<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
    (Mark One)

       [X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15
                  OF THE SECURITIES EXCHANGE ACT OF 1934
            For the quarterly period ended SEPTEMBER 30, 1996

       [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR
               15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
       For the transition period from ________ to _________


                           Commission File No. 0-16970

                      CALIFORNIA FINANCIAL HOLDING COMPANY
             (Exact name of registrant as specified in its charter)

            DELAWARE                                 68-0150457
(State or other jurisdiction of                   (I.R.S. Employer
 incorporation or organization)                   Identification No.)

                 501 W. WEBER AVENUE, STOCKTON, CALIFORNIA 95203
               (Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (209) 948-6870

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                                   Yes _X_ No ___

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.

         CLASS                  OUTSTANDING AT SEPTEMBER 30, 1996

  Common Stock, $.01 par value            4,720,970 shares

<PAGE>
<TABLE>
<CAPTION>

                          Part 1. FINANCIAL INFORMATION
                      CALIFORNIA FINANCIAL HOLDING COMPANY
                                AND SUBSIDIARIES
                       Consolidated Statement of Condition
                                   (unaudited)
                                                            Sept. 30, 1996         Dec. 31, 1995        Sept. 30, 1995
                                                            --------------        --------------        --------------
<S>                                                         <C>                   <C>                   <C>           
Cash, including non-interest-bearing deposits               $    6,071,492        $   13,162,431        $    9,540,517
Interest-bearing deposits                                        1,673,054             4,691,615            11,071,947

Investments securities:
  Securities available for sale, at market                     203,341,342           144,144,806           120,160,755
Mortgage-Backed Securities:
  Available for sale, at market                                 106,189,512          117,199,924           138,510,291

 Loans held for sale, at lower of cost or market                 7,696,647            13,153,264             6,412,805
Loans receivable, net of loss reserves of
 $7,393,076, $8,173,801 and $8,952,000 respectively            995,660,130           942,727,060           954,906,524
Less: loans in process                                          42,305,763            34,810,024            38,363,676
                                                            --------------        --------------        --------------
Net loans receivable                                        $  953,354,367        $  907,917,036        $  916,542,848
                                                            --------------        --------------        --------------
Real estate held for development or sale,
 net of loss reserves of $3,102,853, $6,958,757 and
 $6,393,418 respectively                                    $    7,160,580        $   12,480,183        $   15,457,511
Office property and equipment                                   21,041,861            20,769,858            20,613,135
Federal Home Loan Bank stock                                    13,468,700            10,395,200            10,258,800
Accrued interest and dividends receivable                        7,265,054             6,092,335             6,044,213
Deposit base premium                                               247,557             1,058,444             1,348,833
Other assets, net                                               11,867,746             6,519,971             7,390,111
                                                            --------------        --------------        --------------

TOTAL ASSETS                                                $1,339,377,912        $1,257,585,067        $1,263,351,766
                                                            ==============        ==============        ==============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Savings and checking accounts                               $  937,211,601        $  960,147,775        $  983,717,108
Advances from FHLB                                             266,300,000           162,500,000           121,000,000
Collateralized mortgage obligation                                    --               6,462,509             6,966,252
Securities sold under agreements to repurchase                  33,955,000            35,408,000            59,807,000
Accrued interest payable                                         2,173,923             1,181,068             1,772,127
Other liabilities, net                                          13,262,682             6,283,494             6,006,658
                                                            --------------        --------------        --------------
TOTAL LIABILITIES                                           $1,252,903,206        $1,171,982,846        $1,179,269,145

Stockholders' Equity
Serial preferred stock, 4,000,000 shares
 authorized, no shares outstanding                                    -                     -                     -
Capital stock, 12,000,000 shares authorized
 4,720,970, 4,662,779 and 4,659,031 shares
 outstanding                                                $       47,210        $       46,628        $       46,590
Paid in capital in excess of par                                27,259,296            26,553,810            26,499,563
Unrealized (loss) gain on securities available for
 sale, net of tax                                               (1,698,446)              998,198              (646,177)
Retained earnings, substantially restricted                     60,866,646            58,003,585            58,182,645
                                                            --------------        --------------        --------------
TOTAL STOCKHOLDERS' EQUITY                                  $   86,474,706        $   85,602,221        $   84,082,621
                                                            --------------        --------------        --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                  $1,339,377,912        $1,257,585,067        $1,263,351,766
                                                            ==============        ==============        ==============

                                       -2-
</TABLE>
<PAGE>


<TABLE>
<CAPTION>




                      CALIFORNIA FINANCIAL HOLDING COMPANY
                                AND SUBSIDIARIES
                        Consolidated Statements of Income
                                   (Unaudited)

                                                          For the three months ended:         For the nine months ended:
                                                   Sept. 30, 1996       Sept. 30, 1995        Sept. 30, 1996       Sept. 30, 1995
                                                   --------------       --------------        --------------       --------------
<S>                                                <C>                  <C>                   <C>                  <C>          
INTEREST INCOME
Interest and fees on loans                         $  19,749,784        $  18,548,677         $  58,185,955        $  53,663,189
Interest and dividends on investments                  5,404,444            4,842,069            15,359,862           14,100,247
                                                   -------------        -------------         -------------        -------------
TOTAL INTEREST INCOME                              $  25,154,228        $  23,390,746         $  73,545,817        $  67,763,436
                                                   -------------        -------------         -------------        -------------
INTEREST EXPENSE
Interest on savings                                $  10,651,685        $  12,283,277         $  32,924,863        $  35,980,585
Interest on short-term borrowings                        257,469            1,217,613             1,123,783            3,261,288
Interest on long-term borrowings                       3,921,240            1,925,780             9,771,090            5,496,326
                                                   -------------        -------------         -------------        -------------
TOTAL INTEREST EXPENSE                             $  14,830,394        $  15,426,670         $  43,819,736        $  44,738,199
Less: interest capitalized                                  --                (26,296)              (10,487)            (146,149)
                                                   -------------        -------------         -------------        -------------
NET INTEREST EXPENSE                               $  14,830,394        $  15,400,374         $  43,809,249        $  44,592,050
                                                   -------------        -------------         -------------        -------------
NET INTEREST INCOME                                $  10,323,834        $   7,990,372         $  29,736,568        $  23,171,386
                                                   -------------        -------------         -------------        -------------
Provision for loan losses                                525,000               67,300             1,046,000            1,633,500
                                                   -------------        -------------         -------------        -------------
NET INTEREST INCOME LESS PROVISION FOR
LOAN LOSSES                                        $   9,798,834        $   7,923,072         $  28,690,568        $  21,537,886
                                                   -------------        -------------         -------------        -------------
OTHER INCOME Gain (loss) on sale of:
  Loans                                            $     375,777        $      (3,154)        $   1,187,810        $      65,706
  Real estate held for investment or sale                287,430               32,289               494,290              (38,960)
  Provisions for losses on real estate                   (85,000)            (180,000)             (276,000)          (3,725,324)
  Available for sale securities, net                       1,781              136,351               573,792              115,435
Operating losses on foreclosed real estate              (185,191)            (125,477)             (488,952)            (491,397)
Loan servicing fee income                                351,517)             376,690               986,168            1,122,413
Other fee income                                       1,261,104              971,391             3,396,949            2,832,075
Write down of other assets                               (85,348)            (260,924)             (208,806)            (816,413)
Other income, net                                        (99,725)             (29,559)             (192,857)             (77,121)
                                                   -------------        -------------         -------------        -------------
TOTAL OTHER INCOME (LOSS)                          $   1,822,345        $     917,607         $   5,472,394        $  (1,013,586)
                                                   -------------        -------------         -------------        -------------
NON-INTEREST EXPENSE
Compensation and other related benefits            $   3,129,429        $   2,692,429         $   9,150,131        $   7,291,195
Occupancy                                                733,682              815,375             2,174,765            2,330,366
Advertising and promotion                                376,562              272,309               927,859              812,740
Data processing                                          528,950              506,415             1,582,100            1,576,053
Insurance                                                758,900              702,066             2,296,327            2,044,183
SAIF insurance recapitalization                        6,615,000                    0             6,615,000                    0
Other general & administrative expense                   966,156              936,476             2,971,246            2,789,109
                                                   -------------        -------------         -------------        -------------
Total general & administrative expense             $  13,108,679        $   5,925,070         $  25,717,428        $  16,843,646
Amortization of deposit base premium                     245,179              290,389               810,887              871,166
                                                   -------------        -------------         -------------        -------------
TOTAL NON-INTEREST EXPENSE                         $  13,353,858        $   6,215,459         $  26,528,315        $  17,714,812
                                                   -------------        -------------         -------------        -------------
Income before taxes                                $  (1,732,679)       $   2,625,220         $   7,634,647        $   2,809,488
Income tax expense                                      (691,720)           1,100,670             3,225,241            1,245,472
                                                   -------------        -------------         -------------        -------------
NET INCOME                                         $  (1,040,959)       $   1,524,550         $   4,409,406        $   1,564,016
                                                   =============        =============         =============        =============
EARNINGS PER SHARE                                 $       (0.22)       $        0.32         $        0.92        $        0.33
                                                   =============        =============         =============        =============
CASH DIVIDENDS PER SHARE                           $        0.11        $        0.11         $        0.33        $        0.33
                                                   =============        =============         =============        =============

</TABLE>


                                       -3-
<PAGE>
<TABLE>
<CAPTION>


                      CALIFORNIA FINANCIAL HOLDING COMPANY
                                AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                                   (unaudited)
                                                                                       For the nine months ended:
                                                                               Sept. 30, 1996       Sept. 30, 1995
                                                                               --------------       --------------
<S>                                                                            <C>                  <C>          
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                                     $   4,409,406        $   1,564,016
Adjustments to reconcile net income to net cash provided by operating
 activities:
  Amortization of:
    Mortgage servicing rights                                                        194,033                  --
    Deferred loan fees                                                            (1,998,156)          (2,152,692)
    Discount amortization on mortgage-backed bonds                                      --                 85,456
    Deposit base premium                                                             810,887              871,166
  Net (gain) loss on sale of:
    Loans                                                                         (1,187,810)             (65,706)
    Real estate held for development or sale                                        (494,290)              38,960
  Net (gain) loss on securities activities                                          (573,792)            (115,435)
  Provision for losses on:
    Loans                                                                          1,046,000            1,633,500
    Real estate held for development or sale                                         276,000            3,725,324
  Depreciation and amortization                                                    1,766,879            1,941,964
  Decrease in income taxes payable                                                (3,753,237)            (279,453)
  Net increase in accrued interest payable                                           992,855              161,487
  Net increase in accrued interest receivable                                     (1,172,719)            (736,130)
  Mortgage loans originated as held for sale                                     (63,986,480)         (66,385,020)
  Proceeds from loans sold                                                        70,630,907           62,693,329
  Other, net                                                                       6,055,050           (1,095,298)
                                                                               -------------        -------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                            $  13,015,533        $   1,885,468

CASH FLOWS FROM INVESTING ACTIVITIES:
  Principal payments on loans                                                  $ 166,704,630        $ 139,725,900
  Mortgage loans originated as held for investment                              (199,564,170)        (145,320,834)
  Purchase of loan participations                                                (16,821,208)            (559,629)
  Purchase of securities held for investment                                            --            (25,439,665)
  Maturity and payments of securities held for investment                               --              4,407,494
  Purchase of securities available for sale                                     (112,987,297)         (13,271,304)
  Maturity and payments of securities available for sale                          26,443,650           14,148,053
  Sale of securities available for sale                                           38,931,314           31,388,769
  Purchase of office property and equipment, net                                  (2,038,882)          (1,443,255)
  Purchase of FHLB stock and FHLMC preferred stock                                (3,073,500)          (1,521,900)
  Investment in real estate held for development or sale                            (593,361)          (5,936,086)
  Proceeds from sales of real estate held for development or sale                  5,805,873            8,639,825
  Proceeds from sale of foreclosed property                                        5,520,954            7,540,452
  Other, net                                                                      (3,561,076)           1,311,757
                                                                               -------------        -------------
NET CASH USED IN INVESTING ACTIVITIES                                          $ (95,233,073)       $  13,669,577

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net (decrease) increase in deposit accounts                                  $ (24,524,428)       $ (12,699,107)
  Net increase (decrease) in checking accounts                                     1,588,254           (4,654,205)
  Proceeds from FHLB advances                                                    378,700,000           84,300,000
  Repayments of FHLB advances                                                   (274,900,000)         (73,300,000)
  Securities sold under agreement to repurchase, net                              (1,453,000)          (5,171,000)
  Payments on mortgage-backed bonds                                               (6,462,509)          (1,016,999)
  Proceeds from stock options exercised and dividends reinvested                     706,068              292,726
  Dividends paid to shareholders                                                  (1,546,345)          (1,531,504)
                                                                               -------------        -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                      $  72,108,040        $ (13,780,089)
Net increase in cash and cash equivalents                                      $ (10,109,500)       $   1,774,956
Cash and cash equivalents at the beginning of the year                            17,854,046           18,837,508
                                                                               -------------        -------------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30                                      $   7,744,546        $  20,612,464
                                                                               =============        =============

                                                      -4-
<PAGE>

Supplemental disclosures of cash flow information:
  Interest paid                                                                $  42,826,881        $  44,576,712
  Cash payments of income taxes                                                    4,958,373            1,835,852

Supplemental disclosures of cash flow information:
  Additions to real estate acquired through foreclosure                            5,195,573            4,232,125

  Unrealized (gains) losses on available for sale securities                       2,696,644             (477,026)

</TABLE>















                                                      -5-
<PAGE>


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


FINANCIAL CONDITION

         California  Financial  Holding Company  ("Company") was incorporated in
1988 in the State of  Delaware.  Its  principal  asset is Stockton  Savings Bank
("Stockton  Savings"  or  "Bank") a  wholly-owned  subsidiary  which has been in
existence  since  1887.  The  investment  in Stockton  Savings is the  Company's
primary asset with the only other asset  consisting of $1.8 million in cash, the
result of dividends paid by the Bank to the Company. Because the Bank represents
the Company's  major asset,  discussion in this text will focus primarily on the
activities of Stockton Savings.

         Total assets increased by $76.0 million over the past year primarily as
a result of increases in loans and  investments  outstanding.  The components of
interest-bearing  liabilities  changed  somewhat as  deposits  declined by $46.5
million,  reverse  repurchase  agreements  declined by $25.9 million and Federal
Home Loan Bank advances increased by $145.3 million.  The Company's total assets
have  increased  by $81.8  million  so far this  year.  Again,  growth  occurred
primarily in the loan and investment portfolios and was funded with Federal Home
Loan Bank advances.

         Loan  origination  volume  for the first  nine  months of 1996  totaled
$263.6 million compared to volume of $211.7 million for the first nine months of
1995. Increases in fixed-rate single-family originations,  due to the lower rate
environment  experienced earlier in the year, created most of the improvement in
volume.

         A breakout  of lending  volume by type is shown  below for the  periods
indicated:

                       Originations through
                           September 30
                          (in millions)

                                              1996          1995

Short-term construction loans                $118.6         $100.8
Permanent fixed-rate loans                     83.7           41.9
Permanent adjustable-rate loans                61.3           69.0
                                             ------         ------
TOTAL ORIGINATIONS                           $263.6         $211.7
                                             ======         ======




         The reduced interest rate environment early in 1996 led to increases in
the  origination  of  permanent   fixed-rate  loan   originations   relative  to
adjustable-rate  mortgages.  Historically,  adjustable-rate  mortgages have been
more popular in periods of rising interest rates, due particularly to attractive
start rates offered on this product.  Alternatively,  fixed-rate  mortgages have
been more popular in low rate  environments  as the borrower  seeks to lock in a
low fixed rate. The Bank has traditionally retained most adjustable-rate product
in portfolio and sold most permanent  fixed-rate mortgages in an effort to limit
exposure to rising  interest  rates.  Loan sale activity of $70.6 million in the
current year was up  significantly  from the $62.7 million in sales  recorded in
the first nine  months of 1995,  primarily  due to the  increase  in  fixed-rate
mortgages originated this year.

         The  increase  in rates in the third  quarter  has lead to a decline in
refinance activity and possibly future loan origination  volume.  Alternatively,
the volume of  adjustable-rate  originations  has increased with a corresponding
decrease in fixed-rate originations.

                                       -6-
<PAGE>



         The balance of real estate held for development or sale has declined by
$8.3  million  from a year ago and by $5.3  million in the  current  year.  Real
estate held by the Bank at quarter-end  consisted of $5.6 million in real estate
owned through  foreclosure  and $1.5 million in real estate held for  investment
purposes.  The Bank is  currently in the process of disposing of its real estate
investments due to regulatory constraints. As a result, the balance has declined
steadily over the past several years.  It is  anticipated  that the Bank will be
out of its real estate investments by the end of 1996.

         The balance of real estate owned  through the  foreclosure  process has
declined by $1.3 million from a year ago,  which is a reflection  of the overall
decline in troubled assets. (See "Asset Quality" for further discussion.)

         A breakdown of the Bank's  portfolio of real estate held is shown below
as of the dates indicated:

<TABLE>
<CAPTION>

                              Real Estate Held for Development
                                        or Sale, net
                                       (in thousands)

                                                    9/30/96        12/31/95          9/30/95

<S>                                                 <C>           <C>              <C>      
Real estate owned through foreclosure               $ 5,606       $   5,977        $   6,931
Real estate held for development                      1,555           6,503            8,527
                                                  ---------       ---------        ---------
TOTAL                                             $   7,161       $  12,480         $ 15,458
                                                  =========       =========        =========

</TABLE>



         Effective   January  1,  1994,  the  Bank   implemented  FAS  No.  115,
"Accounting  for Certain  Investments  in Debt and Equity  Securities".  FAS 115
requires  that debt and  equity  securities  be  classified  as  either  held to
maturity,  available for sale or held for trading.  The  pronouncement  severely
restricts the transfer of assets  between  classifications.  In August 1995, the
Bank made a decision to restructure  its balance sheet by selling $31 million in
fixed-rate mortgage-backed securities. As a result, the Bank's entire investment
portfolio,   that  was  originally  classified  as  held  for  investment,   was
redesignated  as available for sale as of September 1995. At September 30, 1996,
the  investment  portfolio  was adjusted to market value with the  after-tax net
loss of $1.7 million shown as an adjustment to stockholder's equity.

         The  amortized  cost and  estimated  market  values of  investment  and
mortgage-backed securities as of September 30, 1996 are as follows (in thousands
of dollars):



                                                      -7-
<PAGE>
<TABLE>
<CAPTION>



                                                   AMORTIZED          GROSS              GROSS             ESTIMATED
                                                   COST               UNREALIZED         UNREALIZED        MARKET VALUE
                                                                      GAINS              LOSSES

<S>                                                   <C>                <C>                <C>                <C>     
AVAILABLE FOR SALE:

Investment securities:
U.S. Government & Agency Securities                   $ 43,979           $     18           $   388            $ 43,609
CMO'S                                                  156,516                554             1,964             155,106
Other securities                                         4,640                 11                24               4,627
                                                  ------------       ------------       -----------        ------------
Total investment securities                           $205,135           $    583           $ 2,376            $203,342
                                                  ------------       ------------       -----------        ------------
Mortgage-backed securities:
FHLMC                                                 $ 59,207           $    205           $   682            $ 58,730
FNMA                                                    32,230                 27               183              32,074
GNMA                                                    13,863                 14                64              13,813
FHA Title One                                            2,448                  0               876               1,572
                                                  ------------       ------------       -----------        ------------
Total mortgage-backed securities:                     $107,748           $    246           $ 1,805            $106,189
                                                  ------------       ------------       -----------        ------------
Total available for sale portfolio                    $312,883           $    829           $ 4,181            $309,531
                                                  ============       ============       ===========        ============
</TABLE>



                  NOTE:  Above adjustments are on a pre-tax basis.

RESULTS OF OPERATIONS

         The Company lost $1.0  million or $.22 per share for the third  quarter
of 1996 compared to recording a net income of $1.5 million or $.32 per share for
the like quarter of 1995. Earnings on a year-to-date basis total $4.4 million or
$.92 per share  compared to total  income of $1.6  million or $.33 per share for
the like period in 1995. Earnings in the current quarter were hindered by a $6.6
million industry-wide special assessment.  On September 30, 1996, the government
mandated  the  assessment  in  order to  recapitalize  the  Savings  Association
Insurance  Fund  ("SAIF"),  which  is  part  of the  Federal  Deposit  Insurance
Corporation  ("FDIC").  The assessment,  charged to most SAIF-insured  financial
institution in the country,  represented  .657% of insured  deposits as of March
31,  1995.  The Bank's  portion of this  assessment  totalled  $6.6 million (3.9
million on an  after-tax  basis)and  was  included in normal  operating  income.
Excluding the one-time assessment, the Company would have earned $2.9 million or
$.60 per share in the third quarter,  comparable to the $.60 per share earned in
the second quarter.

         As the result of the one-time charge,  future earnings will be enhanced
as regular assessments will drop by 16.5 basis points on an annual basis.

         Improved  earnings  (excluding  the special  assessment) in the current
quarter and year to date over last year's third  quarter and year to date can be
attributed to increased  margins,  reduced loss  provisions  established on real
estate  investment and increased gains on asset sales. Last year's earnings were
also   significantly   reduced  by  losses  taken  on  real  estate  development
activities.

         The table  below  breaks out the  components  of the Bank's  margin and
spread for the periods indicated:


                                       -8-

<PAGE>
<TABLE>
<CAPTION>

                                       Average for the quarter      Average for the nine            *Weighted average as of
                                            ended Sept. 30          months ended Sept. 30                   Sept. 30

                                                       Basis-                        Basis                             Basis
                                                       Point                         Point                             Point
                                       1996    1995    Change      1996      1995    Change        1996        1995    Change

<S>                                    <C>     <C>     <C>         <C>       <C>      <C>          <C>         <C>      <C>  
Yield on interest-earning assets:
  Loan portfolio yield                 8.30%   8.00%   0.30%       8.29%     7.70%    0.59%        7.96%       7.72%    0.24%
  Yield on marketable investments      6.73    6.67    0.06        6.67      6.58     0.09         6.72        6.70     0.02
  Weighted yield on assets             7.91    7.68    0.23        7.89      7.44     0.45         7.65        7.48     0.17
Cost of funds:
  Cost of deposits                     4.53%   4.99%  (0.46)%      4.61%     4.82%   (0.21)%       4.53        4.98%   (0.45)%
  FHLB advances & other borrowings     5.91    6.29   (0.38)       5.92      6.13    (0.21)        5.86        6.13    (0.27)
  Weighted cost of funds               4.85    5.20   (0.35)       4.88      5.02    (0.14)        4.85        5.17    (0.32)

Interest rate spread                   3.06%   2.48%   0.58%       3.01%     2.42%    0.59%        2.80%       2.32%    0.48%

Net yield on interest-earning          3.24%   2.62%   0.62%       3.19%     2.54%    0.65%        2.98%       2.45%    0.53%
assets

</TABLE>

         * Does not consider the effect of amortization of loan fees.


         Improved net interest  income in the current year relative to the first
nine months of 1995 was primarily  the result of  increasing  yields on the loan
portfolio,  decreasing  cost  of  funds,  increases  in the  balance  of  assets
outstanding as well as an  improvement in the level of average  interest-earning
assets relative to average interest-bearing liabilities.

         Loan  interest  income  increased by roughly $1.2 million for the third
quarter of 1996 compared to 1995. A 30-basis point increase in the average yield
on the loan  portfolio in the third  quarter of the current  year was  primarily
responsible for the earnings  improvement although the $23.9 million increase in
average balance of loans outstanding also caused part of the increase. On a year
to date basis,  loan interest income  increased by $4.5 million  relative to the
prior year,  again primarily the result of a 59-basis point increase in yield on
the loan portfolio.  The upward repricing on 6-month  adjustable-rate  mortgages
indexed to COFI was primarily  responsible for the improved yield in the current
year compared to the previous year.

         The steady increase in COFI during 1995, combined with the repricing on
teaser rate loans  originated in 1994, added 7-9 basis points to the Bank's loan
portfolio  yield on a monthly basis since the second quarter of 1995.  Yields on
the COFI portfolio  leveled out in the early part of this year and have declined
slightly in conjunction with the slow decline in the Index.

         Investment  interest income increased by $562,000 this quarter relative
to the  third  quarter  of 1995  and by  $1.3  million  on a year to date  basis
compared to the first nine months of 1995.  In both cases,  interest  income has
increased  due  primarily to an increase in the average  balance of  investments
outstanding. In the latter part of the first quarter of 1996, the Bank purchased
$48.1 million in securities.  The securities  consisted  primarily of adjustable
rate  collateralized  mortgage  obligations indexed to LIBOR or CMT that reprice
monthly.

         Interest  expense  decreased  by  $918,000  for the nine  month  period
compared to the same  period in 1995 and  decreased  by  $596,000  for the third
quarter of 1996  relative to the same  period in 1995.  A decline in the average
cost of funds for both the three and nine month periods was entirely responsible
for the expense  decrease  as average  interest-bearing  liabilities  were up by
$12.3  million for the nine months of 1996  relative  to 1995 and  increased  by
$38.4 million in the third quarter compared to the same quarter in 1995.

         Interest  expense on deposits  decreased  by $1.6 million for the third
quarter of 1996 and by $3.1 million on a year to date basis relative to the same
periods last year.

         The average balance of deposits outstanding  decreased by $44.3 million
and  $42.7  million  in  the  third  quarter  and  on  a   year-to-date   basis,
respectively.  Brokered  deposits of $31 million matured in the first quarter of
1996,  accounting  for most of the decrease.  Declines in the balance of regular
certificate  accounts  have also  occurred as a result of the Bank  pricing less
competitively  this  year in an  effort to reduce  future  interest  costs.  The
decline in average savings balances reduced expense by $535,000 and $1.5 million
for the quarter and on a year to date basis respectively.

                                       -9-

<PAGE>




         The Bank's  deposit costs include the negative  impact of interest rate
swaps.  The swaps are  structured for the Bank to pay a fixed amount of interest
on a notional  principal  amount and to  receive a variable  amount of  interest
indexed to COFI on the same notional  amount.  This structure is designed to act
as a hedge in period of  rising  interest  rates.  As a result,  as the  general
interest rate environment increases,  the Bank receives a benefit from the swaps
while the  reverse  holds true in periods of falling  rates.  It should be noted
that since the swaps are tied to COFI,  which is a lagging index,  the impact of
any  changes in the index will lag the general  interest  rate  market,  thereby
providing a lagging benefit in periods of rising interest rates with the reverse
holding true in falling rate environments.  The swaps added $364,000 to interest
expense in 1996 compared to $1.1 million for the first nine months of 1995.  The
decline in the impact of interest rate swaps on deposit expense this year is due
to the  higher  COFI rate this  year as well as to the  maturity  in 1995 of $55
million in high-costing swaps.

         Declines in the cost of savings of 46-basis  points for the quarter and
21- basis  points for the first nine  months of 1996  relative to the prior year
reduced savings interest expense by $1.1 million and $1.5 million, respectively.
Excluding the cost of interest rate swaps, the average cost of deposits was down
40-basis  points this quarter  compared to the third quarter of 1995 and down 11
basis  points for the nine month  period,  relative  to the same time frame last
year. The declining rate  environment this year as well as a concerted effort by
the Bank to reduce  deposit  costs  through less  competitive  pricing,  are the
primary reasons for the November 12, 1996 decline in deposit costs this year.

         Borrowing  costs  increased  by $1.0  million  for the quarter and $2.1
million for the nine months of 1996 relative to the prior year.  Increased costs
were  entirely  the result of  borrowing  growth that  occurred  between the two
years.  The average balance of borrowings  outstanding for the third quarter was
$82.7  million  higher  than the third  quarter  of last year and $55.0  million
higher for the first nine months of this year relative to 1995.  The increase in
average  borrowings  outstanding  in the  current  year was the  result of asset
growth,  particularly  in the second quarter as well as to replace the runoff of
brokered and retail funds.

         Interest  rate spreads are expected to remain  stable for the remainder
of the year, reflecting stabilized deposit costs and a flat COFI index.

         The Bank's  average  margin  continued to exceed  average  spread by 18
basis  points in the current  quarter and on a  year-to-date  basis.  The Bank's
success in reducing  its level of  nonperforming  assets over the past year,  as
well as the increased sell-off of real estate held for development purposes, has
provided the improvement  from 1995 when average margin exceeded  average spread
by 14 basis points on a quarterly basis and by 12 basis points on a year-to-date
basis.

         Loan loss provisions  established  during the quarter totaled  $525,000
which were somewhat higher than the level of loan loss provisions established in
the first two quarters of 1996 and reflect an increase in charge-off activity in
the current period.

         Noninterest  income  of $1.8  million  was  reported  for  the  quarter
compared  to  noninterest  income of $918,000  reported in the third  quarter of
1995.  Noninterest income for the nine month period was $5.5 million compared to
a year-to-date  loss of $1.0 million reported in 1995. Losses of $3.7 million on
real estate were  reported in 1995,  explaining  most of the earnings  shortfall
last year.  Noninterest  income has  benefitted  in the current  year as well as
quarter from  increased  loan sale gains,  increased  real estate and investment
gains and increases in fee income recorded.

         In the  first  quarter  of 1996,  the  Bank  implemented  Statement  of
Financial Accounting Standards No. 122 (SFAS 122) which requires that the rights
to service mortgage loans for others be recognized as a separate asset,  however
those rights

                                      -10-

<PAGE>



are acquired. Implementation of SFAS 122 requires the recognition of a servicing
asset (and thus,  income) at the point of sale of a loan and  therefore  has the
impact of  increasing  income  compared to what would have been  recognized  had
implementation not occurred.  Servicing gains recognized in the third quarter of
1996 totaled $218,000,  representing 58% of total loan sale gains recorded. On a
year to date basis,  servicing  gains of $873,000 have been reported.  A present
value calculation model was utilized to compute the present value of future cash
flows of the servicing rights based upon current assumptions including: costs of
servicing  the loans,  the discount  rate,  prepayment  speeds,  float value and
delinquency  rates.  Servicing  fee income  was  reduced by $47,000 in the third
quarter and by $194,000 on a year to date basis to reflect  declines in value on
the servicing  asset.  The  calculation of impairment was derived  utilizing the
same methods as described  above for computing the original  servicing  asset by
segregating  the asset  portfolio  into  major  risk  categories,  predominately
property  type,  loan term and interest  rate.  Capitalized  mortgage  servicing
rights are amortized in proportion to, and over the period of,  estimated future
net servicing income.

         The bank sold  roughly  $26.1  million  in  investments  classified  as
available for sale in the first quarter,  recognizing  net gains of $464,000.  A
majority of  investments  sold consisted of 15-year  fixed-rate  mortgage-backed
securities.  The sale was done in order to reduce  balance sheet  sensitivity to
rising  rates.  Miscellaneous  sales have  occurred  since then  totaling  $12.8
million with additional gains of $110,000 recognized.

         Other income was further  reduced in 1995 due to $816,000 in writedowns
taken  primarily on FHA Title I  Securities.  Additional  writedowns of $209,000
have occurred in the current year.  The Bank still has $2.4 million of FHA Title
I Securities in its investment portfolio.

         Fee income of $3.4 million has been recorded  through the third quarter
of 1996, up 20.0%  compared to fees of $2.8 million  reported in the like period
of 1995. An increased  number of checking  accounts and  corresponding  fees are
responsible for earnings improvement.

         Fee income is expected to remain  relatively  consistent  in the fourth
quarter. The level of loan sale gains is expected to decline due to a decline in
the origination of fixed-rate  mortgages as a result of the somewhat higher rate
environment.  No material  writedowns of real estate are expected in the current
year as the balance of real estate investments has been reduced significantly.

         Excluding  the  $6.6  million  one-time  SAIF  assessment,  noninterest
expense increased by $2.3 million this year compared to the first nine months of
1995.  The  Company  recorded a one-time  reversal  of pension  expense in 1995,
understating expense for that period by $1.7 million. Excluding that adjustment,
general and administrative expense actually increased by only 3.0%. The increase
is primarily due to the accrual of a bonus and 401k  contribution in the current
year. No such accrual was made in 1995. Salary expense is actually down slightly
from the prior years.

         The effective  tax rate for the nine months of 1996 was 42.2%  compared
to a rate of 44.3% for the first nine months of 1995.  The higher rate last year
is due to the low level of income last year  combined with a minimum tax paid to
the state of Delaware.


ASSET QUALITY

         The Bank has steadily reduced its level of nonperforming  assets in the
current quarter relative to year-end 1995 and September 30, 1995.


                                      -11-
<PAGE>



         Detail on  nonperforming  assets  is shown in the  table  below for the
dates indicated:

<TABLE>
<CAPTION>
                                          Nonperforming Assets
                                             (in thousands)

                                                Sept. 30, 1996       Dec. 31, 1995      Sept. 30, 1995

<S>                                                    <C>                  <C>                  <C>    
Loans 90 days or more delinquent                       $   6,296            $  4,559             $ 4,994
Troubled debt restructurings                               4,312               6,965               7,551
Real estate owned through foreclosure                      5,606               5,977               6,931
                                                       ---------            --------            --------
Net nonperforming assets                               $  16,214            $ 17,501            $ 19,476
                                                       =========            ========            ========
Nonperforming assets/Total assets                          1.21%               1.39%               1.54%

</TABLE>




         As indicated above, the level of nonperforming  assets has decreased by
roughly $3.3 million from the prior year.  Non-performing assets as a percentage
of total assets was 1.21% at quarter-end compared to 1.54% a year ago.

         Nonperforming assets as of quarter-end consisted of the following asset
types:

                 Nonperforming Assets by Type
                        (in thousands)
                      September 30, 1996

Commercial and multi-family real estate               $   1,804
Construction                                              1,488
1-4 family homes                                         10,150
Land                                                      2,772
                                                      ---------
                                                      $  16,214
                                                      =========




         All types of nonperforming assets have declined over the past year with
the exception of 1-4 family  residences which have represented a majority of the
new nonperforming assets added.

         By policy,  the Bank does not accrue interest on loans that are 90 days
or more delinquent.  Interest on troubled debt  restructurings  is recorded on a
cash basis only. Foregone interest on nonperforming loans through the first nine
months of 1996 totaled $500,000.  Life-to-date unrecorded interest on these same
loans totaled $1.9 million through quarter-end.  A total of $104,000 in interest
income has been recorded on these loans so far this year.

         Troubled debt  restructurings  represent loans that have been modified,
usually as a result of financial  difficulties  experienced by the borrower,  to
terms  that are more  favorable  than what  would  normally  be  offered.  These
modifications  usually  involve  either a  reduction  in rates to below  market,
capitalization  of interest due, or the requirement that monthly payments equate
to the  level  of  cashflow  on the  underlying  property.  The  Bank's  largest
restructured  assets are two construction loans totaling $4.8 million originated
during  the  peak  of  real  estate  values.  The  underlying   properties  have
experienced  a  significant  decline  in value and the  borrowers  have  limited
financial  resources.  A majority of the  restructured  speculative  development
loans are in some stage of delinquency and the property  underlying one of these
loans is expected to revert back to the Bank in the fourth quarter.

         At quarter-end,  $1.9 million of the $4.3 million in restructured  debt
was more than 90 days  delinquent.  The  restructured  debt total above does not
include  $652,000  in  interest  that  has  been  capitalized  but has not  been
recognized in

                                      -12-

<PAGE>



income.  An additional $229,000 in interest on these loans has been accrued at
quarter-end but not included in income.

         The Bank's level of loan loss reserves has declined since a year ago as
a large number of loans with specific reserves have been charged-off.  The level
of loss reserves  outstanding  at any point in time is largely  dependent on the
amount and type of loans  outstanding,  level of  classified  and  nonperforming
loans and historical loss experience.

         The  following  table  identifies  the  Bank's  loan loss  reserves  at
September 30, 1996 by loan type:

<TABLE>
<CAPTION>

                                                            Reserves          Percent of loans
                                                         (in thousands)       in each category
                                                           at 9/30/96          to total loans

<S>                                                          <C>                       <C>  
1-4 family permanent loans                                   $ 2,084                   74.5%
Multi-family loans                                             1,123                     4.1
Commercial real estate loans                                   2,512                     6.8
Land, construction and development loans                       1,674                    14.6
TOTAL                                                       --------                   -----
                                                             $ 7,393                  100.0%
                                                            ========                   =====
</TABLE>


         Although  total loan loss reserves have declined by $1.6 million from a
year ago, the level of loss reserves to nonperforming  assets has increased from
37.3% to 40.1%.

         Activity in the allowances for both loans and real estate for the first
nine months of 1996 is summarized below:


                           Loss Reserves
                           (in thousands)

                                           Loans          Real Estate

Balance, December 31, 1995              $   8,174          $   6,959
Provision for losses                        1,046                276
Charge-offs                               (1,827)            (4,132)
Recoveries                                     --                 --
                                        ---------          ---------
Balance, September 30, 1996             $   7,393          $   3,103
                                        =========          =========


         The Bank is required by  regulation  to classify and monitor all assets
exhibiting  a  defined  weakness.  The  Bank's  level of  classified  assets  is
summarized in the following table for the dates indicated:


                       Classified Assets
                        (in thousands)
                             as of

                        9/30/96        12/31/95        9/30/95

Substandard             $ 30,181       $ 37,841        $ 43,987
Doubtful                      --             --              --
Loss                       4,523          6,370          11,159
                        --------       --------        --------
TOTAL                   $ 34,704       $ 44,211        $ 55,146
                        ========       ========        ========

         The level of total classified assets declined by $20.4 million from the
previous year due primarily to the improved performance of a $5 million troubled
debt  restructuring  and the reduced balances of foreclosed real estate and real
estate held for development  purposes.  The level of assets classified as "loss"
decreased by $6.6 million as a result of the sales of real estate investments
that occurred over the past year.

                                      -13-
<PAGE>


         It is anticipated that the level of classified as well as nonperforming
assets will continue to decline due to the current  escrowed sales on foreclosed
properties.


INTEREST RATE SENSITIVITY

         The Bank's balance sheet has historically been exposed to some level of
interest rate risk in a rising rate  environment as most of its assets have been
in the form of long-term, fixed-rate mortgages or lagging-index adjustable loans
which are funded with short-term, frequently repricing deposits. During the past
year, a concerted effort has been made to portfolio more adjustable-rate  loans,
sell off  fixed-rate  loans and  investments  as well as purchase  current-index
floating-rate investments.  Restructuring also occurred on the liability side as
deposit maturities were lengthened and additional  long-term fixed-rate advances
were added. In addition,  the Bank has become less competitive in the pricing of
its deposit base, which has further reduced the level of sensitivity to changing
rates.  The interest  rate  protection  received  from  floating-rate  assets is
somewhat  limited by lifetime  rate caps which  would take  effect in  high-rate
environments.  Similarly,  benefits derived from  current-index  adjustable-rate
mortgages are limited by periodic and lifetime  interest rate caps as well as by
one  year  average  repricing  periods.   The  level  of  fixed-rate  loans  and
mortgage-backed  securities  declined by $26.5  million from the  previous  year
while adjustable rate assets increased by $28.9 million.


LIQUIDITY AND CAPITAL RESOURCES

         The Bank is  required  by  regulation  to  maintain  cash  and  certain
short-term eligible  investments equal to 5% of the average daily balance of net
withdrawable  accounts and certain  short-term  borrowings  during the preceding
calendar month.
At September 30, 1996, this liquidity ratio was 5.01%.

         The Bank  generally has the ability to originate more loans than it can
portfolio  and has  relied  heavily  on loan  prepayment  and sale  activity  to
maintain  desired  growth levels.  Asset growth is generally  funded through the
Bank's internal  retail branch system and, on occasion,  through the acquisition
of branches from other  depository  institutions  within the Bank's market area.
Growth is also funded to a lesser  degree with  advances  from the Federal  Home
Loan Bank and through the use of short-term  reverse  repurchase  agreements and
brokered deposits.

         As of September  30,  1996,  the Bank had $48.0  million in  collateral
still available for short-term reverse repurchase  agreements.  These agreements
are  generally  utilized on a short-term  basis to meet daily  operating  needs.
Additional  short-term  cash needs can also be met  through the use of a line of
credit with the FHLB.  At  quarter-end,  approximately  $92.7  million was still
available through this borrowing source.


REGULATION

         Under the Financial  Institutions Reform,  Recovery and Enforcement Act
signed into law on August 9, 1989,  financial  institutions are required to meet
three primary  capital  requirements:  a tangible  capital  requirement,  a core
capital requirement and a risk-based capital requirement.

         Tangible  capital  is  defined  as  common  stock,  retained  earnings,
noncumulative preferred stock less certain intangibles and a specified phase-out
of certain real estate and equity investments and must equal at least 1.5% of

                                      -14-
<PAGE>



tangible  assets.  Core  capital is defined as  tangible  capital  plus  certain
intangibles and must equal at least 3% of tangible assets. Risk-based capital is
core  capital  plus  supplementary  capital,  which  includes  general loan loss
reserves  up to  1.25% of  risk-weighted  assets  and must  equal at least 8% of
risk-weighted assets.

         The Bank's  regulatory  capital  position at September  30, 1996 is set
forth in the following schedule:

<TABLE>
<CAPTION>

                              Regulatory capital position
                                    (in thousands)

                                             Tangible          Core          Risk-based

<S>                                           <C>             <C>              <C>     
Book capital                                  $ 84,662        $ 84,662         $ 84,662
Unrealized losses on securities                  1,698           1,698            1,698
Real estate investment deduction                (2,156)         (2,156)          (2,156)
Intangible deduction                              (248)           (248)            (248)
Loan loss reserves                                  --              --            6,501
Miscellaneous                                      (69)            (69)             (69)
                                              --------        --------         --------
  Net regulatory capital                      $ 83,887        $ 83,887         $ 90,388
Minimum required                                20,232          40,465           59,365
                                              --------        --------         --------
  Excess over minimum                         $ 63,655        $ 43,422         $ 31,023
                                              ========        ========         ========
Excess over "well capitalized"                $ 16,445             N/A         $ 16,181
                                              ========                         ========
Capital Ratio                                    6.22%           6.22%           12.18%

</TABLE>



         There are several  adjustments made to the level of capital reported on
a financial basis as compared to capital reported on a regulatory basis. Certain
intangible  assets such as core deposit  premiums are excluded  from  regulatory
capital.  In addition,  any investments in non-includable  subsidiaries are also
deducted from capital,  subject to a phase-out  rule.  Any  adjustments  made to
capital due to the mark to market of the available  for sale  portfolio are also
excluded from capital.

         The Bank is currently  considered "well  capitalized"  under applicable
regulatory  definitions,  which has a  positive  impact on the level of  deposit
insurance   premiums  assessed  and  provides  the  Bank  additional   operating
flexibility.  The "well capitalized"  designation requires that an institution's
total  risk-based  capital  to  risk-weighted  assets  exceed  10%,  its  Tier 1
risk-based  capital  ratio (which is similar to the total  risk-based  ratio but
excludes the inclusion of general loan loss reserves) exceed 6% of risk-weighted
assets,  and its core  capital  ratio  exceed 5% of total  adjusted  assets.  At
September 30, 1996, the Bank's total risk-based  capital,  Tier 1 risk-based and
core ratios were 12.18%, 11.30% and 6.22%,  respectively.  The Bank's risk-based
capital  ratio is currently  $16.2  million  above the minimum to be  considered
"well capitalized" and $31.0 million above the 8% regulatory minimum.

         Pursuant  to  recently   enacted  Federal  tax   legislation,   savings
institutions such as the Bank will receive, subject to a number of conditions, a
"fresh  start" with respect to the  potential  recapture of certain tax bad debt
reserves.  However, certain other reserves are required to be treated as taxable
income over a six-year period  beginning in 1996, which may be delayed up to two
years if a savings  association  meets a newly developed  mortgage  originations
test.  Beginning in 1996,  savings  associations will become subject to the same
federal  income tax treatment as commercial  banks with the same levels of total
assets.  This  legislation has eliminated the  long-standing  tax impediments to
savings association conversions to commercial bank charters and should lower the
after-tax cost of bank  acquisitions of savings  associations and the conversion
or merger of these associations into commercial banks.

                                      -15-

<PAGE>




                           PART II - OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

      NONE


ITEM 2.  CHANGES IN SECURITIES

      NONE


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

      NONE


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

      NONE


ITEM 5.  OTHER INFORMATION

      NONE


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

                  27   Financial Data Schedule

(b)      There  was  an  8-K  filed  on  September  16,  1996  to  announce  the
         resignation  of  one of the  Company's  Board  of  Directors,  Dean  A.
         Cortopassi  from both the board of the Bank as well as the board of the
         Company.




                                      -16-

<PAGE>



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) 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.


                          CALIFORNIA FINANCIAL HOLDING COMPANY
                          ------------------------------------
                                       Registrant


     DATE: November 13, 1996   BY: /s/   ROBERT V. KAVANAUGH
                              --------------------------------
                               ROBERT V. KAVANAUGH
                               President, Chief Operating Officer




     DATE: November 13, 1996   BY: /s/   JANE R. BUTTERFIELD
                              --------------------------------
                               JANE R. BUTTERFIELD
                               Senior Vice President, Treasurer,
                                Chief Financial Officer
                                 (Principal Financial Officer and
                                 Principal Accounting Officer)











                                      -17-

<PAGE>