<PAGE>   1

                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                       OR

[ ]     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 33-13646


                                    WESTCORP
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

         CALIFORNIA                                              51-0308535
------------------------------                               -------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)

                    23 PASTEUR, IRVINE, CALIFORNIA 92618-3816
                    -----------------------------------------
                    (Address of principal executive offices)

                                 (949) 727-1000
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

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____

As of October 31, 1998, the registrant had 26,474,807 outstanding shares of
common stock, $1.00 par value. The shares of common stock represent the only
class of common stock of the registrant.

The total number of sequentially numbered pages is 32.


<PAGE>   2

                            WESTCORP AND SUBSIDIARIES

                                    FORM 10-Q

                               SEPTEMBER 30, 1998

                                TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
                                                                                         Page No.
                                                                                         --------
<S>               <C>                                                                    <C>
PART I.  FINANCIAL INFORMATION

   Item 1.        Financial Statements

                  Consolidated Statements of Financial Condition at
                  September 30, 1998 and December 31, 1997                                 3

                  Consolidated Statements of  Income (loss)  and Comprehensive Income
                  (loss) for the Three and Nine Months Ended September 30, 1998 and 1997   4

                  Consolidated Statements of Cash Flows for the Nine Months Ended
                  September 30, 1998 and 1997                                              5

                  Notes to Unaudited Consolidated Financial Statements                     6

   Item 2.        Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                                      12

PART II. OTHER INFORMATION

   Item 1.        Legal Proceedings                                                        31

   Item 2.        Changes in Securities                                                    31

   Item 3.        Defaults Upon Senior Securities                                          31

   Item 4.        Submission of Matters to a Vote of Security Holders                      31

   Item 5.        Other Information                                                        31

   Item 6.        Exhibits and Reports on Form 8-K                                         31

SIGNATURES                                                                                 32

</TABLE>



                                       2
<PAGE>   3


                          PART I. FINANCIAL INFORMATION
                          ITEM 1. FINANCIAL STATEMENTS

                            WESTCORP AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                          SEPTEMBER 30,       DECEMBER 31,
                                                                                             1998                1997
                                                                                          ----------          ----------
                                                                                              (DOLLARS IN THOUSANDS)
<S>                                                                                       <C>                 <C>       
ASSETS
  Cash                                                                                    $   69,948          $   71,484
  Interest-bearing deposits with other financial institutions                                    507              15,510
  Other short-term investments                                                                16,840              84,136
  Investment securities available for sale                                                    77,816             123,409
  Mortgage-backed securities available for sale                                            1,075,736             941,448
  Loans receivable, net of allowance for loan losses of $35,129
     and $33,834, respectively                                                               821,226           1,126,322
  Loans held for sale                                                                      1,387,135             712,554
  Amounts due from trusts                                                                    312,748             295,123
  Retained interest in securitized assets                                                    157,106             181,177
  Capitalized servicing rights                                                                38,209              37,417
  Premises and equipment, net                                                                 84,468              89,791
  Real estate owned, net                                                                       5,117               6,336
  Federal Home Loan Bank stock                                                                30,778              25,762
  Other assets                                                                                22,470              18,396
                                                                                          ----------          ----------
                                                                                          $4,100,104          $3,728,865
                                                                                          ==========          ==========
LIABILITIES
  Deposits                                                                                $2,130,099          $2,000,896
  Securities sold under agreements to repurchase                                             343,291             287,071
  Short-term borrowings                                                                      369,058             191,880
  Federal Home Loan Bank advances                                                             84,882              84,971
  Amounts held on behalf of trustee                                                          518,080             488,654
  Other liabilities                                                                           57,773              57,909
                                                                                          ----------          ----------
                                                                                           3,503,183           3,111,381

SUBORDINATED DEBENTURES                                                                      240,110             239,195

MINORITY INTERESTS IN EQUITY OF SUBSIDIARIES                                                  23,788              29,538

SHAREHOLDERS' EQUITY
  Common stock, (par value $1.00 per share; authorized 45,000,000 shares; issued              26,397              26,279
     and outstanding 26,397,498 shares in 1998 and 26,278,593 shares in 1997)
  Additional paid-in capital                                                                 188,369             185,187
  Retained earnings                                                                          110,701             131,427
  Unrealized gains on securities available for sale and retained interests
     in securitized assets, net of income taxes                                                7,556               5,858
                                                                                          ----------          ----------
                                                                                             333,023             348,751
                                                                                          ----------          ----------
                                                                                          $4,100,104          $3,728,865
                                                                                          ==========          ==========

</TABLE>

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

See accompanying notes to unaudited consolidated financial statements.



                                       3
<PAGE>   4


                            WESTCORP AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF INCOME (LOSS) AND
                           COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED                 NINE MONTHS ENDED
                                                                   SEPTEMBER 30,                     SEPTEMBER 30,
                                                           ------------------------------  ----------------------------------
                                                               1998              1997              1998              1997
                                                           ------------      ------------      ------------      ------------
                                                                     (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                        <C>               <C>               <C>               <C>         
Interest income:
  Loans, including fees                                    $     49,457      $     49,452      $    138,594      $    140,477
  Mortgage-backed securities                                     16,725            17,976            49,255            51,059
  Investment securities                                           1,430             1,768             4,876             5,624
  Other                                                           1,903             2,104             6,337             5,228
                                                           ------------      ------------      ------------      ------------
TOTAL INTEREST INCOME                                            69,515            71,300           199,062           202,388

Interest expense:
  Deposits                                                       26,658            27,585            80,869            80,000
  Federal Home Loan Bank advances and other borrowings            8,876             9,672            25,216            25,414
  Securities sold under agreements to repurchase                  5,058             4,919            13,677            13,276
                                                           ------------      ------------      ------------      ------------
TOTAL INTEREST EXPENSE                                           40,592            42,176           119,762           118,690
                                                           ------------      ------------      ------------      ------------

NET INTEREST INCOME                                              28,923            29,124            79,300            83,698

Provision for loan losses                                         2,347             2,223            11,137             9,196
                                                           ------------      ------------      ------------      ------------
NET INTEREST INCOME AFTER
  PROVISION  FOR LOAN LOSSES                                     26,576            26,901            68,163            74,502

Noninterest income:
  Automobile lending                                             20,668            40,753            74,881           135,100
  Mortgage banking                                                5,065             6,194             9,174            18,352
  Investment and mortgage-backed
     securities (losses) gains                                     (280)            1,266             2,259             1,731
  Insurance income                                                1,404             1,856             4,174             4,436
  Real estate operations                                            217               587               (95)              (39)
  Rental operations                                                (368)              246              (934)              833
  Miscellaneous                                                     545             1,100             3,025             2,176
                                                           ------------      ------------      ------------      ------------
TOTAL NONINTEREST INCOME                                         27,251            52,002            92,484           162,589
                                                           ------------      ------------      ------------      ------------

Noninterest expense:
  Salaries and employee benefits                                 32,608            36,010           103,944           106,327
  Occupancy                                                       3,050             4,523            10,453            13,393
  Insurance                                                         514               485             1,410             1,234
  Restructuring charge                                            4,500                --            15,000                --
  Miscellaneous                                                  20,174            20,568            60,387            62,395
                                                           ------------      ------------      ------------      ------------
TOTAL NONINTEREST EXPENSE                                        60,846            61,586           191,194           183,349
                                                           ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES                                (7,019)           17,317           (30,547)           53,742
Income tax expense (benefit)                                     (2,816)            7,268           (12,658)           22,655
                                                           ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE MINORITY INTEREST                           (4,203)           10,049           (17,889)           31,087
Minority interest in earnings (losses) of subsidiaries             (329)            1,121            (2,430)            4,378
                                                           ------------      ------------      ------------      ------------

NET INCOME (LOSS)                                                (3,874)            8,928           (15,459)           26,709
                                                           ------------      ------------      ------------      ------------

OTHER COMPREHENSIVE INCOME (LOSS) NET OF INCOME TAXES:
Change in unrealized gains on securities available for
   sale and retained interests in securitized assets              3,288             1,514             1,698             3,283
Less: Reclassification adjustment for losses (gains)
     included in net income                                           4              (485)                4              (119)
                                                           ------------      ------------      ------------      ------------

COMPREHENSIVE INCOME (LOSS)                                $       (582)     $      9,957      $    (13,757)     $     29,873
                                                           ============      ============      ============      ============

NET INCOME (LOSS) PER COMMON SHARE:
  BASIC                                                    $      (0.15)     $       0.34      $      (0.59)     $       1.02
  DILUTED                                                         (0.15)             0.34             (0.59)             1.01

CASH DIVIDENDS DECLARED PER COMMON SHARE                   $       0.05      $       0.10      $       0.20      $       0.30

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
  BASIC                                                      26,418,856        26,226,853        26,344,430        26,128,550
  DILUTED                                                    26,418,856        26,488,219        26,344,430        26,331,254

</TABLE>


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

  See accompanying notes to unaudited consolidated financial statements.



                                       4
<PAGE>   5


                            WESTCORP AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                             Nine Months Ended
                                                                                               September 30,
                                                                                         ------------------------
                                                                                            1998          1997
                                                                                         ---------      ---------
                                                                                          (Dollars in thousands)
<S>                                                                                      <C>            <C>      
OPERATING ACTIVITIES:
Net income (loss)                                                                        $ (15,459)     $  26,709
Adjustments to reconcile net income (loss) to net cash used in operating activities:
     Provision for loan losses                                                              11,137          9,196
     Depreciation and amortization                                                          11,727         11,672
     Loss on disposal of assets, restructuring                                               6,847             --
     Gain on sale of investment securities and mortgage-backed securities                   (2,565)        (1,744)
     Gain on sale of loans                                                                 (32,948)       (38,755)
     Gain on sale of capitalized servicing                                                      --         (1,451)
     Gain on disposition of real estate owned                                               (1,869)        (2,259)
Net change in loans held for sale                                                         (641,633)      (224,574)
Net change in retained interest in securitized assets                                       26,363        (50,194)
Net change in capitalized servicing rights                                                    (792)        (6,439)
Minority interest in (loss) income of consolidated subsidiaries                             (2,430)         4,378
Other, net                                                                                  (7,641)        (1,374)
                                                                                         ---------      ---------
NET CASH USED IN OPERATING ACTIVITIES                                                     (649,263)      (274,835)

INVESTING ACTIVITIES:
Investment securities held to maturity:
   Purchases                                                                                    --         (1,640)
   Proceeds from maturities                                                                     --            103
Investment securities available for sale:
   Purchases                                                                               (44,419)       (29,937)
   Proceeds from sale                                                                       10,460             --
   Proceeds from maturities                                                                 81,535         48,000
Mortgage-backed securities held to maturity:
   Purchases                                                                                    --           (934)
   Payments                                                                                     --         47,502
Mortgage-backed securities available for sale:
   Purchases                                                                              (382,363)      (298,289)
   Proceeds from sale                                                                      121,406         94,776
   Payments                                                                                127,069         25,624
Net change in loans receivable                                                             282,385         31,149
Additions to premises and equipment                                                         (9,602)       (20,749)
Disposition of real estate owned                                                            14,947         16,896
Purchases of FHLB stock                                                                     (5,016)       (18,171)
Proceeds from sale of FHLB stock                                                                --          9,054
Increase in amounts due from trusts                                                        (17,625)       (67,630)
                                                                                         ---------      ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                                        178,777       (164,246)

FINANCING ACTIVITIES:
Increase in deposits                                                                       129,203         63,874
Increase in securities sold under agreements to repurchase                                  56,220         15,676
Decrease  in FHLB advances, net                                                                (89)       (21,427)
Increase in short-term borrowings                                                          177,178         63,825
Increase in amounts held on behalf of trustee                                               29,426        120,419
Increase in subordinated debentures                                                             --        146,366
Proceeds from issuance of common stock                                                       3,300            845
Purchase of subsidiary common stock                                                         (2,479)        (2,462)
Cash dividends                                                                              (5,267)        (7,842)
Other financing activities                                                                    (841)        (2,024)
                                                                                         ---------      ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  386,651        377,250
                                                                                         ---------      ---------

DECREASE IN CASH AND CASH EQUIVALENTS                                                      (83,835)       (61,831)
Cash and cash equivalents at beginning of period                                           171,130        137,782
                                                                                         ---------      ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                               $  87,295      $  75,951
                                                                                         =========      =========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
   Interest                                                                              $ 123,036      $ 118,080
   Income taxes                                                                              1,820          5,051

SUPPLEMENTAL DISCLOSURES OF NONCASH TRANSACTIONS:
  Acquisition of real estate acquired through foreclosure                                $  11,792      $ 144,447
  Loans to facilitate the sale of real estate owned                                             67          4,392
  Unrealized gains on securities available for sale and retained
     interests in securitized assets, net of income taxes                                    1,698          3,283

</TABLE>

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

See accompanying notes to unaudited consolidated financial statements.



                                       5
<PAGE>   6


                            WESTCORP AND SUBSIDIARIES
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - BASIS OF PRESENTATION

The Unaudited Consolidated Financial Statements included herein have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.

In the opinion of management, all adjustments (including normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. These Consolidated Financial Statements should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in Westcorp's annual report on Form 10-K for the year ended December
31, 1997.

Certain amounts from the 1997 Consolidated Financial Statements have been
reclassified to conform to the 1998 presentation.

In June 1998, the FASB issued SFAS 133 "Accounting for Derivative Instruments
and Hedging Activities". This statement provides guidance for the way public
enterprises report information about derivatives and hedging in annual financial
statements and in interim financial reports. The derivatives and hedging
disclosure is required for financial statements for fiscal years beginning after
June 15, 1999. The Statement will require Westcorp ("the Company") to recognize
all derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company has not yet determined what the
effect of Statement 133 will be on the earnings and financial position of the
Company.




                                       6
<PAGE>   7


                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE B - INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale were as follows:


<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30, 1998
                                                 ------------------------------------------------------
                                                                   GROSS          GROSS
                                                 AMORTIZED       UNREALIZED      UNREALIZED      FAIR
                                                  COST             GAIN            LOSS          VALUE
                                                 ---------       ----------      ----------     -------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                              <C>              <C>              <C>          <C>    
U.S. Treasury securities and
   obligations of other U.S. Government
   agencies and corporations                     $74,010          $ 1,778          $--          $75,788
Obligations of states and political
   subdivisions                                    1,510               46           --            1,556
Other                                                472               --           --              472
                                                 -------          -------          ---          -------
                                                 $75,992          $ 1,824          $--          $77,816
                                                 =======          =======          ===          =======

</TABLE>



<TABLE>
<CAPTION>
                                                                      DECEMBER 31, 1997
                                                 --------------------------------------------------------------
                                                                     GROSS             GROSS           
                                                 AMORTIZED         UNREALIZED        UNREALIZED         FAIR
                                                   COST              GAIN              LOSS             VALUE
                                                 --------          --------          --------          --------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                              <C>               <C>               <C>               <C>     
U.S. Treasury securities and
   obligations of other U.S. Government
   agencies and corporations                     $121,716          $    418          $    420          $121,714
Obligations of states and political
   subdivisions                                     1,511                21                --             1,532
Other                                                 163                --                --               163
                                                 --------          --------          --------          --------
                                                 $123,390          $    439          $    420          $123,409
                                                 ========          ========          ========          ========

</TABLE>


NOTE C - MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale were as follows:


<TABLE>
<CAPTION>
                                                                   SEPTEMBER 30, 1998
                                          ----------------------------------------------------------------------
                                                                GROSS              GROSS
                                           AMORTIZED           UNREALIZED         UNREALIZED            FAIR
                                             COST                GAIN                LOSS               VALUE
                                          ----------          ----------          ----------          ----------
                                                                (DOLLARS IN THOUSANDS)
<S>                                       <C>                 <C>                 <C>                 <C>       
GNMA certificates                         $  938,795          $   16,768          $    8,229          $  947,334
FNMA participation certificates              118,118               1,917                   1             120,034
FHLMC participation certificates               5,208                  90                  17               5,281
Other                                          2,904                 270                  87               3,087
                                          ----------          ----------          ----------          ----------
                                          $1,065,025          $   19,045          $    8,334          $1,075,736
                                          ==========          ==========          ==========          ==========

</TABLE>


                                       7
<PAGE>   8


                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



<TABLE>
<CAPTION>
                                                DECEMBER 31, 1997        
                                    --------------------------------------------
                                                 GROSS       GROSS
                                    AMORTIZED   UNREALIZED  UNREALIZED   FAIR
                                      COST       GAIN         LOSS       VALUE
                                    --------    --------    --------    --------
                                               (DOLLARS IN THOUSANDS)
<S>                                 <C>         <C>         <C>         <C>     
GNMA certificates                   $778,302    $ 12,710    $  4,070    $786,942
FNMA participation certificates      142,572         972          93     143,451
FHLMC participation certificates       8,188          42         105       8,125
Other                                  2,912          54          36       2,930
                                    --------    --------    --------    --------
                                    $931,974    $ 13,778    $  4,304    $941,448
                                    ========    ========    ========    ========
</TABLE>




NOTE D - NET LOANS RECEIVABLE Net loans receivable consisted of the following:


<TABLE>
<CAPTION>
                                        SEPTEMBER 30,         DECEMBER 31,
                                           1998                  1997
                                        -----------           -----------
                                             (DOLLARS IN THOUSANDS)
<S>                                     <C>                   <C>        
Real Estate:
   Mortgage                             $ 1,157,819           $ 1,529,764
   Construction                              17,233                15,835
                                        -----------           -----------
                                          1,175,052             1,545,599
   Undisbursed loan proceeds                 (7,444)               (6,711)
                                        -----------           -----------
                                          1,167,608             1,538,888
                                        -----------           -----------
  Consumer:
       Automobile loans                   1,060,060               253,455
       Other                                 12,373                57,759
       Unearned discounts                   (77,592)              (22,226)
                                        -----------           -----------
                                            994,841               288,988
                                        -----------           -----------
   Commercial                                59,095                41,668
                                        -----------           -----------
                                          2,221,544             1,869,544

Allowance for loan losses                   (35,129)              (33,834)
Net deferred loan costs                      21,946                 3,166
                                        -----------           -----------
                                          2,208,361             1,838,876
                                        -----------           -----------
Less:  Loans held for sale
   Mortgage                                 430,398               529,026
   Consumer                                 956,737               183,528
                                        -----------           -----------
                                          1,387,135               712,554
                                        -----------           -----------
                                        $   821,226           $ 1,126,322
                                        ===========           ===========

</TABLE>




The increase in net automobile loans receivable is because the Company did not
securitize automobile loans in the third quarter of 1998.

Loans serviced by the Company for the benefit of others totalled approximately
$8.1 billion and $8.4 billion at September 30, 1998 and December 31, 1997,
respectively. These amounts are not reflected in the accompanying Unaudited
Consolidated Statements of Financial Condition.



                                       8
<PAGE>   9


                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE E - SECURITIZED ASSETS AND CAPITALIZED SERVICING RIGHTS

SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" requires that, following a transfer of financial
assets, an entity recognizes the assets it controls and the liabilities it has
incurred, and derecognize assets for which control has been surrendered and
liabilities that have been extinguished. SFAS 125 defines two separate financial
assets retained at the time of securitization or sale, retained interest in
securitized assets ("RISA"), which represents the excess spread created from
securitization or sale, and capitalized servicing rights ("CSR") which represent
the benefit derived from retaining the rights to service loans securitized or
sold. The Company did not separately recognize any CSR as of September 30, 1998
or December 31, 1997 with respect to securitized automobile loans but did
recognize CSRs on mortgage loans for these periods. Previous accounting guidance
did not separately distinguish these rights.

RETAINED INTERESTS IN SECURITIZED ASSETS

RISA capitalized upon securitization of automobile loans represents the present
value of the estimated future earnings to be received by the Company from the
excess spread created in securitization transactions. Excess spread is the
difference between the coupon rate of the automobile loans sold and the interest
rate paid to the investors less contractually specified servicing and guarantor
fees.

Prepayment and credit loss assumptions are utilized to project future earnings
and are based upon historical experience. Credit losses are estimated using a
cumulative loss rate estimated by management to reduce the likelihood of asset
impairment. All assumptions used are evaluated each quarter and adjusted, if
appropriate, to reflect actual performance of the automobile loans.

Future earnings are discounted at a rate management believes to be
representative of market at the time of securitization. The balance of the RISA
is amortized against actual excess spread income earned on a monthly basis over
the expected repayment life of the underlying automobile loans. RISAs are
classified in a manner similar to available for sale securities and as such are
marked to market each quarter. Market value changes are calculated by
discounting the excess spread using a current market discount rate. Any changes
in the market value of the RISA is reported as a separate component of other
comprehensive income (loss) on the Consolidated Statements of Income (Loss) and
Comprehensive Income (Loss) and shareholders' equity on the Consolidated
Statements of Financial Condition as an unrealized gain or loss, net of income
taxes.

The following table presents the activity of the RISA:


<TABLE>
<CAPTION>
                                                    THREE MONTHS                           NINE MONTHS
                                                       ENDED                                  ENDED
                                                    SEPTEMBER 30,                          SEPTEMBER 30,
                                            -----------------------------          ------------------------------
                                              1998                 1997                1998                 1997
                                            ---------           ---------           ---------           ---------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                         <C>                 <C>                 <C>                 <C>      
Beginning balance                           $ 179,069           $ 159,487           $ 181,177           $ 121,597
Additions                                          --              31,977              55,058              83,359
Amortization                                  (24,318)            (19,734)            (81,421)            (33,165)
Change in unrealized gains on RISA              2,355                 605               2,292                 544
                                            ---------           ---------           ---------           ---------
Ending balance                              $ 157,106           $ 172,335           $ 157,106           $ 172,335
                                            =========           =========           =========           =========
</TABLE>


                                       9
<PAGE>   10

                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In initially valuing the RISA, the Company establishes an off-balance sheet
allowance for expected future credit losses. The allowance is based upon
historical experience and management's estimate of future performance regarding
credit losses and includes an unallocated amount to reduce the likelihood of
impairment of the RISA. The amount is reviewed periodically and adjustments are
made if actual experience or other factors indicate that future performance may
differ from management's prior expectations. The RISA decreased to $157 million
from $172 million a year earlier due to higher amortization of RISA as a result
of higher losses in the three and nine months ended September 30, 1998.

The following table presents the estimated future undiscounted retained interest
earnings to be received from securitizations. Estimated future undiscounted RISA
earnings are calculated by taking the difference between the coupon rate of the
automobile loans sold and the certificate rate paid to the investors, less the
contractually specified servicing fee and guarantor fees, after giving effect to
estimated prepayments and assuming no losses. To arrive at the RISA, this amount
is reduced by the off-balance sheet allowance established for potential future
losses and by discounting to present value.

The following table sets forth the components of the RISA:


<TABLE>
<CAPTION>
                                                                              SEPTEMBER 30,          DECEMBER 31,
                                                                                1998                    1997
                                                                              -----------            -----------
                                                                                    (DOLLARS IN THOUSANDS)
<S>                                                                           <C>                    <C>        
Estimated net undiscounted RISA earnings                                      $   335,235            $   438,190
Off-balance sheet allowance for losses                                           (160,733)              (236,796)
Discount to present value                                                         (17,396)               (20,217)
                                                                              -----------            -----------
Retained interest in securitized assets                                       $   157,106            $   181,177
                                                                              ===========            ===========

Outstanding balance of automobile loans sold through securitization           $ 3,270,871            $ 3,449,590

Off-balance sheet allowance for losses as a percent of automobile
  loans sold through securitizations                                                 4.91%                  6.86%

</TABLE>




The decrease in the off-balance sheet allowance is due to lower potential future
losses as a result of a declining sold portfolio because the Company did not
securitize automobile loans in the third quarter of 1998. The Company believes
that the off-balance sheet allowance for losses is currently adequate to absorb
potential losses in the sold portfolio.

CAPITALIZED SERVICING RIGHTS

Capitalized servicing rights consisted of the following:



<TABLE>
<CAPTION>
                                                          September 30,     December 31,
                                                              1998              1997
                                                          -------------     -------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                         <C>                <C>     
Purchased mortgage servicing rights                         $ 12,060           $ 14,695
Originated mortgage servicing rights                          29,972             26,161
Impairment allowance for mortgage servicing rights            (3,823)            (3,439)
                                                            --------           --------
                                                            $ 38,209           $ 37,417
                                                            ========           ========

</TABLE>



                                       10
<PAGE>   11


                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Company retains the rights to service most loans sold or securitized. CSR
assets represent an allocation of the cost basis of loans sold between the CSR
and the loans based upon their relative fair value at the date the loans are
originated or purchased. The fair value of CSR is calculated by estimating
future servicing revenues, including servicing fees, late charges, other
ancillary income, and float benefit, less the cost to service loans.

During the three and nine months ended September 30, 1998, the Company's
capitalized servicing rights totaled $3.9 million and $19.2 million compared to
$7.0 million and $17.5 million for the comparable periods in 1997. The mortgage
servicing rights are included in capitalized servicing rights and the
amortization is a component of mortgage banking income in noninterest income.

The fair value of the CSR was $48.5 million and $42.8 million at September 30,
1998 and December 31, 1997, respectively. Fair value was determined based on the
present value of estimated future earnings. Significant assumptions were based
upon prepayment, default, servicing cost and discount rate. For the purpose of
estimated fair value, CSR are stratified on the basis of loan type, loan coupon
and loan term.

CSR are evaluated for impairment based on the excess of the carrying amount of
the CSR over fair value.

The Company sold $7.5 million of its CSR in August 1998. The sale represented
$736 million of the Company's servicing portfolio. In September 1998, the
Company announced that it had signed a letter of intent to sell substantially
all of its remaining mortgage servicing rights. The Company subsequently
executed a definitive purchase and sale agreement for the sale of these
servicing rights. The sale is pending related approvals and is expected to be
completed during the fourth quarter of 1998.

Amortization of capitalized servicing rights is reflected as a component of
mortgage banking income in noninterest income. Amortization expense for the
three and nine months ended September 30, 1998 was $2.9 million and $11.6
million compared to $2.8 million and $6.4 million for the comparable periods of
1997.

NOTE F - DIVIDENDS

The Company paid a cash dividend of $0.10 per share on February 23, 1998 and a
cash dividend of $0.05 per share on May 22, 1998 and August 17, 1998. On October
19, 1998, the Company announced a cash dividend of $0.05 per share for
shareholders of record as of November 9, 1998 payable on November 16, 1998.

NOTE G - EARNINGS PER SHARE

Basic earnings per share is calculated by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
and does not include the impact of any potentially dilutive common stock
equivalents. Diluted earnings per share is arrived at by dividing the weighted
average number of shares outstanding, adjusted for the dilutive effect of
outstanding stock options.



                                       11
<PAGE>   12


                            WESTCORP AND SUBSIDIARIES
        NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table sets forth the computation of basic and diluted earnings per
share:


<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED                         NINE MONTHS ENDED
                                                            SEPTEMBER 30,                              SEPTEMBER 30,
                                                -----------------------------------          -----------------------------------
                                                    1998                   1997                  1998                   1997
                                                ------------           ------------          ------------           ------------
                                                             (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                             <C>                    <C>                   <C>                    <C>         
BASIC

Net income (loss)                               $     (3,874)          $      8,928          $    (15,459)          $     26,709

Average common shares outstanding                 26,418,856             26,226,853            26,344,430             26,128,550

Net income (loss) per common share - basic      $      (0.15)          $       0.34          $      (0.59)          $       1.02

DILUTED

Net income (loss)                               $     (3,874)          $      8,928          $    (15,459)          $     26,709

Average common shares outstanding                 26,418,856             26,226,853            26,344,430             26,128,550
Stock option adjustment                                   --                261,366                    --                202,704
                                                ------------           ------------          ------------           ------------
Average common shares outstanding                 26,418,856             26,488,219            26,344,430             26,331,254
                                                ============           ============          ============           ============

Net income (loss) per common share - diluted    $      (0.15)          $       0.34          $      (0.59)          $       1.01

</TABLE>


Options to purchase 645,655 of common stock at September 30, 1998 were not
included in the computation of diluted earnings per share because the Company
had a loss or the exercise prices of the options were greater than the average
market price of the common share, and therefore, the effect would be
antidilutive. The weighted average exercise price at September 30, 1998 and 1997
was $15.48 and $13.86, respectively, for the options outstanding.

NOTE H - COMPREHENSIVE INCOME

As of January 1, 1998 the Company adopted Statement of Financial Accounting
Standards ("SFAS 130"), "Reporting Comprehensive Income". SFAS 130 establishes
new rules for the reporting and display of comprehensive income and its
components; however, the adoption of this Statement had no impact on the
Company's net income or shareholders' equity. SFAS 130 requires unrealized gains
or losses on the Company's available-for-sale securities which, prior to
adoption, were reported separately in shareholders' equity to be included in
other comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of SFAS 130.

During the three and nine months ended September 30, 1998, the Company had a
pre-tax increase in unrealized gains on securities available for sale and
retained interests in securitized assets of $5.7 million and $2.9 million,
respectively, compared to a pre-tax increase of $2.6 million and $5.7 million
for the comparable periods of 1997.

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

                               FINANCIAL CONDITION

Total assets increased $371 million or 10.0% to $4.1 billion at September 30,
1998 from $3.7 billion at December 31, 1997. This increase is primarily the
result of an increase in loans held for sale.



                                       12
<PAGE>   13


LOANS

Included in the portfolio are loans held for sale of which $430 million are
mortgage loans secured primarily by single family residences and $957 million
which are consumer loans secured by automobiles. Loans, net of unearned
discounts and undisbursed loan proceeds, increased $0.4 billion or 20.1% from
$1.8 billion at December 31, 1997 to $2.2 billion at September 30, 1998. The
increase in loans is because the Company did not securitize automobile loans in
the third quarter of 1998. In the past, the Company retained the servicing on
substantially all loans sold and received a servicing fee therefrom. In
September 1998, the Company announced that it would sell substantially all of
its mortgage servicing rights. The transaction is expected to be completed in
the fourth quarter of 1998.

Consumer loan originations increased by $88.6 million and $232 million to $702
million and $2.0 billion for the three and nine months ended September 30, 1998
from $614 million and $1.8 billion for the same periods in 1997. This represents
a 14% and 13% increase in production for the respective periods. The Company
completed securitization transactions totalling $1.2 billion during the first
nine months of 1998. However, the Company did not execute a securitization
transaction in the third quarter of 1998. This compares with $600 million and
$1.7 billion for the three and nine months ended September 30, 1997. Because of
the Company's liquidity position, the Company realized lower financing costs and
wider interest margins by retaining contracts on the balance sheet at a time
when asset-backed securitizations were adversely affected by wider spreads and
higher pricing. The Company plans to continue to securitize automobile loans on
a regular basis.

Real estate originations decreased $78.4 million and increased $560 million to
$622 million and $2.2 billion for the three and nine months ended September 30,
1998 from $700 million and $1.7 billion for the same periods in 1997. This
represents a 11% decrease and 33% increase in production for the respective
periods. The following table sets forth the loan origination, purchase and sale
activity of the Company for the periods indicated, excluding net deferred loan
fees:

<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED SEPTEMBER 30,
                                  -----------------------------------------------------------------------------
                                                1998                                          1997
                                  ---------------------------------           ---------------------------------
                                    MORTGAGE              CONSUMER             MORTGAGE              CONSUMER
                                  -----------           -----------           -----------           -----------
                                                            (DOLLARS IN THOUSANDS)
<S>                               <C>                   <C>                   <C>                   <C>        
Beginning balance                 $ 1,186,333           $   362,492           $ 1,533,273           $   320,894
Originations (1)                      622,060               702,360               700,496               613,769
Sales (2)                            (592,913)                   --              (520,245)             (600,000)
Principal reductions (3)              (47,872)              (70,011)             (105,376)              (27,300)
                                  -----------           -----------           -----------           -----------
Ending balance                    $ 1,167,608           $   994,841           $ 1,608,148           $   307,363
                                  ===========           ===========           ===========           ===========

</TABLE>



                                       13
<PAGE>   14

<TABLE>
<CAPTION>
                                                       NINE MONTHS ENDED SEPTEMBER 30,
                                   ----------------------------------------------------------------------------
                                               1998                                         1997
                                   --------------------------------           ---------------------------------
                                   MORTGAGE              CONSUMER               MORTGAGE             CONSUMER
                                  -----------           -----------           -----------           -----------
                                                            (DOLLARS IN THOUSANDS)
<S>                               <C>                   <C>                   <C>                   <C>        
Beginning balance                 $ 1,538,888           $   288,988           $ 1,438,892           $   284,858
Originations (1)                    2,232,052             2,030,945             1,672,513             1,799,184
Sales (2)                          (2,337,083)           (1,185,000)           (1,296,308)           (1,690,000)
Principal reductions (3)             (266,249)             (140,092)             (206,949)              (86,679)
                                  -----------           -----------           -----------           -----------
Ending balance                    $ 1,167,608           $   994,841           $ 1,608,148           $   307,363
                                  ===========           ===========           ===========           ===========
</TABLE>

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

(1)     Includes sales contracts purchased from automobile dealers.

(2)     Loans sold or securitized for which the Company generally retains
        servicing.

(3)     Includes scheduled payments, prepayments and chargeoffs.

The Company's real estate loan portfolio (including those held for sale and
excluding net deferred loan costs) consisted of the following:



<TABLE>
<CAPTION>
                                                SEPTEMBER 30, 1998                      DECEMBER 31, 1997
                                          ----------------------------            ----------------------------
                                            AMOUNT                 %                AMOUNT                 %
                                          -----------            -----            -----------            -----
                                                                (DOLLARS IN THOUSANDS)
<S>                                       <C>                     <C>             <C>                     <C>  
Single family residential loans:
    First trust deeds                     $   766,329             65.6%           $ 1,062,208             69.0%
    Second trust deeds                         38,987              3.3                 48,393              3.1
                                          -----------            -----            -----------            -----
                                              805,316             68.9              1,110,601             72.1
Multifamily residential loans                 345,972             29.6                410,139             26.7
Construction loans                             17,233              1.5                 15,835              1.0
Other                                           6,531              0.6                  9,024              0.6
                                          -----------            -----            -----------            -----
                                            1,175,052            100.6              1,545,599            100.4
Undisbursed loan proceeds                      (7,444)            (0.6)                (6,711)            (0.4)
                                          -----------            -----            -----------            -----
                                          $ 1,167,608            100.0%           $ 1,538,888            100.0%
                                          ===========            =====            ===========            =====

</TABLE>

The following table sets forth information on the amount of fixed rate mortgage
loans and adjustable rate mortgage loans, (excluding undisbursed loan proceeds
and net deferred loan costs), in the Company's portfolio.


<TABLE>
<CAPTION>
                                               SEPTEMBER 30, 1998                  DECEMBER 31, 1997
                                           --------------------------           --------------------------
                                             AMOUNT               %               AMOUNT              %
                                           ----------           -----           ----------           -----
                                                                (DOLLARS IN THOUSANDS)
<S>                                        <C>                   <C>            <C>                   <C>  
Fixed rate loans                           $  348,722            29.9%          $  417,991            27.2%
Adjustable rate loans:
    Negative amortization                     554,447            47.5              707,431            46.0
    Without negative amortization             264,439            22.6              413,466            26.8
                                           ----------           -----           ----------           -----
                                           $1,167,608           100.0%          $1,538,888           100.0%
                                           ==========           =====           ==========           =====


</TABLE>



                                       14
<PAGE>   15

The composition of the consumer loan portfolio, all of which is fixed rate, was
as follows:

<TABLE>
<CAPTION>
                                  SEPTEMBER 30, 1998                 DECEMBER 31, 1997
                               ------------------------           ------------------------
                                AMOUNT              %              AMOUNT             %
                               --------           -----           --------           -----
                                                   (DOLLARS IN THOUSANDS)
<S>                            <C>                 <C>            <C>                 <C>  
Automobile loans, net          $982,468            98.8%          $231,229            80.0%
Other                            12,373             1.2             57,759            20.0
                               --------           -----           --------           -----
                               $994,841           100.0%          $288,988           100.0%
                               ========           =====           ========           =====

</TABLE>


The Company had outstanding commercial loans of $59.1 million at September 30,
1998 compared to $41.7 million at December 31, 1997. The Company originated
$42.2 million of commercial loans for the quarter ended September 30, 1998
compared to $7.2 million for the comparable period in 1997. Though the Company
continues to focus on expanding its commercial banking operations, it is not a
significant source of revenue for the Company for the quarter ended September
30, 1998.

MORTGAGE-BACKED SECURITIES

During the first nine months of 1998, the Company purchased $382 million and
sold $121 million of mortgage-backed securities ("MBS"). This is part of the
Company's continuing strategy to increase net interest income.

ASSET QUALITY

DELINQUENCY

The percent of loans 60 days or more delinquent decreased to 0.7% of total loans
at September 30, 1998 down from 0.9% at December 31, 1997. Delinquent loans by
type of loan and as a percentage of loans by type are summarized as follows at
September 30, 1998 and December 31, 1997:


<TABLE>
<CAPTION>
                                                                            SEPTEMBER 30, 1998
                                                                       NUMBER OF DAYS DELINQUENT
                                         -------------------------------------------------------------------------------------
                                                60-89                         90 OR MORE                       TOTAL
                                         ---------------------           ---------------------           ---------------------
                                         AMOUNT             %            AMOUNT             %            AMOUNT            %
                                         -------           ---           -------           ---           -------           ---
                                                                        (DOLLARS IN THOUSANDS)
<S>                                      <C>               <C>           <C>               <C>           <C>               <C> 
Single family residential loans          $ 2,389           0.3%          $ 6,812           0.9%          $ 9,201           1.2%
Multifamily residential loans                 --            --             1,037           0.3             1,037           0.3
Consumer                                   3,300           0.3             2,061           0.2             5,361           0.5
                                         -------           ---           -------           ---           -------           ---
                                         $ 5,689           0.3%          $ 9,910           0.4%          $15,599           0.7%
                                         =======           ===           =======           ===           =======           ===

</TABLE>



                                       15
<PAGE>   16

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 1997
                                                 NUMBER OF DAYS DELINQUENT
                                   -------------------------------------------------------
                                       60-89             90 OR MORE             TOTAL
                                   --------------      ---------------      --------------
                                   AMOUNT      %       AMOUNT       %       AMOUNT     %
                                   -------    ---      -------     ---      -------    ---
                                                    (DOLLARS IN THOUSANDS)
<S>                                <C>        <C>      <C>         <C>      <C>        <C> 

Single family residential loans    $ 1,161    0.1%     $11,832     1.1%     $12,993    1.2%
Multifamily residential loans          350    0.1          588     0.1          938    0.2
Consumer                             2,093    0.7        1,067     0.4        3,160    1.1
Construction                            --     --          221     2.8          221    2.8
                                   -------    ---      -------     ---      -------    ---
                                   $ 3,604    0.2%     $13,708     0.7%     $17,312    0.9%
                                   =======    ===      =======     ===      =======    ===

</TABLE>

NONPERFORMING ASSETS

Total nonperforming assets ("NPA") decreased $7.9 million or 29.2% to $19.0
million at September 30, 1998 compared to $26.9 million at December 31, 1997. At
September 30, 1998, NPAs as a percentage of total assets decreased to 0.5%
compared with 0.7% at December 31, 1997.

NPAs consist of nonperforming loans ("NPL") and real estate acquired through
foreclosure ("REO"). REOs are carried at lower of cost or fair value less
estimated disposition costs. NPLs are defined as all loans (other than consumer
loans which are charged off at 120 days) on nonaccrual, which include all
mortgage and commercial loans 90 days or more past due or impaired loans. When a
loan is designated as nonaccrual, all previously accrued but unpaid interest is
reversed. Interest on nonperforming loans excluded from interest income
decreased to $0.5 million from $0.7 million for the nine months ended September
30, 1998 and 1997, respectively.

A loan is considered impaired when, based on current information and events, it
is probable that the Company will be unable to collect all amounts due according
to the contractual terms of the loan agreement. The Company measures impairment
based on, among other factors, the fair value of the loan's collateral. At
September 30, 1998, impaired loans decreased to $4.3 million compared to $4.8
million at December 31, 1997.

NONPERFORMING LOANS

Nonperforming loans consisted of the following:

<TABLE>
<CAPTION>
                                                         SEPTEMBER 30,        DECEMBER 31,
                                                             1998                 1997
                                                         -------------        ------------
                                                               (DOLLARS IN THOUSANDS)
      <S>                                                  <C>                  <C>
      Unimpaired loans placed on nonaccrual                $ 8,804              $14,979
      Impaired loans                                         4,338                4,806
                                                           -------              -------
                                                           $13,142              $19,785
                                                           =======              =======
</TABLE>


                                       16
<PAGE>   17

Nonperforming loans by loan type consisted of the following:

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30,         DECEMBER 31,
                                                     1998                   1997
                                                  ------------          ------------
                                                        (DOLLARS IN THOUSANDS)
      <S>                                         <C>                  <C>
      Single family residential loans               $ 6,488               $13,309
      Multifamily 5-36 units                          2,103                 2,251
      Multifamily 37+ units                           3,784                 3,866
      Other                                             767                   359
                                                    -------               -------
                                                    $13,142               $19,785
                                                    =======               =======
</TABLE>

The migration of nonperforming loans from December 31, 1997 to September 30,
1998 is shown below:

<TABLE>
<CAPTION>
                                            SINGLE
                                            FAMILY      MULTIFAMILY   MULTIFAMILY
                                TOTAL      1-4 UNITS    - 36 UNITS     37+ UNITS      OTHER
                               --------    ---------    -----------   ------------   --------
                                                   (DOLLARS IN THOUSANDS)
<S>                            <C>         <C>          <C>            <C>           <C>     
Balance, December 31, 1997     $ 19,785    $ 13,309     $  2,251          $  3,866   $    359
New nonperforming loans          13,601       8,735        2,669                --      2,197
REO                              (9,617)     (7,770)        (974)               --       (873)
Cures and payoffs                (9,829)     (7,689)      (1,843)              (82)      (215)
Chargeoffs                         (798)        (97)          --                --       (701)
                               --------    --------     --------          --------   --------
Balance, September 30, 1998    $ 13,142    $  6,488     $  2,103          $  3,784   $    767
                               ========    ========     ========          ========   ========

</TABLE>


REAL ESTATE OWNED


<TABLE>
<CAPTION>
                                            SINGLE
                                            FAMILY      MULTIFAMILY   MULTIFAMILY
                                TOTAL      1-4 UNITS    - 36 UNITS     37+ UNITS      OTHER
                               --------    ---------    -----------   ------------   --------
                                                   (DOLLARS IN THOUSANDS)
<S>                            <C>         <C>          <C>           <C>            <C>     
Balance, December 31, 1997     $  7,120    $  5,148     $  1,693          $--        $    279
New REO                          11,578       9,325        1,654           --             599
Sales                           (13,144)     (9,659)      (2,763)          --            (722)
Writedowns                          347        (219)         722           --            (156)
                               --------    --------     --------          ---        --------
Balance, September 30, 1998    $  5,901    $  4,595     $  1,306          $--        $     --
                               ========    ========     ========          ===        ========

</TABLE>

Assets secured by single family residential properties comprised the largest
portion of nonperforming assets although no single loan or series of such loans
predominate. As of September 30, 1998, $6.5 million or 49% of NPLs and $4.6
million or 78% of REOs were secured by single family residential properties. The
Company had allowance for real estate losses of $784 thousand at September 30,
1998 and December 31, 1997.


                                       17

<PAGE>   18


ALLOWANCE FOR LOAN AND REAL ESTATE LOSSES

Consistent with loan volume, loan sales, losses, nonaccrual loans and other
relevant factors, the Company increased its allowance for loan losses to $35.1
million at September 30, 1998 compared to $33.8 million at December 31, 1997 as
a result of higher losses on automobile loans. While the Company's portfolio
consists primarily of single family loans, no single loan, borrower or series of
loans comprise a significant portion of the total portfolio. The provision and
allowance for loan losses are indicative of loan volumes, loss trends and
management's analysis of market conditions. The allowance for loan losses is
maintained at a level believed by management to be adequate to absorb potential
losses in the loan portfolio.

The following table presents summarized data relative to the allowance for loan
losses:


<TABLE>
<CAPTION>
                                                                             SEPTEMBER 30,          DECEMBER 31,
                                                                                 1998                  1997
                                                                             ------------           ------------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                          <C>                    <C>         
Total loans (1)                                                              $  2,221,544           $  1,869,544
Allowance for loan losses                                                          35,129                 33,834
Allowance for real estate losses                                                      784                    784
Loans past due 60 days or more                                                     15,599                 17,312
Nonperforming loans                                                                13,142                 19,785
Nonperforming assets (2)                                                           19,044                 26,905
Allowance for loan losses as a percent of:
    Total loans (1)                                                                   1.6%                   1.8%
    Loans past due 60 days or more                                                  225.2                  195.4
    Nonperforming loans                                                             267.3                  171.0
Total allowance for loan losses and real estate losses as a percent
   of nonperforming assets                                                          188.6                  128.7
Nonperforming loans as a percent of total loans                                       0.6                    1.1
Nonperforming assets as a percent of total assets                                     0.5                    0.7
Loans past due 60 days or more as a percent of total loans                            0.7                    0.9

</TABLE>

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

(1)     Loans, net of unearned discounts and undisbursed loan proceeds.

(2)     Nonperforming loans and real estate owned.



                                       18
<PAGE>   19

The following table sets forth the activity in the allowance for loan losses:


<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED                     NINE MONTHS ENDED
                                                       SEPTEMBER 30,                         SEPTEMBER 30,
                                               ----------------------------            ----------------------------
                                                 1998                1997                1998                1997
                                               --------            --------            --------            --------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                            <C>                 <C>                 <C>                 <C>     
Balance at beginning of period                 $ 35,747            $ 36,616            $ 33,834            $ 40,211
Chargeoffs:
    Mortgage loans                               (1,046)             (2,187)             (3,184)             (7,426)
    Consumer loans                               (3,352)             (3,138)             (9,894)             (9,947)
                                               --------            --------            --------            --------
                                                 (4,398)             (5,325)            (13,078)            (17,373)

Recoveries:
    Mortgage loans                                  383                   1                 402                  16
    Consumer loans                                1,050               1,018               2,834               3,154
                                               --------            --------            --------            --------
                                                  1,433               1,019               3,236               3,170
                                               --------            --------            --------            --------
Net chargeoffs                                   (2,965)             (4,306)             (9,842)            (14,203)
Adjustments                                          --                 (16)                 --                (687)
Provision for loan losses                         2,347               2,223              11,137               9,196
                                               --------            --------            --------            --------
Balance at end of period                       $ 35,129            $ 34,517            $ 35,129            $ 34,517
                                               ========            ========            ========            ========

Ratio of net chargeoffs during period
    to average loans outstanding
   during the period (annualized)                  0.63%               0.84%               0.69%               0.96%
                                               ========            ========            ========            ========

</TABLE>



                              RESULTS OF OPERATIONS

SUMMARY

The Company reported net losses of $3.9 million or $0.15 per diluted share and
$15.5 million or $0.59 per diluted share for the three and nine months ended
September 30, 1998, compared to net income of $8.9 million or $0.34 per diluted
share and $26.7 million or $1.01 per diluted share for the comparable periods of
1997. The net loss for the quarter was the result of a $4.5 million
restructuring charge related to the Company's restructuring plans of its
automobile lending subsidiary and because the Company did not execute an
automobile loan backed securitization during the quarter. The Company did not
recognize any gain on sale as a result of not securitizing in the third quarter,
which negatively impacted the timing of revenue recognition.

NET INTEREST INCOME

Net interest income was $28.9 million and $79.3 million for the three and nine
months ended September 30, 1998, compared to $29.1 million and $83.7 million for
the same periods in 1997.

The total interest rate spread increased 29 basis points for the three months
ended September 30, 1998, compared to the same period of 1997 due to a increase
of 22 basis points in the yield on interest earning assets and a decrease in the
cost of funds of 7 basis points. The increase in the yield on interest earning
assets is due to the increase in the relative amount of automobile loans held on
balance sheet. The decrease in the cost of interest bearing liabilities is the
result of a 29 basis point decline in the cost of deposits. This is due to lower
rates paid on certificates of deposits, as well as increases in the balances of
commercial and retail demand deposit accounts.



                                       19
<PAGE>   20


Interest rates for interest earning assets and liabilities for the three and
nine months ended September 30, 1998 and 1997 are summarized as follows:


<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED               NINE MONTHS ENDED
                                                           SEPTEMBER 30,                   SEPTEMBER 30,
                                                      ------------------------        ----------------------
                                                       1998            1997            1998            1997
                                                      ------          ------          ------          ------
                                                      YIELD/          YIELD/          YIELD/          YIELD/
                                                       RATE            RATE            RATE            RATE
                                                      -----           -----           -----           -----
<S>                                                   <C>             <C>             <C>             <C>  

Interest  earning assets:
    Investment securities(1)                           5.45%           5.41%           5.45%           5.47%
    Mortgage-backed securities(1)                      6.59            7.26            6.75            7.31
    Other investments                                  4.99            6.36            5.47            5.83

Loans:
    Consumer                                          14.86           15.90           15.39           15.97
    Mortgage(2)                                        7.81            7.82            7.61            7.76
    Commercial                                         8.58            8.79            8.58            8.65
                                                      -----           -----           -----           -----
Total interest earning assets                          8.83            8.61            8.46            8.55

Interest bearing liabilities:
    Deposits                                           5.21            5.50            5.28            5.53
    Subordinated debentures                            8.95            8.93            8.95            8.87
    Securities sold under agreements
      to repurchase                                    5.95            5.53            5.86            5.49
    FHLB advances and other borrowings                 7.38            6.36            7.53            6.34
                                                      -----           -----           -----           -----
Total interest bearing liabilities                     5.77            5.84            5.80            5.79
                                                      -----           -----           -----           -----

Interest rate spread                                   3.06%           2.77%           2.66%           2.76%
                                                      =====           =====           =====           =====

Net yield on average interest earning assets           3.70%           3.56%           3.35%           3.53%
                                                      =====           =====           =====           =====
</TABLE>


(1)     1997 includes both securities available for sale and held to maturity.

(2)     For the purposes of these computations, nonaccruing loans are included
        in the average loan amounts outstanding.

ASSET/LIABILITY MANAGEMENT

Asset/liability management is the process of measuring and controlling interest
rate risk through matching the maturity and repricing characteristics of
interest earnings assets with those of interest bearing liabilities.

The Company's approach to asset/liability management includes originating
adjustable rate loans, securitizing loans with liabilities that have similar
repricing and maturity characteristics, matching fixed rate loans held in the
portfolio with advances from the FHLB, selling fixed rate loans and using other
financial instrument agreements.

The Company also originates fixed-rate automobile loans. To minimize interest
rate risk associated with its automobile loan portfolio, the Company generally
sells substantially all of its automobile loan


                                       21
<PAGE>   21


production in securitization transactions in which it has retained the servicing
rights. The interest rate passed through to the purchasers of those automobile
loans is fixed, which provides off-balance sheet matched funding for the
majority of the Company's automobile loans. At September 30, 1998, the Company
serviced $3.3 billion in automobile loans for others.

Approximately 24% of the Company's other borrowed funds at September 30, 1998
had fixed rates and maturities greater than one year. Of that amount, 97% were
subordinated debentures redeemable in three and seven years and maturing in nine
and ten years.

The Company uses interest rate swaps, options, caps, floors and forward
agreements as part of its hedging strategy to reduce the sensitivity of its
assets to adverse changes in interest rates. These instruments are carried at,
and included as part of, the basis of the underlying assets. The Company's
interest rate swaps consist of agreements to pay fixed-rate interest and receive
floating-rate interest at specified intervals based on an agreed notional
amount, a specified index and settlement on a net basis. The Company minimizes
the effect of changes in interest rate on loans held for sale by entering into
forward agreements that protect the hedged assets from changes in interest
rates. Master netting agreements are arranged or collateral is obtained through
physical delivery of, or rights to, securities to minimize the Company's
exposure to credit losses in the event of nonperformance by counterparties to
financial instruments.

The Company has entered into or committed to interest rate caps, floors and
swaps as hedges against market value changes in designated portions of its MBS.
At September 30, 1998, cap agreements with notional amounts totalling $540
million, a floor agreement of $150 million and a swap agreement of $50 million
were outstanding. The cap agreements have strike rates that range from 6.0% to
8.0% and expire between April, 2001 and March, 2008. The floor agreement has a
strike rate of 5.75% and expires in April, 2003. The swap has a pay rate of
5.895% and expires in December, 2002. The Company uses only counterparties with
high credit ratings and further reduces its risk by avoiding any material
concentration with a single counterparty. Credit exposure is limited to those
agreements with a positive fair value and only to the extent of that fair value.

The Company's hedging strategy for its automobile loan production includes the
use of forward agreements. The Company enters into these agreements in numbers
and amounts which generally correspond to the principal amount of the sale
and/or securitization transactions. The market value of these forward agreements
is designed to respond inversely to the market value changes of the underlying
loans. Because of this inverse relationship, the Company can effectively lock in
its gain and/or gross interest rate spread at the time of the hedge transaction.
Gains and losses relative to these agreements are deferred and recognized in
full at the time of loan sale and/or securitization as an adjustment to the gain
or loss on the sale of loans. The Company uses only highly rated counterparties
and further reduces its risk by avoiding any material concentration with a
single counterparty. Credit exposure is limited to those agreements with a
positive fair value and only to the extent of that fair value. At September 30,
1998, the Company held forward agreements with a notional amount outstanding of
$928 million.

The Company's ability to maintain a positive spread during periods of
fluctuating interest rates is determined principally by the maturities and
repricing mechanisms of its interest earning assets and interest bearing
liabilities. Synchronizing the repricing of an institution's assets and
liabilities to minimize interest rate risk is commonly referred to as gap
management. Negative gap occurs when an institution's liabilities reprice more
rapidly than its assets and positive gap occurs when an institution's assets
reprice more rapidly than its liabilities.


                                       22
<PAGE>   22
The Company's asset/liability management strategy is to match its loan and
investment products with interest bearing liabilities having similar repricing
characteristics and durations. This strategy includes originating adjustable
rate loans, matching loans with liabilities that have similar repricing and
maturity characteristics, matching fixed rate loans held in the portfolio with
advances from the FHLB, selling fixed rate loans and utilizing financial
instrument agreements. These agreements are used by the Company solely to manage
interest rate risk within its portfolio and include interest rate swaps, caps,
options, floors and forward agreements.

The following table illustrates the projected interest rate maturities, based
upon certain assumptions, regarding the major asset and liability categories of
the Company at September 30, 1998. The interest rate sensitivity of the
Company's assets and liabilities illustrated in the following table could vary
substantially if different assumptions were used or actual experience differs
from the assumptions set forth.

                       INTEREST RATE SENSITIVITY ANALYSIS
                              AT SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                  3 YEARS
                                        WITHIN       3 MONTHS      1 YEAR TO        TO         AFTER 5
                                       3 MONTHS      TO 1 YEAR      3 YEARS       5 YEARS       YEARS         TOTAL
                                      -----------   -----------   -----------   -----------   -----------   -----------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                   <C>           <C>           <C>           <C>           <C>           <C>      
Interest earning assets:
Investment securities                 $        --   $    25,298   $    40,436   $    10,241   $     1,841   $    77,816
Other investments                          17,050           297            --            --            --        17,347
Mortgage-backed securities                 73,461       188,479       333,245       184,913       295,638     1,075,736
Consumer loans(1)                          69,165       253,339       442,443       220,890         9,005       994,842
Mortgage loans:
  Adjustable rate(2)                      624,454       184,643            --            --            --       809,097
  Fixed rate(2)                            35,965        42,236        86,212        58,576       125,733       348,722
Construction(2)                             9,789            --            --            --            --         9,789
Commercial                                 47,298         8,740           758         2,005           294        59,095
                                      -----------   -----------   -----------   -----------   -----------   -----------
Total interest earning assets             877,182       703,032       903,094       476,625       432,511     3,392,444

Interest bearing liabilities:
Deposits:
  Savings accounts(3)                       3,426         8,889         3,626            --            --        15,941
  Money market deposit
    accounts(3)                            27,603       109,288       121,313            --            --       258,204
  Certificate of deposit accounts(4)      763,163       829,905       112,769        40,380             7     1,746,224
  Securities sold under agreements
  to repurchase                           343,291            --            --            --            --       343,291
FHLB advances(4)                           70,008         6,540           116         6,633         1,585        84,882
Subordinated debentures                        --            --            --        92,812       147,298       240,110
Other borrowings(4)                       362,543            --         6,516            --            --       369,059
                                      -----------   -----------   -----------   -----------   -----------   -----------

Total interest bearing liabilities      1,570,034       954,622       244,340       139,825       148,890     3,057,711
                                      -----------   -----------   -----------   -----------   -----------   -----------
Excess interest earning assets
  (liabilities)                          (692,852)     (251,590)      658,754       336,800       283,621       334,733
Effect of hedging activities              440,000      (100,000)     (100,000)     (165,000)      (75,000)
                                      -----------   -----------   -----------   -----------   -----------   -----------
Hedged excess (deficit)               $  (252,852)  $  (351,590)  $   558,754   $   171,800   $   208,621   $   334,733
                                      ===========   ===========   ===========   ===========   ===========   ===========

Cumulative excess (deficit)           $  (252,852)  $  (604,442)  $   (45,688)  $   126,112   $   334,733   $   334,733
                                      ===========   ===========   ===========   ===========   ===========   ===========

Cumulative excess as a
  percentage of total interest
  earning assets                            (7.45)%      (17.82)%       (1.35)%        3.72%         9.87%         9.87%

</TABLE>

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

(1)     Based on contractual maturities adjusted by the Company's historical
        prepayment rate.

(2)     Based on interest rate repricing adjusted for projected prepayments.

(3)     Based on assumptions established by the Office of Thrift Supervision
        ("OTS").

(4)     Based on contractual maturity.


                                       23
<PAGE>   23


PROVISION FOR LOAN LOSSES

The provision for loan losses for the three and nine months ended September 30,
1998 was $2.3 million and $11.1 million compared to $2.2 million and $9.2
million for the same periods in 1997. The increase for the nine months ended
September 30, 1998 compared to the same period of 1997 is the result of a $3.0
million increase in on-balance sheet allowance for loan losses as a result of
the restructuring of the automobile lending business in the first quarter of
1998.

NONINTEREST INCOME

Noninterest income totaled $27.3 million for the third quarter of 1998 compared
with $52.0 million a year earlier. During the nine months ended September 30,
1998, noninterest income declined to $92.5 million from $163 million for the
comparable period of 1997. The decline is primarily due to lower automobile
lending income because the Company did not securitize automobile loans in the
third quarter of 1998 and higher automobile loan losses as well as lower
mortgage banking income due to the write-down of the Company's mortgage
servicing assets as a result of the pending sale and accelerated mortgage
prepayments.

AUTOMOBILE LENDING

The Company originates and subsequently sells automobile loans in the secondary
market with servicing rights retained. Income from automobile lending includes
gain from the sale of loans, as well as retained interest and contractual
servicing income and other related income such as dealer acquisition fees and
late charges. Retained interest income represents excess spread earned on
securitized automobile loans less any losses not absorbed by the off-balance
sheet allowance for losses. For the three and nine months ended September 30,
1998, automobile lending generated income of $20.7 million and $74.9 million
compared to $40.8 million and $135 million for the same periods of 1997.

The Company has centralized its credit risk management functions. This
centralized area is responsible for setting and monitoring credit policy,
through reunderwriting, for the entire automobile lending business and oversees
the development and implementation of the Company's computerized credit scoring
system. The credit scorecard system was fully implemented in the third quarter
of 1998. This system will aid underwriters in making lending decisions so that
rate, term and loan to value ratio can be adequately balanced against the
assessed credit risk.

The Company did not recognize any gain on sale in the third quarter compared
with an $12.0 million gain in the third quarter of 1997. For the nine month
period ended September 30, 1998, gain on sale was $19.1 million compared to
$25.8 million for the same period of 1997. The decrease is because the Company
did not securitize automobile loans in the third quarter of 1998 which
negatively impacted the timing of revenue recognition. However, because of the
Company's liquidity position, it realized lower financing costs and wider
interest margins by retaining contracts on the balance sheet at a time when
asset-backed securitization transactions were adversely affected by wider
spreads and higher pricing. Gross interest rate spread is affected by product
mix, general market conditions and overall market interest rates. The risks
inherent in interest rate fluctuations are reduced through hedging activities.

Retained interest and contractual servicing income totalled $12.3 million and
$29.7 million for the three and nine months ended September 30, 1998, compared
to $19.5 million and $82.4 million for the comparable periods of 1997 due to
lower retained interest income and higher amortization of retained


                                       24
<PAGE>   24

interests in securitized assets as a result of higher loan losses. The Company
serviced $3.2 billion of consumer loans for others at September 30, 1998
compared to $3.4 billion at September 30, 1997.

Automobile lending income for the three and nine months ended September 30, 1998
and 1997 is summarized as follows:


<TABLE>
<CAPTION>
                                                THREE MONTHS ENDED                NINE MONTHS ENDED
                                                  SEPTEMBER 30,                      SEPTEMBER 30,
                                           --------------------------          --------------------------
                                             1998              1997              1998              1997
                                           --------          --------          --------          --------
                                                              (DOLLARS IN THOUSANDS)
<S>                                        <C>               <C>               <C>               <C>     
Gain on sale of automobile loans           $     --          $ 12,004          $ 19,133          $ 25,839
Retained interest and contractual
  servicing income                           12,266            19,547            29,710            82,392
Other fee income                              8,402             9,202            26,038            26,869
                                           --------          --------          --------          --------
                                           $ 20,668          $ 40,753          $ 74,881          $135,100
                                           ========          ========          ========          ========
</TABLE>

MORTGAGE BANKING

The Company originates mortgage loans for sale in the secondary market. Mortgage
banking operations include gains and losses on the sale of loans, loan servicing
income net of amortization of capitalized servicing rights and other income
(primarily late charges). During the three and nine months ended September 30,
1998, mortgage banking generated income of $5.1 million and $9.2 million
compared to $6.2 million and $18.4 million for the comparable periods of 1997.
The Company's mortgage banking results were directly impacted by the declining
interest rate environment that has caused higher prepayments which in turn has
accelerated the amortization of the Company's capitalized servicing assets.
Gains on sale of mortgage loans for the three and nine months ended September
30, 1998 totalled $7.5 million and $13.8 million compared to $5.4 million and
$13.3 million for the same periods in 1997. Net loan servicing loss was $3.0
million and $6.5 million for the three and nine months ended September 30, 1998
compared to net loan servicing income of $0.2 million and $3.3 million for the
comparable periods of 1997. During the month of September, the Company signed a
letter of intent to sell substantially all of its mortgage servicing rights. The
Company plans to complete the sale during the fourth quarter of 1998.

Mortgage banking income for the three and nine months ended September 30, 1998
and 1997 is summarized as follows:


<TABLE>
<CAPTION>
                                            THREE MONTHS ENDED                   NINE MONTHS ENDED
                                               SEPTEMBER 30,                       SEPTEMBER 30,
                                        ---------------------------          ---------------------------
                                          1998               1997              1998               1997
                                        --------           --------          --------           --------
                                                           (DOLLARS IN THOUSANDS)
<S>                                     <C>                <C>               <C>                <C>     
Gain on sale of mortgage loans          $  7,507           $  5,369          $ 13,815           $ 13,328
Loan servicing income (loss)              (3,042)               212            (6,540)             3,335
Other fee income                             600                613             1,899              1,689
                                        --------           --------          --------           --------
                                        $  5,065           $  6,194          $  9,174           $ 18,352
                                        ========           ========          ========           ========
</TABLE>


                                       25
<PAGE>   25

OTHER

Other sources of income include insurance income and real estate operations.
Insurance income is generated primarily from commissions earned on the sale of
loan-related insurance products as well as insurance-related investment
products. Insurance income for the three and nine months ended September 30,
1998 totaled $1.4 million and $4.2 million compared to $1.9 million and $4.4
million for the same periods in 1997.

Real estate operations include the ongoing costs of operation and disposition
associated with the Company's REOs. Real estate operations had income of $0.2
million and a loss of $0.1 million for the three and nine months ended September
30, 1998 compared to income of $0.6 million and a loss of $39 thousand for the
same periods in 1997.

NONINTEREST EXPENSE

Noninterest expense consists of salaries and employee benefits, occupancy, data
processing expense, insurance, restructuring charge and other miscellaneous
expenses. Noninterest expense decreased to $60.8 million and increased to $191
million for the three and nine months ended September 30, 1998 compared to $61.6
million and $183 million for the same periods in 1997. The increase for the nine
months ended September 30, 1998 is primarily due to a $15.0 million
restructuring charge related to the automobile lending business discussed in the
restructuring paragraph below. The ratio of noninterest expenses to average
serviced assets was 0.73% and 0.72% for the three and nine months ended
September 30, 1998 compared to 2.1% and 2.5% for the same periods in 1997.

RESTRUCTURING

During the third quarter of 1998, the Company completed the restructuring of its
automobile lending operations in the Central and Eastern United States,
patterned after the restructuring of the Company's automobile lending offices in
the Western United States which occurred in the first quarter of 1998. As part
of the restructuring in the third quarter, the Company recorded a pre-tax
restructuring charge of $4.5 million, which brings the total pre-tax
restructuring charge for the nine months ended September 30, 1998 to $15.0
million. Restructuring related costs included $1.8 million for employee
severance and $13.2 million for lease termination fees and asset disposition.
This completes the Company's restructuring of its automobile lending operations.
As a result of these programs, a total of 400 positions, or 19% of the Company's
workforce were eliminated and 96 offices were closed. The restructuring programs
are designed to save up to $22.0 million annually in expenses.

INCOME TAXES

The effective tax rate for the nine months ended September 30, 1998 and 1997 was
41.1% and 42.2% respectively.



                                       26
<PAGE>   26

                        CAPITAL RESOURCES AND LIQUIDITY

The Company has multiple sources of funds generated through its operations.
Primary sources of funds include deposits, loan principal and interest payments
received, sales of mortgage loans and consumer loans, sales of or payments on
mortgage-backed securities and the maturity or sale of investment securities.
Other sources include commercial paper, Federal Home Loan Bank advances and
repurchase agreements. Prepayments on loans and mortgage-backed securities and
deposit inflows and outflows are affected significantly by interest rates, real
estate sales activity and general economic conditions.

The Company's wholly-owned subsidiary, Western Financial Bank receives long 
term deposit and subordinated debt ratings. In November 1998, Moodys downgraded 
the long term deposit (to Ba3 from Ba2), issuer (to B1 from Ba3) and 
subordinated debt (to B2 from B1) ratings of the Bank. This downgrade could 
result in higher future financing costs.

The Company uses its funds to meet its business needs which include funding new
and maturing certificates of deposit, savings, money market and demand deposit
withdrawals, repaying borrowings, funding loan and investment commitments,
meeting operating expenses and maintaining minimum regulatory liquidity and
capital levels. Office of Thrift Supervision ("OTS") regulations require the
Company, as a savings association, to maintain a specified level of liquid
assets such as cash and short-term U.S. government and other qualifying
securities. Such liquid assets must not be less than 4.0% for September 1998 and
December 1997 of the Company's average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. At September 30, 1998 and
December 31, 1997, such ratios were 6.4% and 9.1%, respectively.

For the year ended September 30, 1998, net cash used by operating activities was
$649 million compared to $275 million for the year ended September 30, 1997. The
major component of cash flows related to operating activities was cash outflows
due to net change in loans held for sale. There was a net outflow of $642
million for the quarter ended September 30, 1998 compared to $225 million for
the year ended September 30, 1997 due to more automobile loans held on balance
sheet because the Company did not securitize automobile loans in the third
quarter of 1998.

Net cash provided by investing activities for the year ended September 30, 1998
was $179 million compared to net cash used in investing activities of $164
million for the year ended September 30, 1997. The major components related to
investing activities was due to a decrease in loans receivable of $282 million
for the year ended September 30, 1998 compared to $31.1 million for the year
ended September 30, 1997.

The Company's net cash provided by financing activities during the year ended
September 30, 1998, was $387 million compared to $377 million for the year ended
September 30, 1997 due to an increase in short term borrowings.

The Bank, a federally chartered savings bank, is subject to certain minimum
capital requirements imposed by the Financial Institution Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"). FDICIA separates all financial institutions
into one of five capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." In order to be considered "well capitalized," an
institution must have a total risk-based capital ratio of 10% or greater, a Tier
1 (i.e., core) risk-based capital ratio of 6% or greater, a leverage ratio of 5%
or greater and not be subject to any OTS order. The Bank currently meets all of
the requirements of a "well capitalized" institution. Its regulatory capital
position at September 30, 1998 for this purpose, was as follows:


                                       27
<PAGE>   27


<TABLE>
<CAPTION>
                                                                                         TIER 1
                                                   TANGIBLE            CORE              RISK-BASED         RISK-BASED
                                                   CAPITAL            CAPITAL            CAPITAL            CAPITAL
                                                   --------           --------           --------           --------
SEPTEMBER 30, 1998                                                       (DOLLARS IN THOUSANDS) 
<S>                                                <C>                <C>                <C>                <C>     
Actual Capital:
  Amount                                           $343,932           $343,932           $343,932           $601,544
  Capital ratio                                        8.36%              8.36%              6.29%             11.00%
FIRREA minimum required capital:
  Amount                                           $ 61,740           $123,481                N/A           $437,499
  Capital ratio                                        1.50%              3.00%               N/A               8.00%
  Excess                                           $282,192           $220,451                N/A           $164,045
FDICIA well capitalized required capital:
  Amount                                                N/A           $205,801           $328,124           $546,875
  Capital ratio                                         N/A               5.00%              6.00%             10.00%
  Excess                                                N/A           $138,131           $ 15,808           $ 54,671

DECEMBER 31, 1997
Actual Capital:
  Amount                                           $355,650           $355,650           $352,123           $639,937
  Capital ratio                                        9.48%              9.48%              6.74%             12.24%
FIRREA minimum required capital:
  Amount                                           $ 56,249           $112,498                N/A           $418,115
  Capital ratio                                        1.50%              3.00%               N/A               8.00%
  Excess                                           $299,401           $243,152                N/A           $221,822
FDICIA well capitalized required capital:
  Amount                                                N/A           $188,574           $313,587           $522,644
  Capital ratio                                         N/A               5.00%              6.00%             10.00%
  Excess                                                N/A           $167,076           $ 38,536           $117,293

</TABLE>



                                       28
<PAGE>   28

The following table reconciles the Bank's capital in accordance with generally
accepted accounting principles ("GAAP") to the Bank's tangible, core and
risk-based capital as of September 30, 1998 and December 31, 1997.


<TABLE>
<CAPTION>
                                                           SEPTEMBER 30,       DECEMBER 31,
                                                             1998                1997
                                                           ---------           ------------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                        <C>                 <C>      
Bank shareholder's equity-GAAP basis                       $ 336,608           $ 345,426
Adjustments for tangible and core capital:
  Unrealized gains under SFAS 115                             (7,556)             (5,858)
  Non-permissible activities(1)                               (5,062)            (10,222)
  Disallowed capitalized servicing rights                     (3,821)             (3,234)
  Minority interest in equity of subsidiaries                 23,763              29,538
                                                           ---------           ---------
Tier 1 (core) capital                                        343,932             355,650
Adjustments for risk-based capital:
  Subordinated debentures(2)                                 224,824             256,311
  General loan valuation allowance(3)                         32,788              31,503
  Equity investments and other assets required to
     be deducted(4)                                               --              (3,527)
                                                           ---------           ---------
  Risk-based capital                                       $ 601,544           $ 639,937
                                                           =========           =========

</TABLE>

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

(1)     Does not include minority interest in joint venture subsidiaries.

(2)     Maximum includable is 40% of risk-based capital and excludes issue
        costs.

(3)     Limited to 1.25% of risk-weighted assets.

(4)     Amount is deducted from core capital at December 31, 1997.

YEAR 2000

During 1997, the Company began a formal risk evaluation of potential Year 2000
issues. The Year 2000 issue arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19". If not corrected, many computer applications could fail and create
erroneous results. The outcome of the risk evaluation was the formation of a
Year 2000 Committee that consists of officers and employees of the Company. In
addition, there is a committee that consists of directors that provide oversight
and direction to the Year 2000 Committee. The purpose of this committee is to
assess all risks, analyze current systems, coordinate upgrades and replacements,
and report current and projected status of all known Year 2000 compliance
issues.

The Bank, a federally chartered savings bank, is subject to supervision and
regulation by the Office of Thrift Supervision ("OTS"). As such, the Bank's
compliance to Year 2000 issues are subject to the examination by the OTS.

The Company has initiated a five-phase program to address the issues related to
the Year 2000 and the impact on the Company's information and non-information
technology systems. In addition, as part of the program the Company is in
contact with its principal vendors to assess whether their Year 2000 issues, if
any, will affect the Company.

The Company, in phase one, identified Year 2000 issues and created a plan. In
phase two, the Company took inventory of the systems and programs affected by
the Year 2000 issues. Currently, the Company is in the third and fourth phases


                                       29
<PAGE>   29

of its Year 2000 plan. In these phases, the Company is insuring that the systems
have been fixed and will test these systems for Year 2000 readiness. It is
estimated the third and fourth phases will be completed by June 1999. The final
phase implements the tested Year 2000 compliant systems. This phase is estimated
to begin in June 1999 and completed by September 1999.

The Company's replacement or remedied costs for Year 2000 compliance issues
expense is estimated at approximately $1.7 million, which the Company will
expense as incurred. This estimated cost consists primarily of software upgrades
that include new features which are combined with Year 2000 corrections. The
Company's inception to date Year 2000 cost in approximately $0.8 million

Due to the uncertainty and lack of current disclosure by the electrical utility
industry regarding the progress toward becoming Year 2000 compliant, the Company
estimates that the worst case Year 2000 scenario would be a possible
discontinuance of electrical power. In the event of an electrical power failure,
the Company has the capability to run its information systems at the corporate
location on diesel powered generators. There is no guarantee, however, that all
issues will be foreseen and corrected, or that no material disruption of our
business will occur.

                           FORWARD-LOOKING STATEMENTS

The preceding Management's Discussion and Analysis of Financial Condition and
Results of Operations section contains certain "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995 which
provides a new "safe harbor" for certain forward-looking statements. This Form
10-Q contains forward-looking statements which reflect the Company's current
views with respect to future events and financial performance. These
forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The forward-looking
terminology such as "believe", "expect", "design", "anticipate", "intend",
"may", "will", "should", "estimate", "continue" and/or the negative thereof or
other comparable expressions which indicate future events and trends identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of their dates. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The most significant among these risks and uncertainties
are (1) the level of chargeoffs, (2) the Company's ability to achieve adequate
volumes and interest rate spreads, (3) the continued availability of liquidity
sources, (4) the level of operating costs and (5) the impact of the Year 2000.



                                       30
<PAGE>   30


                           PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

           The Company or its subsidiaries are involved as parties to certain
           legal proceedings incidental to their businesses. The Company
           believes that the outcome of such proceedings will not have a
           material effect upon the Company's financial condition, results of
           operations and cash flows.

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

           Exhibit 27       Financial Data Schedule for the Nine Months Ended
                            September 30, 1998

     (b)   REPORTS ON FORM 8-K

           None



                                       31
<PAGE>   31


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.

                                                  WESTCORP
                                        ----------------------------------------
                                                (Registrant)





 Date:  November 11, 1998               By: /s/ JOY SCHAEFER
        --------------------------         -------------------------------------
                                           Joy Schaefer
                                           Senior Executive Vice President and
                                           Chief Operating Officer

 Date:  November 11, 1998               By: /s/ LEE A. WHATCOTT
        --------------------------         -------------------------------------
                                           Lee A. Whatcott
                                           Senior Vice President and
                                           Chief Financial Officer
                                           (Principal Financial and Accounting
                                           Officer)


                                       32
<PAGE>   32

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit 
Number         Description
------         -----------
<S>            <C>                                                       
27             Financial Data Schedule for the Nine Months Ended
               September 30, 1998

</TABLE>