------------------------------------------------------------------------------
                                2001         2002         2003         2004         2005      Thereafter      Total
                                ----         ----         ----         ----         ----      ----------      -----
<S>                           <C>          <C>         <C>          <C>          <C>          <C>          <C>
Interest rate swaps           $     --     $     --    $  300,000   $1,650,000   $  519,670   $2,095,000   $4,564,670
Principal only swaps           102,663       68,905            --           --           --       21,531      193,099
Interest rate floors                --           --            --           --    2,338,000           --    2,338,000
Interest rate swaptions             --      353,000     1,825,000           --           --           --    2,178,000
                              --------     --------    ----------   ----------   ----------   ----------   ----------
            Total             $102,663     $421,905    $2,125,000   $1,650,000   $2,857,670   $2,116,531   $9,273,769
                              ========     ========    ==========   ==========   ==========   ==========   ==========
</TABLE>

       The year-end fair values of  derivative  financial  instruments  used for
other-than-trading purposes at December 31, 2000 and 1999 are listed below.

                                                    2000              1999
                                                 ---------         ----------
                                                        (in thousands)

Interest rate swaps hedging borrowings           $(75,482)          $ 51,882
Interest rate swaps hedging MSRs                    5,099                 --
Principal only swaps                                1,202            (15,792)
Interest rate floors                               52,839             10,431
Interest rate swaptions                           105,626             24,294
                                                 --------           --------
            Total                                $ 89,284           $ 70,815
                                                 ========           ========

                                      F-75

<PAGE>

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

(39)   Earnings Per Common Share
       -------------------------

       Net income  per share of common  stock is based on the  weighted  average
number of common and common  equivalent  shares  outstanding,  excluding  common
shares in treasury,  during the period presented.  Information used to calculate
basic and diluted earnings per share ("EPS") is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>

                                                   2000                       1999                      1998
                                            ---------------------     ---------------------    ----------------------
                                             Basic       Diluted       Basic       Diluted       Basic       Diluted
                                              EPS          EPS          EPS          EPS          EPS          EPS
                                              ---          ---          ---          ---          ---          ---
<S>                                         <C>          <C>          <C>          <C>         <C>          <C>

Income before extraordinary items           $347,480     $347,480     $320,715     $320,715    $ 398,088    $ 398,088
Extraordinary Items                            3,014        3,014        2,472        2,472     (150,333)    (150,333)
                                            --------     --------     --------     --------    ---------    ---------
      Net Income                            $350,494     $350,494     $323,187     $323,187    $ 247,755    $ 247,755
                                            ========     ========     ========     ========    =========    =========

Weighted average common
     shares outstanding (a)                  127,153      127,153      130,299      130,299       78,046       78,046
Issuable Shares (b)                           11,875       11,875          482          482        1,511        1,511
                                            --------     --------     --------     ---------   ---------    ---------

Total weighted average basic
     common shares outstanding               139,028      139,028      130,781      130,781       79,557       79,557
Effect of dilutive securities:
     Options and warrants (c)                     --        2,220           --        5,249           --        1,595
     Issuable Shares (b)                          --        1,117           --        4,143           --           --
     Restricted stock (a)                         --          105           --            5           --           --
     Convertible preferred stock                  --           --           --           --           --          389
                                            --------     --------     --------     --------   ----------    ---------

Total weighted average diluted
     common shares outstanding (b)           139,028      142,470      130,781      140,178       79,557       81,541
                                            ========     ========     ========     ========    =========    =========

Income before extraordinary items              $2.50        $2.44        $2.45        $2.29        $5.00        $4.88
Extraordinary items                             0.02         0.02         0.02         0.02        (1.89)       (1.84)
                                               -----       -----         -----        -----        -----        -----
Earnings per common share                      $2.52        $2.46        $2.47        $2.31        $3.11        $3.04
                                               =====        =====        =====        =====        =====        =====
</TABLE>

------------
(a)  2000 and 1999 basic weighted average common shares outstanding  exclude the
     effect of  220,327  shares  and the  unvested  portion  of  56,908  shares,
     respectively,  of  restricted  stock that were  awarded to employees of the
     Company on January 24, 2000 and July 19, 1999, respectively.  The effect of
     all of these shares was included in diluted average shares outstanding. See
     note 32.

(b)  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 27; "-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  estimated  to be
     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.

                                              (Footnotes continued on next page)

                                      F-76
<PAGE>

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

     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 27.

     1998 total basic weighted average shares outstanding  include the effect of
     5,687,996   shares  issuable  to  GSB  Investments  and  Hunter's  Glen  as
     consideration for the net tax benefits realized by the Bank during 1998.

(c)  Golden State's diluted shares  outstanding are not affected by the LTW(TM)s
     until they become  exercisable  because the amount of the proceeds from the
     Glendale Goodwill Litigation and the number of shares of common stock to be
     issued cannot be determined until the LTW(TM)s become exercisable.

(40)   Fair Value of Financial Instruments
       -----------------------------------

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

                                                                    2000                              1999
                                                         ----------------------------      ----------------------------
                                                          Carrying           Fair           Carrying           Fair
                                                            Value            Value            Value            Value
                                                         -----------      -----------      -----------      -----------
<S>                                                      <C>              <C>              <C>              <C>
Financial Assets:
      Cash and cash equivalents                          $   783,146      $   783,146      $   593,025      $   593,025
      Securities available for sale                          641,205          641,205        1,075,766        1,075,766
      Securities held to maturity                            587,503          590,571          185,357          180,449
      Mortgage-backed securities
          available for sale                               9,866,823        9,866,823       13,764,565       13,764,565
      Mortgage-backed securities
          held to maturity                                 2,886,612        2,959,677        2,149,696        2,150,014
      Loans held for sale                                    845,763          851,856          729,062          727,569
      Loans receivable, net                               39,592,814       39,262,610       33,953,461       33,125,997
      Investment in FHLB                                   1,361,066        1,361,066        1,167,144        1,167,144
      Accrued interest receivable                            364,414          364,414          321,596          321,596
      Mortgage servicing rights (a)                        1,559,323        1,474,096        1,272,393        1,451,451

Financial Liabilities:
      Deposits                                            23,429,754       23,422,173       23,035,757       22,929,377
      Securities sold under agreements
          to repurchase                                    4,511,309        4,555,425        5,481,747        5,476,485
      Borrowings                                          28,800,557       28,802,601       25,668,626       25,135,037

Off-balance sheet net unrealized gains (losses):
Forward Commitments:
      Commitments to originate loans                              --            3,635               --              834
      Commitments to sell loans                                   --           (5,340)              --            3,338
Derivatives:
      Interest rate swaps hedging borrowings                      --          (75,482)              --           51,882
      Interest rate swaps hedging MSRs                            --            5,099               --               --
      Principal only swaps                                        --            1,202               --          (15,792)
      Interest rate floors                                        --           52,839               --           10,431
      Interest rate swaptions                                     --          105,626               --           24,294

                                                                                                             (Continued)
</TABLE>

                                      F-77

<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.  The MSR carrying value includes  unamortized
     premiums  associated with interest rate floors and interest rate swaptions.
     The fair value of MSRs including these related  derivatives is $1.6 billion
     and $1.5 billion at December 31, 2000 and 1999, respectively.

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

       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  stock is  bought  and sold at par by FHLB,  fair  value of these  financial
instruments approximates the carrying value.

       ACCRUED  INTEREST:  The carrying amounts of accrued interest  approximate
their fair values.

                                      F-78

<PAGE>

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

       MORTGAGE SERVICING RIGHTS: The fair value of mortgage servicing rights is
based on  market  prices  for  comparable  mortgage  servicing  contracts,  when
available,  or alternatively a valuation model that calculates the present value
of future net  servicing  income.  In using the  valuation  model,  the  Company
incorporates assumptions that market participants would use in estimating future
net  servicing  income,  which  include  estimates  of the cost 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 (whole dollars presented):

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

Weighted average default rate                         0.99%         1.11%
Weighted average prepayment rate (CPR)               12.78%        10.38%
Weighted average discount rate                       10.20%        10.60%

       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.  The fair value of FHLB
advances includes the fair value of embedded options.

       OFF-BALANCE SHEET FINANCIAL INSTRUMENTS:

       FORWARD COMMITMENTS

       Fair values of the Company's commitments to originate loans are estimated
using the fees currently charged to enter into similar  agreements,  taking into
account the remaining  terms of the agreements and the present  creditworthiness
of the counterparties. For fixed-rate commitments, fair value also considers the
difference  between  current levels of interest  rates and the committed  rates.
Fair values of forward  commitments to sell loans are  determined  using current
estimated replacement costs.

       DERIVATIVE FINANCIAL INSTRUMENTS

       Derivative financial  instruments are recorded at fair value based on the
estimated  amounts  that the  Company  would  receive  or pay to  terminate  the
contracts at the reporting date (I.E.,  mark-to-market value). Dealer quotes are
available  for 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.

                                      F-79

<PAGE>

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

(41)   Selected Quarterly Financial Data (Unaudited)
       ---------------------------------------------

       The following table presents  selected  quarterly  financial data for the
years ended December 31, 2000 and 1999 (in thousands, except per share data):

<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
Provision for loan losses                          --              --              --              --              --
                                           ----------      ----------      ----------       ---------     -----------
    Net interest income after
       provision for loan losses              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 available to
       common stockholders                 $   89,293      $   88,513      $   87,652       $  85,036     $   350,494
                                           ==========      ==========      ==========       =========     ===========
Earnings per share:
Basic
    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
    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
                                                =====           =====           =====           =====           =====
</TABLE>

                                      F-80

<PAGE>

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

<TABLE>
<CAPTION>

                                                                         Quarter Ended
                                           ---------------------------------------------------------------------------
                                           December 31,    September 30,     June 30,       March 31,
                                              1999             1999            1999           1999         Total 1999
                                           -----------     ------------    -----------     ----------     ------------
<S>                                        <C>             <C>             <C>             <C>            <C>
Total interest income                      $  937,544      $  917,838      $  904,004      $  892,883     $ 3,652,269
Total interest expense                       (643,808)       (630,746)       (606,961)       (584,867)     (2,466,382)
                                           ----------      ----------      ----------      ----------     -----------
    Net interest income                       293,736         287,092         297,043         308,016       1,185,887
Provision for loan losses                          --              --          (5,000)         (5,000)        (10,000)
                                           ----------      ----------      ----------      ----------     -----------

    Net interest income after
       provision for loan losses              293,736         287,092         292,043         303,016       1,175,887
Total noninterest income                      100,785          98,708         102,433          98,068         399,994
Total noninterest expense                    (218,132)       (218,416)       (219,312)       (250,749)       (906,609)
                                           ----------      ----------      ----------      ----------     -----------
Income before income taxes,
    minority interest and
    extraordinary items                       176,389         167,384         175,164         150,335         669,272
Income tax (expense) benefit                  (80,724)         45,353         (80,820)        (70,292)       (186,483)
Minority interest: provision in
    lieu of income tax expense                     --        (122,684)             --              --        (122,684)
Minority interest: other                      (11,052)         (8,431)        (10,740)         (9,167)        (39,390)
                                           ----------      ----------      ----------      ----------     -----------
Income before extraordinary item               84,613          81,622          83,604          70,876         320,715
Extraordinary item - gain on early
    extinguishment of debt, net of tax          2,472              --              --              --           2,472
                                           ----------      ----------      ----------      ----------     -----------
    Net income available to
       Common stockholders                 $   87,085      $   81,622      $   83,604      $   70,876     $   323,187
                                           ==========      ==========      ==========      ==========     ===========
Earnings per share:
Basic
    Before extraordinary item                   $0.68           $0.63           $0.62           $0.53           $2.45
    Extraordinary item                           0.02             --              --              --             0.02
                                                -----           -----           -----           -----           -----
    Net income                                  $0.70           $0.63           $0.62           $0.53           $2.47
                                                =====           =====           =====           =====           =====
Diluted
    Before extraordinary item                  $0.61           $0.58           $0.59           $0.50           $2.29
    Extraordinary item                          0.02              --              --              --            0.02
                                                -----           -----           -----           -----           -----
    Net income                                  $0.63           $0.58           $0.59           $0.50           $2.31
                                                =====           =====           =====           =====           =====
</TABLE>

(42)   Condensed Parent Company Financial Information
       ----------------------------------------------

       The following  represents condensed balance sheets of the Company (parent
company only) at December 31, 2000 and 1999 (in thousands):

                                                         2000           1999
                                                      ----------     ----------
Assets
   Cash                                               $   30,114     $    2,652
   Investments in subsidiaries                         2,340,843      1,696,933
   Other assets                                           26,466          2,959
                                                      ----------     ----------
      Total                                           $2,397,423     $1,702,544
                                                      ==========     ==========

Liabilities and Stockholders' Equity
   Other liabilities                                  $  246,689     $  140,761
                                                      ----------     ----------
      Total liabilities                                  246,689        140,761
   Total stockholders' equity                          2,150,734      1,561,783
                                                      ----------     ----------
      Total liabilities and stockholders' equity      $2,397,423     $1,702,544
                                                      ==========     ==========

                                      F-81

<PAGE>

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

       The following  represents  parent  company only  condensed  statements of
income for the years ended December 31, 2000, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                                                     2000           1999           1998
                                                                   --------       --------       --------
<S>                                                                <C>            <C>            <C>
Interest income                                                    $     --       $     47       $     --
Dividends received from subsidiary                                   96,000        230,500         38,200
                                                                   --------       --------       --------
   Total income                                                      96,000        230,547         38,200
Interest expense                                                      1,202             --         39,354
Noninterest expense                                                   4,434          4,082            377
                                                                   --------       --------       --------
   Total expense                                                      5,636          4,082         39,731
Income before equity in undistributed
   net income of subsidiaries                                        90,364        226,465         (1,531)
Equity in undistributed net income of subsidiaries                  420,905        102,562        243,523
                                                                   --------       --------       --------
Income before income taxes and minority interest                    511,269        329,027        241,992
Income tax benefit                                                   (2,302)       (42,293)        (6,341)
                                                                   --------        -------       --------
Income before minority interest                                     513,571        371,320        248,333
Minority interest - FN Holdings Preferred Stock dividends                --             --            578
Minority interest - Provision in lieu of income taxes               161,688         43,679             --
Minority interest - due to GSB Investments and Hunter's Glen          1,389          4,454             --
                                                                   --------       --------       --------
   Net income                                                      $350,494       $323,187       $247,755
                                                                   ========       ========       ========
</TABLE>

       The following represents parent company only statements of cash flows for
the years ended December 31, 2000, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>

                                                                             2000         1999           1998
                                                                          ---------     ---------     ----------
<S>                                                                       <C>           <C>           <C>
Cash flows from operating activities:
       Net income                                                         $ 350,494     $ 323,187     $  247,755
       Adjustments to reconcile net income to net cash
          provided by operating activities:
          Increase in other assets                                          (16,063)      (24,656)          (693)
          Decrease (increase) in other liabilities                           38,618        34,721         (2,890)
          Increase in accrued interest payable                                   --            --         33,167
          Minority interest - FN Holdings Preferred Stock dividends              --            --            578
          Minority interest - Provision in lieu of income taxes             161,688        43,679             --
          Minority interest - Due to GSB Investments and
             Hunter's Glen                                                    1,389         4,454             --
          Equity in undistributed net income of subsidiaries               (420,905)     (102,562)      (243,523)
                                                                          ---------     ---------    -----------
          Net cash provided by operating activities                         115,221       278,823         34,394
                                                                          ---------     ---------    -----------

Cash flows from investing activities:
       Capital contribution to subsidiaries                                 (40,500)      (52,500)            --
       Purchase of securities                                                (4,098)           --             --
       Merger with Golden State Financial Corporation                            --           959             --
                                                                          ---------     ---------    -----------
          Net cash used in investing activities                             (44,598)     (51,541)             --
                                                                          ---------     ---------    -----------

Cash flows from financing activities:
       Purchase of treasury stock                                           (63,724)     (250,245)            --
       Exercise of stock options and warrants                               131,873         7,880            644
       Redemption of Series A Preferred Stock                                    --            --            (68)
       Sale of treasury stock                                                   134           979            218
       Capital contribution                                                      --            --      1,464,361
       Capital distribution                                                      --            --     (1,482,793)
       Extinguishment of Issuable Shares                                    (85,000)           --             --
       Dividends                                                            (26,444)           --             --
                                                                          ---------     ---------    -----------
           Net cash used in financing activities                            (43,161)     (241,386)       (17,638)
                                                                          ---------     ---------    -----------

       Net change in cash and cash equivalents                               27,462       (14,104)        16,756
       Cash and cash equivalents at beginning of year                         2,652        16,756             --
                                                                          ---------     ---------    -----------
       Cash and cash equivalents at end of year                           $  30,114     $   2,652    $    16,756
                                                                          =========     =========    ===========
</TABLE>

                                      F-82

<PAGE>

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

       Supplemental Disclosure of Cash Flow Information:
<TABLE>
<CAPTION>

                                                                           Year Ended December 31,
                                                                  -----------------------------------------

                                                                    2000             1999            1998
                                                                  ---------        --------        --------
                                                                                (in thousands)
<S>                                                               <C>              <C>             <C>
Cash paid (received) for:
  Interest                                                        $      --        $     --        $ 28,438
  Income taxes, net                                                 (28,845)        (54,710)        (48,895)

Non-cash financing activities:
   Preferred stock dividends reinvested                                  --              --             107
   Dividend of tax benefits to former parent
        due to deconsolidation                                           --              --         230,161
   Adjustment to initial dividend of tax benefits to
        former parent due to deconsolidation                             --         (15,519)             --
   Distribution of Issuable Shares                                 (100,000)         (5,540)             --
   Issuable Shares (usage of pre-merger NOLs)                       166,484         197,562              --
   Issuable Shares adjustment for tax refund and related
        interest                                                      1,389              --              --
   Adjustment to pre-merger tax benefits retained by
        previous owners FN Holdings                                 (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                                     3,451         (24,081)             --
   Impact of restricted common stock                                  3,175             477              --
   Extinguishment of Issuable Shares:
        Reduction of Issuable Shares                                (53,312)             --              --
        Increase to other liabilities                                38,911              --              --
        Increase to additional paid-in-capital                       14,401              --              --
</TABLE>

                               F-83
<PAGE>