##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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FORM 10-K



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(Mark One)



| |   |                                                     
| | - | ----------------------------------------------------
| | x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31,
2001

OR



| |   |                                                         
| | - | --------------------------------------------------------
| | o | 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 33-93068

WFS FINANCIAL INC

(Exact name of registrant as specified in its
Charter)


|                                                                            |  |                                                  
|--------------------------------------------------------------------------- |  | -------------------------------------------------
|California
	(State or other jurisdiction of
	incorporation or organization) |  | 33-0291646
	(I.R.S. Employer
	Identification No.)
|                                                                           
|23 Pasteur, Irvine, California
	(Address of principal executive offices)    |  | 92618-3816
	(Zip Code)                           

Registrants telephone number, including
area code (949) 727-1002

Securities registered pursuant to
Section 12(b) of the Act:

NONE


Securities registered pursuant to
Section 12(g) of the Act:

Title of each class

Common Stock, no par value


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
last 90 days.  Yes
x  No
o

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

The aggregate market value of the voting stock
held by non-affiliates of the

registrant as of March 21, 2002:


Common Stock, No Par Value 
$165,847,681


The number of shares outstanding of the
issuers class of common stock as of March 21, 2002:

Common Stock, No Par Value  40,982,153


DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for
the Annual Meeting of Shareholders to be held May 2, 2002
are incorporated by reference into Part III.



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TABLE OF CONTENTS



|                |                                                                                              |  |  |  |  |  |  | 
|--------------- | -------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I         
|                | Item 1.Business                                                                             
|                | Item 2.Properties                                                                           
|                | Item 3.Legal Proceedings                                                                    
|                | Item 4.Submission of Matters to a Vote of Security Holders                                  
|PART II        
|                | Item 5.Market for Registrants Common Equity and Related Stockholder Matters                
|                | Item 6.Selected Financial Data                                                              
|                | Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations
|                | Item 7A.Quantitative and Qualitative Disclosure About Market Risk                           
|                | Item 8.Financial Statements and Supplementary Data                                          
|                | Item 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 
|PART III       
|                | Item 10.Directors and Executive Officers of the Registrant                                  
|                | Item 11.Executive Compensation                                                              
|                | Item 12.Security Ownership of Certain Beneficial Owners and Management                      
|                | Item 13.Certain Relationships and Related Transactions                                      
|PART IV        
|                | Item 14.Financial Statement Schedules, Exhibits and Reports on Form 8-K                     
|SIGNATURES     
|EXHIBIT 10.3.1 
|EXHIBIT 10.5   
|EXHIBIT 10.6   
|EXHIBIT 10.6.1 
|EXHIBIT 10.6.2 
|EXHIBIT 10.9.2 
|EXHIBIT 10.9.3 
|EXHIBIT 10.16.1
|EXHIBIT 10.16.2
|EXHIBIT 10.16.3
|EXHIBIT 10.18.3
|EXHIBIT 10.19.1
|EXHIBIT 10.20  
|EXHIBIT 21.1   
|EXHIBIT 23.1   



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

TABLE OF CONTENTS

|         |  |                                                                                        |  |      |    | 
|-------- |  | -------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |  |                                                                                        |  | Page
|         |  |                                                                                        |  |     
|PART I  
|Item 1.  |  | Business                                                                               |  |      | 1  | 
|Item 2.  |  | Properties                                                                             |  |      | 18 | 
|Item 3.  |  | Legal Proceedings                                                                      |  |      | 18 | 
|Item 4.  |  | Submission of Matters to a Vote of Security
	Holders                                   |  |      | 18 | 
|PART II 
|Item 5.  |  | Market for Registrants Common Equity and
	Related Stockholder Matters                 |  |      | 19 | 
|Item 6.  |  | Selected Financial Data                                                                |  |      | 20 | 
|Item 7.  |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations |  |      | 22 | 
|Item 7A. |  | Quantitative and Qualitative Disclosure About
	Market Risk                             |  |      | 41 | 
|Item 8.  |  | Financial Statements and Supplementary Data                                            |  |      | 43 | 
|Item 9.  |  | Changes in and Disagreements With Accountants on
	Accounting and Financial Disclosure  |  |      | 43 | 
|PART III
|Item 10. |  | Directors and Executive Officers of the Registrant                                     |  |      | 44 | 
|Item 11. |  | Executive Compensation                                                                 |  |      | 44 | 
|Item 12. |  | Security Ownership of Certain Beneficial Owners
	and Management                        |  |      | 44 | 
|Item 13. |  | Certain Relationships and Related Transactions                                         |  |      | 44 | 
|PART IV 
|Item 14. |  | Financial Statement Schedules, Exhibits and
	Reports on Form 8-K                       |  |      | 45 | 



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##### Table of Contents






PART I




Item 1. Business

General

We are one of the nations largest
independent automobile finance companies with 29 years of
experience in the automobile finance industry. We believe that
the automobile finance industry is the second largest consumer
finance industry in the United States with over
$825 billion of loan and lease originations during 2001. We
originate new and pre-owned automobile installment contracts
through our relationships with over 7,500 franchised and
independent automobile dealers nationwide. We originated
$4.9 billion of contracts during 2001 and managed a
portfolio of $8.2 billion at December 31, 2001.

Approximately 25% of our contract originations
are for the purchase of new automobiles and approximately 75% of
our contract originations are for the purchase of pre-owned
automobiles. Approximately 76% of our contract originations are
with borrowers who have strong credit histories, otherwise
generally known as prime borrowers, and approximately 24% of our
contract originations are with borrowers who have overcome past
credit difficulties, otherwise generally known as non-prime
borrowers.

We underwrite contracts through a credit approval
process that is supported and controlled by a centralized,
automated front-end system. This system incorporates proprietary
credit scoring models and industry credit scoring models and
tools, which enhance our credit analysts ability to tailor
each contracts pricing and structure to maximize
risk-adjusted returns. As a result of our sophisticated credit
and underwriting systems, we are able to earn attractive
risk-adjusted returns on our contracts. For the year ended
December 31, 2001, the average net interest spread was
9.61% while net credit losses averaged 2.27% for the same period.

We structure our business to minimize operating
costs while providing high quality service to our dealers. Those
aspects that require a local market presence are performed on a
decentralized basis in our 43 offices. All other operations
are centralized. We fund our purchases of contracts, on an
interim basis, with deposits raised at our parent, Western
Financial Bank, also known as the Bank, which are insured by the
Federal Deposit Insurance Corporation, also known as the FDIC,
and other borrowings of the Bank. For long-term financing, we
issue automobile contract asset-backed securities. Since 1985,
we have sold or securitized over $24 billion of contracts
in 54 public offerings of asset-backed securities, making
us the fourth largest issuer of such securities in the nation.
The relationship between us and the Bank gives us a competitive
advantage relative to other independent automobile finance
companies by providing a significant source of liquidity at a
low cost and affording us the ability to enter the automobile
contract asset-backed securities market on an opportunistic
basis.

The following table presents a summary of our
contracts purchased:

|                    |              |                                 |           |           |  |      |           |           |  |   |           |           | 
|------------------- | ------------ | ------------------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                    |              |                                
|                    |              | For the Year Ended December 31,
|                    |              |                                
|                    |              | 2001                            |           | 2000      |  | 1999
|                    |              |                                 |           |           |  |     
|                    |              |                                
|                    |              | (Dollars in thousands)         
|New vehicles        |              | $                               | 1,208,753 |           |  | $    | 1,028,394 |           |  | $ | 796,339   |          
|Pre-owned vehicles  |              |                                 | 3,654,526 |           |  |      | 3,190,833 |           |  |   | 2,543,807 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 4,863,279 |  |      | $         | 4,219,227 |  |   | $         | 3,340,146 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|Prime contracts     |              | $                               | 3,675,351 |           |  | $    | 2,900,960 |           |  | $ | 2,313,573 |          
|Non-prime contracts |              |                                 | 1,187,928 |           |  |      | 1,318,267 |           |  |   | 1,026,573 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 4,863,279 |  |      | $         | 4,219,227 |  |   | $         | 3,340,146 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          

The History of WFS

Western Thrift & Loan Association, a
California-licensed thrift and loan association, was founded in
1972. In 1973, Western Thrift Financial Corporation was formed
as the holding company for Western Thrift & Loan
Association. Western Thrift Financial Corporation later changed
its name to Westcorp. In 1982,

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Westcorp acquired Evergreen Savings and Loan
Association, a California-licensed savings and loan association,
which became a wholly owned subsidiary of Westcorp. The
activities of Western Thrift & Loan Association and
Evergreen Savings and Loan Association were merged together in
1982, and Evergreen Savings and Loan Associations name was
changed ultimately to Western Financial Bank.


Western Thrift & Loan Association was
involved in automobile finance activities from its incorporation
until its merger with Evergreen Savings and Loan Association. At
such time, the Bank continued the automobile finance activities
of Western Thrift & Loan Association. In 1988, we were
incorporated as a wholly owned consumer finance subsidiary of
the Bank to provide non-prime automobile finance services, a
market not serviced by the Banks automobile finance
division.

In 1995, the Bank transferred its automobile
finance division to us. In connection with that restructuring,
the Bank transferred to us all assets relating to its automobile
finance division, including the contracts held on balance sheet
and all interests in the excess spread payable from outstanding
securitizations. The Bank also transferred to us all of the
outstanding stock of WFS Financial Auto Loans, Inc., also known
as WFAL, and WFS Financial Auto Loans 2, Inc., also known
as WFAL2, the securitization entities of the Bank, thereby
making these companies our subsidiaries. In 1995, we sold
approximately 20% of our shares in a public offering.

As an operating subsidiary of the Bank, we are
subject to examination and comprehensive regulation by the
Office of Thrift Supervision, also known as the OTS, the FDIC,
and certain regulations of the Board of Governors of the Federal
Reserve System, also known as the FRS.

On January 22, 2002, we filed a registration
statement with the Securities Exchange Commission, also known as
the SEC, to provide our shareholders an exclusive opportunity to
purchase additional shares of stock through a rights offering.
The registration statement for this offering became effective on
February 11, 2002. Shareholders of record as of the close
of business on February 12, 2002 were distributed rights to
purchase additional shares at a price of $18.00 per share. For
each share of common stock owned, the shareholders received one
right, and for each 5.7 rights, the shareholders were
entitled to purchase one share of common stock. Rights were
exercisable until March 4, 2002. The Board of Directors of
our parent exercised the Banks basic subscription right
and its oversubscription right as part of this offering. We
raised a total of $110 million through the issuance of
6.2 million additional common shares. At the completion of
this rights offering, the Bank held 84% of WFS.

Market and Competition

The automobile finance industry is generally
segmented according to the type of car sold (new versus
pre-owned) and the credit characteristics of the borrower
(prime, non-prime or sub-prime). Based upon industry data, we
believe that during 2001, prime, non-prime and sub-prime loan
originations in the United States were $550 billion,
$150 billion and $125 billion, respectively. The
United States captive automobile finance companies, General
Motors Acceptance Corporation, Ford Motor Credit Company and
Chrysler Credit Corporation account for approximately 40% of the
automobile finance market. We believe that the balance of the
market is highly fragmented and that no other market participant
has greater than a 4% market share. Other market participants
include the captive automobile finance companies of other
manufacturers, banks, credit unions, independent automobile
finance companies and other financial institutions.

Our dealer servicing and underwriting
capabilities and systems enable us to compete effectively in the
automobile finance market. Our ability to compete successfully
depends largely upon our strong personal relationships with
dealers and their willingness to offer to us contracts that meet
our underwriting criteria. Our relationship is fostered by the
promptness with which we process and fund contracts, as well as
the flexibility and scope of the programs we offer. We purchase
the full spectrum of prime and non-prime contracts secured by
both new and pre-owned vehicles.

The competition for contracts available within
the prime and non-prime credit quality contract spectrum is more
intense when the rate of automobile sales declines. Although we
have experienced consistent growth for many years, we can give
no assurance that we will continue to do so. Several of our
competitors have greater financial resources than we have and
may have a significantly lower cost of funds. Many of our

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competitors also have longstanding relationships
with automobile dealers and may offer dealers or their customers
other forms of financing or services not provided by us. The
finance company that provides floor planning for the
dealers inventory is also ordinarily one of the
dealers primary sources of financing for automobile sales.
We do not currently provide financing on dealers
inventories. We must also compete with dealer interest rate
subsidy programs offered by the captive automobile finance
companies. However, frequently those programs are limited to
certain models or to certain loan terms that may not be
attractive to many new automobile purchasers. Also, these
programs are rarely offered on pre-owned vehicles.


Our Business Strategy

Our business objective is to maximize long-term
profitability by efficiently purchasing and servicing prime and
non-prime credit quality contracts that generate strong and
consistent risk-adjusted returns. We achieve this objective by
employing our business strategy, which includes the following
key elements:



| |   |                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------
| |  | produce consistent, measured growth through our
	outstanding dealer relationships;                           
|
| |  | price contracts to maximize risk-adjusted returns
	by using advanced technology and experienced underwriters;
|
| |  | create operating efficiencies through technology
	and best practices;                                        
|
| |  | generate low cost liquidity through diverse
	funding sources, including positive operating cash flows; and   
|
| |  | record high quality earnings and maintain a
	conservative well-capitalized balance sheet.                    



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Produce Consistent, Measured Growth Through
	Our Outstanding Dealer Relationships

Over the past five years, we have experienced a
compounded annual growth rate in contract purchases of 18%. We
provide a high degree of personalized service to our dealership
base by marketing, underwriting and purchasing contracts on a
local level. Our focus is to provide each dealer superior
service by providing a single source of contact to meet the
dealers prime and non-prime financing needs. We believe
that the level of our service surpasses that of our competitors
by making our business development representatives available any
time a dealer is open, making prompt credit decisions,
negotiating credit decisions within available programs by
providing structural alternatives and funding promptly.

Growth of originations is primarily through
increased dealer penetration. We intend to increase contract
purchases from our current dealer base as well as develop new
dealer relationships. Prior to 1995, we originated contracts in
seven, primarily western states. Subsequently, we increased our
geographic penetration nationwide. Although our presence is well
established throughout the country, we believe that we still
have opportunities to build market share, especially in those
states that we entered since 1994. In addition, we have improved
our dealer education and delivery systems in order to increase
the ratio of contracts purchased to the number of applications
received from a dealer, thereby improving the efficiency of our
dealer relationships. We are also seeking to increase contract
purchases through new dealer programs targeting high volume,
multiple location dealers. These programs focus on creating
relationships with dealers to achieve higher contract
originations and improving efficiencies. We also originate loans
directly from consumers and purchase loans from other finance
companies on a limited basis. Additionally, we continue to
explore other distribution channels, including the Internet.
Recently, we acquired approximately a 10% interest in
DealerTrack Holdings, Inc., also known as DealerTrack, an
Internet business to business portal that brings together
finance companies with dealers. DealerTrack has signed up nine
finance companies and 13,500 dealers and expects to have
15,000 dealers by the end of 2002. Currently, 20% of our
applications are derived from our relationship with DealerTrack.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | Price Contracts to Maximize Risk-Adjusted
	Returns By Using Advanced Technology and Experienced
	Underwriters

Quality underwriting and servicing are essential
to effectively assess and price for risk and to maximize
risk-adjusted returns. We rely on a combination of credit
scoring models, system-controlled underwriting

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policies and the judgment of our trained credit
analysts to make risk-based credit decisions. We use credit
scoring to differentiate applicants and to rank order credit
risk in terms of expected default probability. Based upon this
statistical assessment of credit risk, the underwriter is able
to appropriately tailor contract pricing and structure.


To achieve the return anticipated at origination,
we have developed a disciplined behavioral servicing process for
the early identification and cure of delinquent contracts and
for loss mitigation. In addition, we provide credit and
profitability incentives to our associates to make decisions
consistent with our underwriting policies by offering bonuses
based both on individual and office-wide performance.

The following table shows the risk-adjusted
margins on contracts originated over the past several years:

|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|-------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                           |  |                                
|                           |  | For the Year Ended December 31,
|                           |  |                                
|                           |  | 2001                            |       | 2000 |  | 1999 |       | 1998 |  | 1997
|                           |  |                                 |       |      |  |      |       |      |  |     
|Weighted average coupon(1) |  |                                 | 14.37 | %    |  |      | 14.93 | %    |  |      | 14.65 | % |  |  | 14.59 | % |  |  | 15.33 | %
|Interest on borrowings(1)  |  |                                 | 4.76  |      |  |      | 7.33  |      |  |      | 6.23  |   |  |  | 5.95  |   |  |  | 6.36  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net interest margins       |  |                                 | 9.61  |      |  |      | 7.60  |      |  |      | 8.42  |   |  |  | 8.64  |   |  |  | 8.97  |  
|Credit losses(2)           |  |                                 | 2.27  |      |  |      | 1.91  |      |  |      | 2.13  |   |  |  | 3.42  |   |  |  | 3.02  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Risk-adjusted margins      |  |                                 | 7.34  | %    |  |      | 5.69  | %    |  |      | 6.29  | % |  |  | 5.22  | % |  |  | 5.95  | %
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  




|    |                                                                           
|--- | --------------------------------------------------------------------------
|(1) | Represents the rate on contracts originated
	during the periods indicated.
|(2) | Represents the rate on managed contracts during
	the periods indicated.   



| |                                                                     
| | --------------------------------------------------------------------
| | Create Operating Efficiencies Through
	Technology and Best Practices

Since 1997, we have spent approximately
$40 million in new technology and we have evaluated all
aspects of our operations in order to streamline processes and
employ best practices throughout the organization.

Our key technology systems implemented through
this process include:



| |   |                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | automated front-end origination system which
	calculates borrower ratios, maintains lending parameters and
	approval limits, accepts electronic applications and directs
	applications to the appropriate credit analyst, all of which
	have reduced the cost of receiving, underwriting and funding
	contracts;
|
| |  | custom designed proprietary scoring models that
	rank order the risk of loss occurring on a particular contract;                                                                                                                                                                                                
|
| |  | behavioral delinquency management system which
	improves our ability to queue accounts according to the level of
	risk, monitor collector performance and track delinquent
	accounts;                                                                                                                           
|
| |  | centralized and upgraded borrower services
	department which includes remittance processing, interactive
	voice response technology and direct debit services;                                                                                                                                                  
|
| |  | centralized imaging system that provides for the
	electronic retention and retrieval of account records; and                                                                                                                                                                                                    
|
| |  | data warehouse that provides analytical tools
	necessary to evaluate performance of our portfolio by multiple
	dimensions.                                                                                                                                                                                      

As a result of these efforts, we have reduced our
operating costs as a percent of managed loans from a high of
4.2% during the second quarter of 1998 to 2.5% for the fourth
quarter of 2001. We have substantially completed the
implementation of our legacy systems and major changes to
business practices. We will, however, continue to evaluate new
technology and best practices to further improve our operating
efficiencies.

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| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Generate Low Cost Liquidity Through Diverse
	Funding Sources, Including Positive Operating Cash
	Flows

The Bank provides us, through notes and lines of
credit, with over $2.0 billion in financing to fund our
operations. This source of liquidity is made available primarily
as a result of the Banks ability to raise a significant
amount of deposits through its retail and commercial banking
divisions. The Bank can also obtain additional financing through
other borrowing sources. These sources of funds provide us the
liquidity to fund our contract purchases and allow us to
opportunistically enter the automobile contract asset-backed
securities market. Cash flows from operations provide an
additional source of liquidity for us. For the year ended
December 31, 2001, we generated $173 million in
positive cash flows from our operations.



| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | Record High Quality Earnings and Maintain a
	Conservative Well-capitalized Balance Sheet

Presenting high quality earnings and maintaining
a conservative and well-capitalized balance sheet has been our
focus since our founding in 1972. We believe that this strategy
ensures success over the long-term rather than providing
extraordinary short-term results and is manifested by the
success that we have enjoyed over the past 29 years.
Components of this strategy include accounting for our
automobile securitizations as secured financings rather than
sales and maintaining solid allowances for credit losses.

Since March 2000, we have structured our
securitizations as secured financings. By accounting for our
automobile securitizations as secured financings, the contracts
and notes issued remain on the balance sheet and the earnings of
the contracts in the trust and the related financing costs are
reflected over the life of the underlying pool of contracts as
net interest income. Additionally, no retained interest in
securitized assets, also known as RISA, is recorded on the
balance sheet with a corresponding non-cash gain on sale. The
RISA must be written off over the life of a securitization. This
asset is subject to impairment if assumptions made about the
performance of a securitization are not realized. At
December 31, 2001, the RISA (net of tax) created from
asset-backed securities issued prior to April 2000 represented
4.9% of total equity. This compares with a high of
$181 million or 58% of equity in 1997. We expect the RISA
to be fully amortized or otherwise eliminated by the end of 2002.

We maintain an allowance for credit losses for
both on and off balance sheet contracts. Our on balance sheet
allowance for credit losses as a percentage of owned contracts
was 2.5% and 2.3% as of December 31, 2001 and
December 31, 2000, respectively. Our off balance sheet
allowance for credit losses as a percentage of outstanding
contracts sold through securitizations was 3.9% and 4.2%,
respectively.

Operations

Locations

We currently originate contracts nationwide
through 43 offices. Each office manager is accountable for
the performance of contracts originated in that office
throughout the life of the contracts, including acquisition,
underwriting, funding and collection. We have two national
service centers located in California and Texas with functions
including data entry and verification, records management,
remittance processing, customer service call centers and
automated dialers. We maintain three regional bankruptcy and
remarketing centers and have a centralized asset recovery center
located in California. Our corporate offices are located in
Irvine, California.

Business
Development

The business development representatives
responsibilities include improving our relationship with
existing dealers and enrolling and educating new dealers to
increase the number of contracts originated. The business
development representatives target selected dealers within their
territory based upon volume, potential for business, financing
needs of the dealers, and competitors that are doing business
with such dealers.

If we decide to do business with a new dealer, we
perform a review process of the dealer and its business. If we
then determine to proceed, we enter into a non-exclusive
dealership agreement with the dealer. This

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agreement contains certain representations
regarding the contracts the dealer will sell to us. Due to the
non-exclusive nature of our relationship with dealers, they
retain discretion to determine whether to sell contracts to us
or another financial institution. The business development
representative is responsible for educating the dealers
finance managers about the types of contracts that meet our
underwriting standards. This education process ensures that we
minimize the number of applications we receive that are outside
of our underwriting guidelines, thereby increasing our
efficiency and lowering our overall cost to originate contracts.


After this relationship is established, the
business development representative continues to actively
monitor the relationship with the objective of maximizing the
overall profitability of each dealer relationship within his or
her territory. This includes ensuring that a significant number
of approved applications received from each dealer are actually
funded by us, ensuring that the type of contracts received meets
our underwriting standards, monitoring the risk-based pricing of
contracts acquired and reviewing the actual performance of the
contracts purchased. To the extent that a dealer does not meet
minimum conversion ratio or lending volume standards, the dealer
may be precluded from sending us applications in the future.
During the year, our dealer base declined from approximately
8,500 to 7,500, primarily as a result of us eliminating dealers
that did not meet our standards. Our increase in volume is the
result of funding more contracts from dealers that meet our
standards. Business development managers within each regional
business center provide direct management oversight to each
business development representative. In addition, the director
of sales and marketing provides oversight management to ensure
that all business development managers and representatives are
following overall corporate guidelines.

Underwriting
and Purchasing of Contracts

The underwriting process begins when an
application is faxed to our centralized data entry center or
sent to us via the Internet. Our data entry group enters the
applicant information from faxed applications into our front-end
underwriting computer system. Internet applications are
automatically loaded into our front-end system. Once the
application is in the front-end system, the system automatically
obtains credit bureau information on the applicant and
calculates our proprietary credit score.

We use credit scoring to differentiate credit
applicants and to rank order credit risk in terms of expected
default probabilities, which enables us to tailor contract
pricing and structure according to this statistical assessment
of credit risk. For example, a consumer with a lower score would
indicate a higher probability of default; therefore, we would
structure and price the transaction to compensate for this
higher default risk. Multiple scorecards are used to accommodate
the full spectrum of contracts we purchase. In addition to a
credit score, the system highlights certain aspects of the
credit application which have historically impacted the credit
worthiness of the borrowers. Credit analysts are responsible for
properly structuring and pricing deals to meet our risk-based
criteria. They review the information, structure and price of an
application and make a determination whether to approve, decline
or make a counteroffer to the dealer. Each credit analysts
lending levels and approval authorities are established based on
the individuals credit experience and portfolio
performance, credit manager audit results and quality control
review results. Higher levels of approvals are required for
higher credit risk and are controlled by system driven
parameters and limits. System driven controls include limits on
interest rates, contract terms, contract advances, payment to
income ratios, debt to income ratios, collateral values and low
side overrides.

Once adequate approval has been received, the
computer system automatically sends a fax back to the dealer or
through the Internet with our credit decision, specifying
approval, denial or conditional approval based upon modification
to the structure, such as increase in down payment, reduction of
term, or the addition of a co-signer. As part of the approval
process, the system or the credit analyst may require that some
of the information be verified, such as income, employment,
residence or credit history of the applicant. The system
increases efficiency by automatically denying approval in
certain circumstances without additional underwriting being
performed. These automated notices are controlled by parameters
set by us consistent with our credit policy.

If the dealer accepts the terms of the approval,
the dealer is required to deliver the necessary documentation
for such contract to the appropriate office. The funding group
audits such documents for

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completeness and consistency with the
application, providing final approval and funding of the
contract. A direct deposit is made or a check is prepared and is
promptly sent to the dealer for payment. The dealers
proceeds may include dealer participation for consideration of
the acquisition of the contract. The completed contract file is
then forwarded to the appropriate record center for imaging.


Under the direction of the Credit and Pricing
Committee, the Chief Credit Officer oversees credit risk
management, sets underwriting policy, monitors automobile
contract pricing, tracks compliance to underwriting policies and
re-underwrites select contracts. If re-underwriting statistics
are unacceptable, all monthly and quarterly incentives are
forfeited by the office that originated the contracts. Our
internal quality control group reviews contracts on a
statistical sampling basis to ensure adherence to established
lending guidelines and proper documentation requirements. Credit
managers within each regional business center provide direct
management oversight to each credit analyst. In addition, the
Chief Credit Officer provides oversight management to ensure
that all credit managers and analysts are following overall
corporate guidelines.

The following table sets forth information for
contracts originated, contracts managed and number of dealers in
the states in which we operate our business:

|               |  |                                 |           |                      |  |      |           |                   |  |                   |           |  |  |   |           |  |  |  |       | 
|-------------- |  | ------------------------------- | --------- | -------------------- |  | ---- | --------- | ----------------- |  | ----------------- | --------- |  |  | - | --------- |  |  |  | ----- | 
|               |  |                                 |           |                      |  |     
|               |  | Contract Purchases              |           |                     
|               |  | For the Year Ended December 31, |           | At December 31, 2001
|               |  |                                 |           |                     
|State          |  | 2001                            |           | 2000                 |  | 1999 |           | Managed Portfolio |  | Number of Dealers
|               |  |                                 |           |                      |  |      |           |                   |  |                  
|               |  |                                
|               |  | (Dollars in thousands)         
|California     |  | $                               | 1,928,371 |                      |  | $    | 1,680,814 |                   |  | $                 | 1,375,877 |  |  | $ | 3,314,200 |  |  |  | 2,053 | 
|Arizona        |  |                                 | 324,299   |                      |  |      | 277,217   |                   |  |                   | 196,935   |  |  |   | 517,134   |  |  |  | 270   | 
|Washington     |  |                                 | 216,003   |                      |  |      | 186,078   |                   |  |                   | 166,760   |  |  |   | 345,768   |  |  |  | 337   | 
|Oregon         |  |                                 | 196,292   |                      |  |      | 158,944   |                   |  |                   | 128,154   |  |  |   | 290,018   |  |  |  | 344   | 
|Florida        |  |                                 | 184,289   |                      |  |      | 175,341   |                   |  |                   | 138,981   |  |  |   | 324,321   |  |  |  | 352   | 
|Texas          |  |                                 | 181,651   |                      |  |      | 158,138   |                   |  |                   | 185,795   |  |  |   | 319,491   |  |  |  | 359   | 
|Ohio           |  |                                 | 174,040   |                      |  |      | 165,860   |                   |  |                   | 103,615   |  |  |   | 305,416   |  |  |  | 413   | 
|North Carolina |  |                                 | 138,956   |                      |  |      | 106,664   |                   |  |                   | 84,543    |  |  |   | 225,069   |  |  |  | 272   | 
|South Carolina |  |                                 | 129,963   |                      |  |      | 91,246    |                   |  |                   | 57,315    |  |  |   | 196,855   |  |  |  | 165   | 
|Colorado       |  |                                 | 123,788   |                      |  |      | 130,247   |                   |  |                   | 111,486   |  |  |   | 215,054   |  |  |  | 207   | 
|Nevada         |  |                                 | 105,747   |                      |  |      | 101,311   |                   |  |                   | 90,521    |  |  |   | 194,480   |  |  |  | 100   | 
|Virginia       |  |                                 | 99,056    |                      |  |      | 97,997    |                   |  |                   | 61,094    |  |  |   | 177,378   |  |  |  | 230   | 
|Illinois       |  |                                 | 93,709    |                      |  |      | 76,020    |                   |  |                   | 62,755    |  |  |   | 150,947   |  |  |  | 211   | 
|Tennessee      |  |                                 | 83,892    |                      |  |      | 68,955    |                   |  |                   | 52,128    |  |  |   | 138,983   |  |  |  | 157   | 
|Georgia        |  |                                 | 82,352    |                      |  |      | 71,341    |                   |  |                   | 39,136    |  |  |   | 135,513   |  |  |  | 229   | 
|Utah           |  |                                 | 77,321    |                      |  |      | 63,531    |                   |  |                   | 45,767    |  |  |   | 113,722   |  |  |  | 144   | 
|Idaho          |  |                                 | 77,184    |                      |  |      | 48,639    |                   |  |                   | 36,649    |  |  |   | 111,331   |  |  |  | 115   | 
|Michigan       |  |                                 | 67,905    |                      |  |      | 52,489    |                   |  |                   | 22,472    |  |  |   | 99,044    |  |  |  | 148   | 
|Missouri       |  |                                 | 57,883    |                      |  |      | 64,372    |                   |  |                   | 46,456    |  |  |   | 106,682   |  |  |  | 149   | 
|Pennsylvania   |  |                                 | 46,122    |                      |  |      | 39,317    |                   |  |                   | 28,831    |  |  |   | 79,676    |  |  |  | 138   | 
|Kentucky       |  |                                 | 41,526    |                      |  |      | 34,658    |                   |  |                   | 23,603    |  |  |   | 66,183    |  |  |  | 105   | 
|Maryland       |  |                                 | 41,286    |                      |  |      | 36,431    |                   |  |                   | 26,279    |  |  |   | 73,819    |  |  |  | 93    | 
|Wisconsin      |  |                                 | 40,826    |                      |  |      | 37,439    |                   |  |                   | 24,839    |  |  |   | 64,219    |  |  |  | 99    | 
|Indiana        |  |                                 | 36,739    |                      |  |      | 26,759    |                   |  |                   | 23,951    |  |  |   | 59,094    |  |  |  | 93    | 
|Alabama        |  |                                 | 31,967    |                      |  |      | 49,053    |                   |  |                   | 45,706    |  |  |   | 75,707    |  |  |  | 96    | 
|New York       |  |                                 | 29,801    |                      |  |      | 5,097     |                   |  |                   | 395       |  |  |   | 30,045    |  |  |  | 104   | 
|New Jersey     |  |                                 | 28,280    |                      |  |      | 26,552    |                   |  |                   | 17,690    |  |  |   | 51,383    |  |  |  | 86    | 
|Massachusetts  |  |                                 | 27,778    |                      |  |      | 22,126    |                   |  |                   | 25,131    |  |  |   | 47,898    |  |  |  | 64    | 
|Delaware       |  |                                 | 26,173    |                      |  |      | 23,709    |                   |  |                   | 11,326    |  |  |   | 42,971    |  |  |  | 38    | 
|Oklahoma       |  |                                 | 25,065    |                      |  |      | 16,318    |                   |  |                   | 13,974    |  |  |   | 35,537    |  |  |  | 37    | 
|New Mexico     |  |                                 | 24,146    |                      |  |      | 9,469     |                   |  |                   | 15,089    |  |  |   | 32,784    |  |  |  | 30    | 

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|              |       |                                 |        |                      |  |      |        |                   |  |                   |        |           |  |  |        |           |  |  |    |       | 
|------------- | ----- | ------------------------------- | ------ | -------------------- |  | ---- | ------ | ----------------- |  | ----------------- | ------ | --------- |  |  | ------ | --------- |  |  | -- | ----- | 
|              |       |                                 |        |                      |  |     
|              |       | Contract Purchases              |        |                     
|              |       | For the Year Ended December 31, |        | At December 31, 2001
|              |       |                                 |        |                     
|State         |       | 2001                            |        | 2000                 |  | 1999 |        | Managed Portfolio |  | Number of Dealers
|              |       |                                 |        |                      |  |      |        |                   |  |                  
|              |       |                                
|              |       | (Dollars in thousands)         
|Kansas        |       |                                 | 21,533 |                      |  |      | 22,683 |                   |  |                   | 12,736 |           |  |  | 38,731 |           |  |  | 58 |      
|Mississippi   |       |                                 | 19,691 |                      |  |      | 17,434 |                   |  |                   | 14,901 |           |  |  | 36,847 |           |  |  | 45 |      
|Minnesota     |       |                                 | 18,240 |                      |  |      | 11,156 |                   |  |                   | 446    |           |  |  | 21,140 |           |  |  | 48 |      
|West Virginia |       |                                 | 11,930 |                      |  |      | 16,763 |                   |  |                   | 7,241  |           |  |  | 23,783 |           |  |  | 28 |      
|Connecticut   |       |                                 | 11,508 |                      |  |      | 13,638 |                   |  |                   | 15,799 |           |  |  | 25,451 |           |  |  | 43 |      
|New Hampshire |       |                                 | 10,563 |                      |  |      | 7,157  |                   |  |                   | 4,125  |           |  |  | 15,350 |           |  |  | 36 |      
|Iowa          |       |                                 | 9,228  |                      |  |      | 13,027 |                   |  |                   | 7,334  |           |  |  | 19,593 |           |  |  | 35 |      
|Wyoming       |       |                                 | 6,918  |                      |  |      | 5,114  |                   |  |                   | 4,050  |           |  |  | 10,630 |           |  |  | 21 |      
|Nebraska      |       |                                 | 5,248  |                      |  |      | 5,427  |                   |  |                   | 683    |           |  |  | 8,000  |           |  |  | 17 |      
|Rhode Island  |       |                                 | 2,947  |                      |  |      | 2,642  |                   |  |                   | 3,304  |           |  |  | 5,953  |           |  |  | 15 |      
|South Dakota  |       |                                 | 2,078  |                      |  |      |        |                   |  |                   |        |           |  |  | 1,708  |           |  |  | 7  |      
|Maine         |       |                                 | 985    |                      |  |      | 2,054  |                   |  |                   | 897    |           |  |  | 2,399  |           |  |  | 7  |      
|Hawaii        |       |                                 |        |                      |  |      |        |                   |  |                   | 5,377  |           |  |  | 2,575  |           |  |  |    |      
|              |       |                                 |        |                      |  |      |        |                   |  |                   |        |           |  |  |        |           |  |  |    |      
|              | Total |                                 | $      | 4,863,279            |  |      | $      | 4,219,227         |  |                   | $      | 3,340,146 |  |  | $      | 8,152,882 |  |  |    | 7,598 | 
|              |       |                                 |        |                      |  |      |        |                   |  |                   |        |           |  |  |        |           |  |  |    |      

Servicing of
Contracts

We service all of the contracts we purchase, both
those held by us and those sold in securitizations or whole loan
sales. The servicing process includes the routine collection and
processing of payments, responding to borrower inquiries,
maintaining the security interest in the vehicle, maintaining
physical damage insurance coverage and repossessing and selling
collateral when necessary. During the second quarter of 2000, we
implemented a new decision support system which incorporates
behavioral scoring models and allows us to continually seek the
most efficient and effective collection methods.

We use monthly billing statements to serve as a
reminder to borrowers as well as an early warning mechanism in
the event a borrower has failed to notify us of an address
change. Payments received in the mail or through our offices are
processed by our remittance processing center. To expedite the
collection process, we accept payments from borrowers through
automated payment programs including PC banking, direct debits
and third party payment processing services. Our customer
service center uses interactive voice response technology to
answer routine account questions and route calls to the
appropriate service counselor.

Our fully integrated servicing, decision and
collections system automatically forwards accounts to our
automated dialer or regional collection centers based on the
assessed risk of default or loss. Account assessment poses
several courses of action, including delaying collection
activity based on the likelihood of self curing, directing an
account to the automated dialer for a predetermined number of
days before being forwarded to a regional collections office, or
directly forwarding to a collection specialist in the regional
office for accelerated collection efforts as early as seven days
past due. This process balances the efficiency of centralized
collection efforts with the effectiveness of decentralized
personal collection efforts. Our systems track delinquencies and
chargeoffs, monitor the performance of our collection associates
and assist in delinquency forecasting. To assist in the
collection process, we can access original documents through our
imaging system which stores all the documents related to each
contract. We limit deferments to a maximum of three over the
life of the contract and rarely rewrite contracts.

If satisfactory payment arrangements are not
made, the automobile is generally repossessed within 60 to
90 days of the date of delinquency, subject to compliance
with applicable law. We use independent contractors to perform
repossessions. The automobile remains in our custody generally
for 15 days, or longer if required by local law, to provide
the obligor the opportunity to redeem the automobile contract.
If after the redemption period the delinquency is not cured, we
write down the vehicle to fair value and reclassify the
automobile contract as a repossessed asset. After the redemption
period expires, we prepare the automobile for sale. We sell
substantially all repossessed automobiles through wholesale
automobile auctions, subject to applicable

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law. We do not provide the financing on
repossessions sold. We use regional remarketing departments to
sell our repossessed vehicles. Once the vehicles are sold, any
remaining deficiency balances are then charged off. At
December 31, 2001, repossessed automobiles managed by us
totaled $7.6 million or 0.09% of the total managed
portfolio compared with $6.2 million or 0.09% of the total
managed portfolio at December 31, 2000.


It is our policy to charge off an account when it
becomes contractually delinquent by 120 days, except for
accounts that are in Chapter 13 bankruptcy, even if we have
not yet repossessed the vehicle. At the time that an automobile
contract is charged off, all accrued interest is reversed. For
those accounts that are in Chapter 13 bankruptcy and
contractually past due 120 days, all accrued interest is
reversed and income is recognized on a cash basis. Additionally,
we mark down such contracts to fair value and reclassify them as
non-performing accounts. After chargeoff, we collect deficiency
balances through our centralized asset recovery center. These
efforts include contacting the borrower directly, seeking a
deficiency judgment through a small claims court, or instituting
other judicial action where necessary. In some cases,
particularly where recovery is believed to be less likely, the
account may be assigned to a collection agency for final
resolution. We also monitor payment plans on those obligors who
have filed for bankruptcy.

Transactions with Related Parties

Relationship
with the Bank and its Controlling Parties

In our opinion, the transactions described herein
under the caption Transactions with Related Parties
have been on terms no less favorable to us than could be
obtained from unaffiliated parties, notwithstanding that the
transactions were not negotiated at arms length. However,
the transactions were approved by our entire Board of Directors
and the Boards of Directors of the Bank and Westcorp, including
their respective independent directors. Furthermore, any future
transactions with the Bank or affiliated persons will continue
to be approved by a majority of our disinterested directors. See
Supervision and Regulation.

Intercompany
Borrowings

We have various borrowing arrangements with the
Bank. A $125 million note and a $135 million note are
long-term, unsecured debt, while lines of credit are designed to
provide financing for us and our subsidiaries. These borrowings
are the only source of liquidity utilized by us outside of the
asset-backed securities market. These transactions eliminate
upon consolidation. The $125 million note was paid off in the
third quarter of 2001 in connection with the retirement of the
Banks 8.5% subordinated debentures.

We borrowed $125 million from the Bank under
the terms of the $125 million note. The $125 million
note provided for principal payments of $25 million per
year, commencing on April 30, 1999 and continuing through
its final maturity, April 30, 2003. Interest payments on
the $125 million note were due quarterly, in arrears,
calculated at the rate of 7.25% per annum. We made paydowns on
the $125 million note of $11.2 million for the year
ended December 31, 2001 compared with $32.7 million
and $66.1 million for years ended December 31, 2000
and 1999, respectively, without prepayment penalties. There was
no outstanding balance on the $125 million note at
December 31, 2001 compared with $11.2 million
outstanding on December 31, 2000. Interest expense on this
note totaled $0.5 million, $1.5 million and
$5.4 million for the years ended December 31, 2001,
2000 and 1999, respectively.

Additionally, we borrowed $135 million under
the terms of the $135 million note. We initially borrowed
$50 million under this note in 1997, and the amount was
increased to $135 million in 1999. According to the terms
of the amendment in 1999, the $135 million note provided
for two equal principal payments of $67.5 million per year,
commencing July 31, 2001. Under its original terms,
interest payments on the $135 million note were due
quarterly, in arrears, calculated at the rate of 9.42% per
annum. On January 1, 2002, the agreement was amended to
increase the principal amount from $67.5 million to
$150 million and to decrease the interest rate from 9.42%
to 8.875% annum. The principal is now all due and payable on
August 1, 2007, although the Bank has the option to require
payment in part or in full at any time prior to that date.
Pursuant to the terms of this note, we may not incur any other
indebtedness which is senior to the obligations evidenced by
this note except for (i) indebtedness under the
$125 million note (ii) indebtedness collateralized or
secured under the line of credit and (iii) indebtedness for
similar types of warehouse lines of credit. There

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was $67.5 million outstanding on this note
at December 31, 2001 compared with $135 million at
December 31, 2000. Interest expense on this note totaled
$10.1 million, $12.7 million and $9.3 million for
the years ended December 31, 2001, 2000 and 1999,
respectively.


We also have a secured line of credit extended by
the Bank permitting us to draw up to $1.8 billion as needed
to be used in our operations. We do not pay a commitment fee for
the line of credit. The secured line of credit terminates on
December 31, 2004, although the term may be extended by us
for additional periods up to 60 months. There was
$374 million and $236 million outstanding on this line
of credit at December 31, 2001 and 2000, respectively. On
November 30, 2001, we entered into additional unsecured
lines of credit with the Bank. These lines permit us to draw up
to a total of $180 million to fund our initial deposits to
spread accounts on securitizations. The unsecured lines of
credit terminate on December 1, 2006, although the terms
may be extended by us for additional periods up to
60 months. At December 31, 2001, the amount
outstanding was $47.3 million.

The lines of credit carry an interest rate based
on the one-month London Interbank Offer Rate, also known as
LIBOR, and an interest spread of 125 basis points and 75 basis
points for the unsecured and secured lines, respectively. The
Bank has the right under the lines of credit to refuse to permit
additional amounts to be drawn if, in the Banks
discretion, the amount sought to be drawn will not be used to
finance our purchase of contracts or other working capital
requirements. Interest on the amounts outstanding under the
lines of credit is paid monthly, in arrears, and is calculated
on the daily average amount outstanding that month. Interest
expense totaled $8.9 million, $37.9 million, and
$26.0 million for the years ended December 31, 2001,
2000 and 1999, respectively. The weighted average interest rates
for the lines of credit were 4.43%, 7.09% and 5.33% for the
years ended December 31, 2001, 2000 and 1999, respectively.

Short-Term
Investments  Parent

We also invest our excess cash at the Bank under
an investment agreement. The Bank paid us an interest rate equal
to the federal composite commercial paper rate on this excess
cash for the year ended December 31, 2001. On
January 1, 2002, the agreement was amended to revise the
interest rate to the one-month LIBOR. The weighted average
interest rate was 3.80%, 6.58% and 5.23% for the years ended
December 31, 2001, 2000 and 1999. We held no excess cash
with the Bank under the investment agreement at
December 31, 2001 and 2000. Interest income earned under
this agreement totaled $4.9 million, $1.2 million and
$0.1 million for the years ended December 31, 2001,
2000 and 1999, respectively.

Reinvestment
Contracts

Pursuant to a series of agreements to which we,
the Bank and WFAL2, among others, are parties, we are able to
access the cash flows of each of the outstanding securitizations
and the cash held in each spread account for each of those
transactions. We are permitted to use that cash as we determine,
including in our ordinary business activities of originating
contracts.

In each securitization, the Bank and WFAL2 have
entered into a reinvestment contract that is deemed to be an
eligible investment under the relevant securitization
agreements. The securitization agreements require, provided
certain conditions are met, that all cash flows of the relevant
trust and the associated spread accounts be invested in the
applicable reinvestment contract. A limited portion of the
invested funds may be used by WFAL2 and the balance may be used
by the Bank. The Bank makes its portion available to us pursuant
to the terms of the WFS Reinvestment Contract. Under the WFS
Reinvestment Contract, we receive access to all of the cash
available to the Bank under each trust reinvestment contract and
are obligated to repay to the Bank an amount equal to the cash
so used when needed by the Bank to meet its obligations under
the individual trust reinvestment contracts. With the portion of
the cash available to it under the individual trust reinvestment
contracts, WFAL2 purchases contracts from us pursuant to the
terms of the sale and servicing agreements.

In accordance with this agreement, the Bank and
WFAL2 pledge property owned by each for the benefit of the
trustee of each trust and the surety. We pay the Bank a fee
equal to 12.5 basis points of the amount of collateral pledged
by the Bank as consideration for the pledge of collateral and
for our access to cash under the

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WFS Reinvestment Contract. We paid the Bank $1.1
million, $0.7 million and $0.6 million for the years
ended December 31, 2001, 2000 and 1999, respectively, for
this purpose. As WFAL2 directly utilizes the cash made available
to it to purchase contracts for its own account from us, no
additional consideration from us is required to support
WFAL2s pledge of its property under the agreement with
Financial Security Assurance, also known as FSA. While we are
under no obligation to repurchase contracts from WFAL2, to the
extent WFAL2 needs to sell any such contracts to fund its
repayment obligations under the trust reinvestment contracts, it
is anticipated that we would prefer to purchase those contracts
than for WFAL2 to sell those contracts to a third party. The WFS
Reinvestment Contract, by its terms, is to remain in effect so
long as any of the trust reinvestment contracts is an eligible
investment for its related securitization. There was
$942 million and $832 million outstanding on the trust
reinvestment contracts at December 31, 2001 and 2000,
respectively.


Whole Loan
Sales

We sold $1.4 billion of contracts to
Westcorp in whole loan sales for each of the years ended
December 31, 2001 and 2000. In these transactions, we
received cash for the amount of the principal outstanding on the
contracts plus a premium of $44.3 million and
$41.2 million for the years ended December 31, 2001
and 2000, respectively. These premiums were recorded as a cash
gain on sale, net of the write-off of outstanding dealer
participation balances and the effect of hedging activities.
These contracts were subsequently securitized by Westcorp and
continue to be managed by us under the terms of the transactions.

Tax Sharing
Agreement

We and our subsidiaries, WFAL, WFAL2 and WFS
Investments, Inc., also known as WFSII, WFS Funding Inc., also
known as WFSFI, WFS Receivables Corporation, also known as
WFSRC, and WFS Web Investments, also known as WFSWEB, are
parties to a tax sharing agreement with Westcorp, the Bank and
other subsidiaries of Westcorp, pursuant to which a consolidated
federal tax return is filed for all of the parties to the
agreement. Under the agreement, the tax due by the group is
allocated to each member based upon the relative percentage of
each members taxable income to that of all members. Each
member pays Westcorp its estimated share of that tax liability
when otherwise due, but in no event may the amount paid exceed
the amount of tax that would have been due if a member were to
file a separate return. A similar process is used with respect
to state income taxes for those states that permit the filing of
a consolidated or combined return. Tax liabilities to states
that require the filing of separate tax returns for each company
are paid by each company. The term of the tax sharing agreement
commenced on the first day of the consolidated return year
beginning January 1, 1994 and continues in effect until the
parties to the tax sharing agreement agree in writing to
terminate it. See Consolidated Financial
Statements  Note 15  Income Taxes.

Management
Agreements

We have entered into certain management
agreements with the Bank and Westcorp pursuant to which we pay
an allocated portion of certain costs and expenses incurred by
the Bank and Westcorp with respect to services or facilities of
the Bank and Westcorp used by us or our subsidiaries, including
our principal office facilities, our field offices, and overhead
and associate benefits pertaining to Bank and Westcorp
associates who also provide services to us or our subsidiaries.
Additionally, as part of these management agreements, the Bank
and Westcorp have agreed to reimburse us for similar costs
incurred. Net amounts paid to us by the Bank, Westcorp and their
affiliates under these agreements were $5.9 million,
$2.4 million, and $6.2 million for the years ended
December 31, 2001, 2000 and 1999, respectively. The
management agreements may be terminated by any party upon five
days prior written notice without cause, or immediately in the
event of the other partys breach of any covenant,
obligation, or duty contained in the applicable management
agreement or for violation of law, ordinance, statute, rule or
regulation governing either party to the applicable management
agreement.

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##### Table of Contents



Supervision and Regulation

General

Set forth below is a discussion of laws and
regulations that have a material effect upon our business. To
the extent, however, that any of the following discussion
describes statutory or regulatory provisions, the exact language
of the statute or regulatory provision qualifies any such
discussion. Furthermore, any future changes in the applicable
law or regulation or in the policies of various regulatory
authorities may have a material effect on our business.
Accordingly, we cannot assure you that we will not be affected
by any such further changes.

Regulations
Applicable to Us

We purchase contracts in 43 states and are
subject to both state and federal regulations. Since we are
owned by the Bank, which is a federal savings association, we
are regulated by the OTS, the primary federal banking agency
responsible for the supervision and regulation of the Bank, as
well as by the FDIC, the federal banking agency that insures the
deposits of the Bank. We must also comply with each states
consumer finance, automobile finance, licensing and titling laws
and regulations to the extent those laws and regulations are not
pre-empted by OTS regulations. To ensure compliance with such
laws, we hire experienced legal counsel. We believe that we are
in compliance with OTS and FDIC regulations as well as state
laws applicable to the purchase and securitization of contracts.

The contracts we originate and service are also
subject to numerous federal and state consumer protection laws.
The consumer protection laws include the Federal
Truth-in-Lending Act, the Federal Trade Commission Act, the Fair
Credit Billing Act, the Fair Credit Reporting Act, the Equal
Credit Opportunity Act, the Fair Debt Collection Practices Act,
the California Rees-Leveraging Act, other retail installment
sales laws and similar state laws. Most state consumer
protection laws also govern the process by which we may
repossess and sell an automobile pledged as security on a
defaulted automobile contract. We must follow those laws
carefully in order to maximize the amount of money we can
recover on a defaulted automobile contract.

We must also comply with OTS regulations
regarding ownership and operations. The Bank is permitted by OTS
regulations to have operating subsidiaries and service
corporation subsidiaries. We were created as an operating
subsidiary of the Bank in order to: (1) enable us to sell
our equity securities to third parties rather than be limited by
the restrictions placed on service corporations, whose equity
securities may only be sold to other savings associations and
(2) enjoy the same pre-emption from state law that is
granted to the Bank by OTS regulations. As an operating
subsidiary, we are prohibited from engaging in any business
activity that the Bank may not itself engage in. All of our
business activities are activities in which the Bank is
permitted to engage. Furthermore, prior to engaging in any new
business activity, acquiring a business from a third party or
creating a new subsidiary, we must first give notice to the OTS
and the FDIC. Finally, at all times, a majority of our voting
stock must be held by the Bank.

Regulations
Applicable to the Bank Which May Affect Us

The OTS and FDIC extensively regulate the
activities of the Bank, our majority shareholder. If the Bank is
unable to pay its debts and is deemed insolvent, the FDIC is
required to be appointed as the Banks conservator to
manage its affairs or as the Banks receiver to liquidate
its business and to preserve its assets for payment to creditors
of the Bank. If the Bank is placed in conservatorship or
receivership, our assets may not be used to pay off the
Banks creditors. However, as conservator or receiver of
the Bank, the FDIC would have control of the majority of the
shares of our common stock and could exercise control over those
shares to the same extent as the Bank prior to being placed in
conservatorship or receivership. As receiver or conservator, the
FDIC also would have the right to keep the Bank from making
further advances to us under our lines of credit with the Bank.

As an operating subsidiary, our investments are
required to be consolidated with those of the Bank for purposes
of determining whether the Bank, on a consolidated basis, is in
full compliance with regulations limiting certain of its
activities to a percentage of its total consolidated assets. The
regulations allow the Bank to invest up to 35% of its
consolidated assets in consumer loans, commercial paper and
qualifying corporate

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##### Table of Contents



debt instruments; provided however, that all
consumer loans in excess of 30% of the Banks consolidated
assets must be made directly to the consumer by the Bank or its
subsidiaries. Thus, not more than 30% of the Banks
consolidated assets may be invested in contracts purchased from
new and pre-owned car dealers or from other lenders. For the
year ended December 31, 2001, we purchased contracts at an
average rate of $405 million per month. However, the Bank
was able to remain in compliance with this regulatory limitation
on its consolidated activities, as we securitized contracts
worth approximately $2.9 billion and transferred other
contracts worth $1.4 billion to a subsidiary of Westcorp
for securitization by it. We intend to regularly securitize
contracts to insure that the Bank will remain in compliance with
this regulatory limitation on its consolidated activities.


As an operating subsidiary of the Bank, we are
subject to examination and supervision by the OTS to the same
extent as the Bank. Following such an examination, the OTS may
direct the Bank or us to take any action needed to prevent
violation of any law, regulation or OTS policy, including, with
respect to the Bank, disposing of all or part of its ownership
of us. In addition, the OTS may, for supervisory, legal, safety
or soundness reasons, limit the Banks activities, limit
the Banks investment in us or limit our activities by
directive or cease-and-desist proceedings. If the OTS were to
determine that any activity of the Bank or of ours subjected
either the Bank or us to sufficient risk, the OTS has the
statutory authority to issue a temporary cease-and-desist order
requiring the Bank or us, as the case may be, to immediately
take affirmative action as described in the order. If a
temporary cease-and-desist order were entered and if the OTS
were not satisfied with the actions taken as required by that
order, the OTS has the authority to immediately seek an order
from the United States district court compelling compliance with
that order. The most significant action which the FDIC, as the
insurer of the Banks deposit accounts, may take is to seek
involuntary termination of the insurance of the Banks
accounts. Termination of insurance, absent consent by the
insured institution, requires a hearing before the FDIC, a
finding of unsafe and unsound practices or condition or
violation of laws, regulations, orders or agreements with the
FDIC or OTS, and a judicial affirmance of the FDICs
findings. Termination of the Banks FDIC insurance could
have a serious adverse effect on us, as the Banks deposits
provide a source of funding for our activities. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Principal
Sources of Cash  Borrowings from Parent and
Business  Transactions with Related
Parties. We are not aware of any actions the Bank or we
have taken or are planning to take which we believe the OTS
would find to be unsafe or unsound or give rise to any action by
the OTS or FDIC.

Regulations
Applicable to Westcorp Which May Affect Us

Westcorp, by virtue of its ownership of the Bank,
is a savings and loan holding company within the meaning of the
Home Owners Loan Act, as amended, also known as HOLA.
Savings and loan holding companies and their savings association
subsidiaries are extensively regulated by federal laws.

Westcorp is registered with the OTS as a savings
and loan holding company. Therefore, Westcorp is subject to the
OTS regulations, examination and reporting requirements.
The OTS may take substantive action if it determines that there
is reasonable cause to believe that the continuation by a
savings and loan holding company of any particular activity
constitutes a serious risk to the financial safety, soundness,
or stability of that holding companys subsidiary savings
association. Thus, the OTS has oversight authority for all
holding company affiliates, not just the Bank. Specifically, the
OTS may, as necessary:



| |   |                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------
| |  | limit the payment of dividends by the Bank;                                                                                                        
|
| |  | limit transactions between the Bank, Westcorp and
	the subsidiaries or affiliates of Westcorp or the Bank; and                                     
|
| |  | limit any activities of Westcorp that might
	create a serious risk that the liabilities of Westcorp and its
	affiliates may be imposed on the Bank.

Any of these limits may be issued in the form of
regulations or a directive having the effect of a cease and
desist order.

Provisions of the HOLA also limit the type of
activities and investments in which the savings association
subsidiaries of a savings and loan holding company may
participate if the investment and/or activity involves

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an affiliate of that savings associations
subsidiary. In general, savings associations are subject to
Sections 23A and 23B of the Federal Reserve Act in the same
manner and to the same extent as if the savings association were
a member bank of the Federal Reserve System, as well as
regulations adopted by the OTS. Section 23A of the Federal
Reserve Act places certain quantitative limitations on certain
transactions between a bank and its subsidiaries and an
affiliate. The quantitative limitations are based upon a
percentage of the savings associations capital stock and
surplus. Transactions covered by Section 23A of the Federal
Reserve Act include transactions involving:




| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | loans or extensions of credit to the affiliate;                                                                      
|
| |  | the purchase of or investment in securities
	issued by an affiliate;                                                 
|
| |  | the purchase of certain assets from an affiliate;                                                                    
|
| |  | the acceptance of securities issued by an
	affiliate as security for a loan or extension of credit to any
	person; or
|
| |  | the issuance of a guarantee, acceptance or letter
	of credit on behalf of an affiliate.                              

In addition, Section 23B requires that
transactions between a savings association subsidiary or its
subsidiary and an affiliate must meet certain qualitative
limitations. Section 23B requires that such transactions be
on terms that are at least as favorable to the Bank or the
Banks subsidiary as are the terms of the transactions with
unaffiliated companies.

Section 11 of the HOLA also specifically
prohibits a savings association subsidiary of the savings and
loan holding company from:



| |   |                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | making a loan or extension of credit to an
	affiliate, unless that affiliate is engaged only in activities
	permitted to bank holding companies under Section 4(c) of
	the Bank Holding Company Act of 1956, as amended, or
|
| |  | purchasing or investing in the securities of an
	affiliate, other than a subsidiary of the savings association.                                                                                                            

Under most circumstances, the above prohibitions
include a purchase of assets from an affiliate of the savings
association subsidiary that is made subject to the
affiliates agreement to repurchase the assets. The OTS
regulations exclude transactions between a savings association
subsidiary and its subsidiaries from the limitations of those
sections. This exclusion is consistent with the provisions of
Sections 23A and 23B of the Federal Reserve Act. However,
the OTS regulations also define certain subsidiaries to be
affiliates of the savings association subsidiary. Therefore,
such certain subsidiaries are subject to the requirements of
those sections of the OTS regulation. At the present time, none
of our subsidiaries are within the definition of an affiliate
for purposes of the OTS regulations.

Savings association subsidiaries of holding
companies must also comply with the requirements of Federal
Reserve Act Sections 22(g) and 22(h), and Regulation O
of the Federal Reserve System with respect to loans to executive
officers, directors and principal shareholders, in the same
manner as member banks. The RCDA permits loans secured by a
first lien on an executive officers residence to be made
without prior approval of the board of directors of the
financial institution. As a matter of policy, the Bank does not
make loans to executive officers, directors or principal
shareholders.

Recent
Legislation and Regulatory Statements

The OTS, in conjunction with the other federal
banking regulatory agencies, recently issued a guidance
statement regarding asset securitization activities of banks and
savings associations which applies to the Bank and to us as an
operating subsidiary of the Bank. The guidance statement states
that reported values for retained interest assets should be
reasonable, conservative and supported by objective and
verifiable documentation. Furthermore, institutions engaged in
asset securitization activities should ensure that sufficient
capital is held to support the risks associated with those
activities and that appropriate management oversight and
reporting is accomplished with respect to the institutions
asset securitization activities. The

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agencies noted that on a case-by-case basis,
additional capital may be required to be held by those
institutions whose asset securitization activities are not in
compliance with the guidance provisions, or the retained
interests may be classified as loss and not permitted to be
included in calculating the institutions regulatory
capital. We believe that our valuation of our retained interest
assets and our securitization activities as an operating
subsidiary of the Bank are in compliance with the guidance
provisions. Moreover, as our recent securitization activities
have been accounted for as secured financings or involved a sale
of contracts servicing released, we have substantially reduced
and do not anticipate creating in the future any non-cash gain
on sale residual interests, the valuation of which would be
subject to the guidance statement. We believe that our
securitization activities to date, including the creation,
valuation and monitoring of our existing non-cash gain on sale
residual interests, have been conducted in full compliance with
the guidance statement.


The OTS, along with the other federal banking
regulatory agencies, has adopted a new regulation pertaining to
the capital treatment of recourse, direct credit substitutes and
residual interests in asset securitizations. The new regulation
combines two proposals previously published for comment by the
OTS and the other agencies. The new regulation treats recourse
obligations and direct credit substitutes more consistently than
was previously the case. More importantly, the new regulations
modify the capital rules for residual interests arising upon the
transfer of assets, including limiting the amount of residual
interests that are credit-enhancing interest-only strips that
may be included in calculating an institutions capital.
The new regulations require all institutions to hold
dollar-for-dollar capital against their total
contractual exposure to loss resulting from residual interest
assets arising from the transfer of assets accounted for as a
sale. The regulation also requires that all residual interest
assets which are credit-enhancing interest-only strips in excess
of 25% of an institutions Tier 1 capital be deducted from
capital. Finally, the regulation reduces the amount of
risk-based capital an institution must hold for certain
positions in asset securitizations acquired by an institution,
based upon the credit rating given to such interests by a
nationally recognized statistical rating agency (such as
Standard and Poors Ratings Services, a division of
McGraw-Hill, Inc., also known as S&P, or Moodys
Investors Service, Inc., also known as Moodys).

The new regulation became effective on
January 1, 2002 for any transaction that closes on or after
that date. For transactions closed before that date, an
institution can elect to have the regulation apply to those
earlier transactions if it will result in a reduced capital
requirement for the institution. Conversely, if application of
the new regulation to transactions closed before January 1,
2002 will result in increased capital requirements, the affected
institution may defer application of the regulation to those
transactions until December 31, 2002. As the effect of the
regulation will be to increase the Banks capital
requirements, the regulation will not become applicable to our
pre-January 1, 2002 transactions until December 31,
2002. We anticipate that by that date the Bank will realize
increased capital through our rights offering, retained earnings
and possibly other capital raising transactions. In addition, by
that date the residual interests we hold, both non-cash gain on
sale and amounts due from trusts, are expected to continue to
amortize. Accordingly, the amount of additional capital that the
Bank may be required to hold as of December 31, 2002, in
order to remain a well capitalized institution, is uncertain and
dependent upon our results of operations and other capital
raising transactions undertaken by that date.

In addition, as the new regulation also provides
that lesser amounts of capital need be held by purchasers of
asset-backed securities, based upon the ratings assigned to such
securities by the nationally-recognized statistical rating
organizations, this may have the effect of increasing the
marketability of our asset-backed securities, thereby reducing
the yields we may be required to offer to complete future
securitizations.

Finally, the new regulation will not cause any
adverse capital effect upon us as a result of our
securitizations accounted for as secured financings which we
have undertaken commencing in early 2000 and consistently since
then. The regulation only applies to residual interests arising
from the transfer of assets or participations accounted for as
sales under GAAP. We do not anticipate, at this time, of
engaging in any securitizations accounted for as sales under
GAAP. Accordingly, whatever the effect of this regulation upon
us due to the residual interests we may hold at
December 31, 2002 which arose as a result of
securitizations closed prior to January 1, 2002 which were
accounted for as sales, that effect will be reduced each quarter
thereafter as the amount of those residual interests continue to
amortize. We anticipate that all of such residual interests will
have been fully amortized by the end of 2002.

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On October 20, 2000, the OTS, along with the
other federal banking regulatory agencies, published for comment
proposed regulations implementing the provisions of the Fair
Credit Reporting Act, also known as FCRA, that permit
institutions to communicate consumer information to their
affiliates (affiliate information sharing) without incurring the
obligations of consumer reporting agencies. To allow financial
institutions to plan for and meet the requirements of the
privacy regulations, an update on the FCRA proposal was provided
on March 27, 2001, and financial institutions were advised
to prepare their privacy notices in accordance with the privacy
regulations and the FCRA without delaying compliance until
publication of the final FCRA rule. We believe that our privacy
notices are in compliance with the privacy regulations and the
FRCA.

The OTS, along with the other agencies, has
adopted guidance pertaining to sub-prime lending programs.
Pursuant to the guidance, lending programs which provide credit
to borrowers whose credit histories reflect specified negative
characteristics, such as bankruptcies or payment delinquencies,
are deemed to be sub-prime lending programs. Pursuant to the
guidance, examiners may require that an institution with a
sub-prime lending program hold additional capital, which ranges
from one and one-half to three times the normal capital required
for similar loans made to borrowers who are not sub-prime
borrowers, although institutions whose sub-prime loans are well
secured and well managed may not be required to hold additional
capital.

We cannot predict whether the Bank will be
required, following its next examination, to hold additional
capital with respect to those contracts on its consolidated
balance sheet as to which the borrowers are determined to be
sub-prime borrowers as defined by the agencies. To the extent
that either the regulations, if adopted, or the guidance, as
implemented, require the Bank to raise and continue to maintain
higher levels of capital, our ability to originate, service and
securitize new and pre-owned automobile installment contracts,
especially as to which the borrower is determined to be a
sub-prime borrower, may be adversely affected. Any changes to
regulations that would negatively impact us may require us to
curtail our automobile contract purchasing activities or change
the relative percentage of types of contracts we originate,
either of which could have a material adverse effect on our
financial position, liquidity and results of operations.

Subsidiaries

The following subsidiaries are included in our
Consolidated Financial Statements.

WFS Financial
Auto Loans, Inc.

WFAL is our wholly owned, Nevada based, limited
purpose operating subsidiary. WFAL was organized primarily for
the purpose of purchasing contracts that we originate and
securitizing them in the asset-backed securities market. All
sales to securitization trusts directly from WFAL are treated as
sales for accounting purposes.

WFS Financial
Auto Loans 2, Inc.

WFAL2 is our wholly owned, Nevada based, limited
purpose operating subsidiary. WFAL2 purchases contracts that are
then used as collateral for its reinvestment contract
activities. See Transactions with Related
Parties  Reinvestment Contracts.

WFS
Investments, Inc.

WFSII is our wholly owned, California based,
limited purpose operating subsidiary. WFSII was incorporated for
the purpose of purchasing limited ownership interests in owner
trusts in connection with securitization transactions. WFSII is
limited by its Articles of Incorporation from engaging in any
business activities not incidental or necessary to its stated
purpose.

WFS Funding,
Inc.

WFSFI is our wholly owned, Nevada based, limited
purpose service corporation subsidiary. WFSFI was incorporated
for the purpose of conduit financings. WFSFI completed a
$775 million, a $650 million and a

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$500 million conduit financing transaction
during January 2002, November 2001 and September 1999,
respectively.


WFS
Receivables Corporation

WFSRC is our wholly owned, Nevada based, limited
purpose service corporation subsidiary. WFSRC was incorporated
for the purpose of purchasing contracts that we originate and
securitizing them in the asset-backed securities market.
Securitization transactions in which contracts are sold through
WFSRC are treated as secured financings for accounting purpose.

WFS Web
Investments

WFSWEB is our wholly owned, limited purpose
service corporation subsidiary. WFSWEB was incorporated for the
purpose of investing in an Internet service company called
DealerTrack. Our investment in DealerTrack provides us with the
unique opportunity to be involved with a company that provides a
business to business Internet portal, specifically designed for
the indirect automobile lending market.

Associates

At December 31, 2001, we had 1,951 full-time
and 99 part-time associates. None of our associates are
represented by a collective bargaining unit or union, and we
believe that we have good relations with our associates.

Forward-Looking Statements

This Form 10-K includes and incorporates by
reference forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information which are
based on forecasts of future results and estimates of amounts
not yet determinable. These statements also relate to our future
prospects, developments and business strategies. These
statements are subject to uncertainties and factors relating to
our operations and business environment, all of which are
difficult to predict and many of which are beyond our control,
that could cause actual results to differ materially from those
expressed in or implied by these forward-looking statements.

These forward-looking statements are identified
by their use of terms and phrases as anticipate,
believe, could, estimate,
expect, intend, may,
plan, predict, project,
will, and similar terms and phrases, including
references to assumptions.

The following factors are among those that may
cause actual results to differ materially from the
forward-looking statements:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | changes in general economic and business
	conditions;                             
|
| |  | interest rate fluctuations;                                                       
|
| |  | our financial condition and liquidity, as well as
	future cash flows and earnings;
|
| |  | competition;                                                                      
|
| |  | our level of operating expenses;                                                  
|
| |  | the effect of new laws, regulations and court
	decisions;                         
|
| |  | the availability of sources of funding;                                           
|
| |  | the level of chargeoffs on the automobile
	contracts that we originate; and       
|
| |  | significant litigation.                                                           

If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those expected,
estimated or projected.

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We do not undertake to update our forward-looking
statements or risk factors to reflect future events or
circumstances.




Item 2. Properties

At December 31, 2001, we owned one property
in Dallas, Texas. Additionally, we leased 42 properties at
various locations in various states.

Our executive offices are located at
23 Pasteur, Irvine, California and are leased from the
Bank. The remaining leased properties are used as production
offices. We lease space at one location from a company
controlled by the Chairman of the Board of our company.




Item 3. Legal
Proceedings

We or our subsidiaries are parties to certain
legal proceedings incidental to our business, including consumer
class action lawsuits pertaining to our automobile finance
activities. We are vigorously defending these actions and do not
believe that the outcome of these proceedings will have a
material effect on our financial condition, results of
operations or cash flows.




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

None.

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PART II




Item 5. Market for
Registrants Common Equity and Related Stockholder
Matters

Price Range by Quarter

Our common stock has been publicly traded since
August 8, 1995 on the Nasdaq National Market® under
the symbol WFSI. The following table illustrates the high and
low sale prices by quarter in 2001 and 2000 as reported by
Nasdaq, which prices are believed to represent actual
transactions:

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2001 |       | 2000
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 21.29 |      |  | $    | 17.06 |     |  | $ | 20.88 |  |  | $ | 13.69 | 
|Second Quarter |  |      | 30.14 |      |  |      | 15.55 |     |  |   | 21.50 |  |  |   | 15.75 | 
|Third Quarter  |  |      | 31.76 |      |  |      | 14.89 |     |  |   | 17.50 |  |  |   | 14.38 | 
|Fourth Quarter |  |      | 26.83 |      |  |      | 15.63 |     |  |   | 19.00 |  |  |   | 14.56 | 

We had approximately 635 shareholders of our
common stock at February 28, 2002. The number of
shareholders was determined by the number of record holders,
including the number of individual participants, in security
position listings.

Dividends

We have not declared or paid any cash dividends
on our capital stock. We currently expect to retain future
earnings, if any, for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the
foreseeable future. We are not currently under any regulatory or
contractual limitations on our ability to declare or pay
dividends.

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Item 6. Selected Financial
Data

The following table presents summary audited
financial data for the years ended December 31, 2001, 2000,
1999, 1998 and 1997. Since the information in this table is only
a summary and does not provide all of the information contained
in our financial statements, including the related notes, you
should read our Consolidated Financial Statements contained
elsewhere herein. Certain amounts from the prior years
consolidated financial statements have been reclassified to
conform to the current year presentation.

|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |           | 
|--------------------------------------------------------------------------------------------------------------- | ------------------------ | ------------------------------------------------ | --------- | --------- |  | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                                                                |                          |                                                 
|                                                                                                                |                          | For the Year Ended December 31,                 
|                                                                                                                |                          |                                                 
|                                                                                                                |                          | 2001                                             |           | 2000      |  | 1999 |           | 1998      |  | 1997
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |     
|                                                                                                                |                          |                                                 
|                                                                                                                |                          | (Dollars in thousands, except per share amounts)
|Consolidated Statements of
	Operations Data:                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net interest income                                                                                             |                          | $                                                | 313,006   |           |  | $    | 183,542   |           |  | $    | 99,229    |           |  | $ | 64,978    |           |  | $ | 52,657    |          
|Servicing income                                                                                                |                          |                                                  | 130,826   |           |  |      | 170,919   |           |  |      | 140,780   |           |  |   | 76,110    |           |  |   | 137,753   |          
|Gain on sale of contracts                                                                                       |                          |                                                  | 6,741     |           |  |      | 13,723    |           |  |      | 54,977    |           |  |   | 25,438    |           |  |   | 39,399    |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                                                                | Total revenues           |                                                  |           | 450,573   |  |      |           | 368,184   |  |      |           | 294,986   |  |   |           | 166,526   |  |   |           | 229,809   | 
|Provision for credit losses                                                                                     |                          |                                                  | 144,130   |           |  |      | 68,962    |           |  |      | 36,578    |           |  |   | 15,146    |           |  |   | 8,248     |          
|Operating expenses                                                                                              |                          |                                                  | 205,292   |           |  |      | 188,634   |           |  |      | 173,453   |           |  |   | 165,042   |           |  |   | 167,418   |          
|Restructuring charge(1)                                                                                         |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   | 15,000    |           |  |   |           |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                                                                | Total expenses           |                                                  |           | 349,422   |  |      |           | 257,596   |  |      |           | 210,031   |  |   |           | 195,188   |  |   |           | 175,666   | 
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Income (loss) before income tax (benefit)                                                                       |                          |                                                  | 101,151   |           |  |      | 110,588   |           |  |      | 84,955    |           |  |   | (28,662   | )         |  |   | 54,143    |          
|Income tax (benefit)                                                                                            |                          |                                                  | 39,503    |           |  |      | 44,216    |           |  |      | 35,580    |           |  |   | (12,095   | )         |  |   | 22,829    |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net income (loss)                                                                                               |                          | $                                                | 61,648    |           |  | $    | 66,372    |           |  | $    | 49,375    |           |  | $ | (16,567   | )         |  | $ | 31,314    |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net income (loss) per common
	share  diluted                                                                   |                          | $                                                | 1.90      |           |  | $    | 2.35      |           |  | $    | 1.91      |           |  | $ | (0.64     | )         |  | $ | 1.22      |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Other Selected Financial Data:                                                                                  |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Prime contract purchases                                                                                        |                          | $                                                | 3,675,351 |           |  | $    | 2,900,960 |           |  | $    | 2,313,573 |           |  | $ | 1,808,013 |           |  | $ | 1,240,207 |          
|Non-prime contract purchases                                                                                    |                          |                                                  | 1,187,928 |           |  |      | 1,318,267 |           |  |      | 1,026,573 |           |  |   | 862,683   |           |  |   | 1,045,072 |          
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                                                                | Total contract purchases |                                                  | $         | 4,863,279 |  |      | $         | 4,219,227 |  |      | $         | 3,340,146 |  |   | $         | 2,670,696 |  |   | $         | 2,285,279 | 
|                                                                                                                |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Contracts sold and securitized(2)                                                                               |                          | $                                                | 4,220,000 |           |  | $    | 4,590,000 |           |  | $    | 3,000,000 |           |  | $ | 1,885,000 |           |  | $ | 2,190,000 |          
|Operating cash flows(3)                                                                                         |                          | $                                                | 172,833   |           |  | $    | 145,913   |           |  | $    | 101,702   |           |  | $ | 16,521    |           |  | $ | 13,567    |          
|Operating expenses as a percentage of average
	managed contracts                                                |                          |                                                  | 2.7       | %         |  |      | 3.1       | %         |  |      | 3.6       | %         |  |   | 4.1       | %         |  |   | 5.0       | %        
|Number of states in which contracts were purchased                                                              |                          |                                                  | 43        |           |  |      | 43        |           |  |      | 43        |           |  |   | 42        |           |  |   | 37        |          
|Number of dealers from which contracts were
	purchased                                                          |                          |                                                  | 7,598     |           |  |      | 8,545     |           |  |      | 8,722     |           |  |   | 11,323    |           |  |   | 11,978    |          
|Servicing Data:                                                                                                 |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Contracts managed at end of period                                                                              |                          | $                                                | 8,152,882 |           |  | $    | 6,818,182 |           |  | $    | 5,354,385 |           |  | $ | 4,367,099 |           |  | $ | 3,680,817 |          
|Average contracts managed during the period                                                                     |                          | $                                                | 7,576,681 |           |  | $    | 6,076,814 |           |  | $    | 4,840,363 |           |  | $ | 4,006,185 |           |  | $ | 3,383,570 |          
|Contracts delinquent 60 days or greater as a
	percentage of amount of contracts outstanding at end of period(4) |                          |                                                  | 1.05      | %         |  |      | 0.86      | %         |  |      | 0.83      | %         |  |   | 1.07      | %         |  |   | 0.72      | %        
|Net chargeoffs as a percentage of the average
	amount of contracts outstanding during the period(4)             |                          |                                                  | 2.27      | %         |  |      | 1.91      | %         |  |      | 2.13      | %         |  |   | 3.42      | %         |  |   | 3.02      | %        

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|                                                      |  |                        |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|----------------------------------------------------- |  | ---------------------- | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------- | 
|                                                      |  |                       
|                                                      |  | December 31,          
|                                                      |  |                       
|                                                      |  | 2001                   |           | 2000 |  | 1999 |           | 1998 |  | 1997
|                                                      |  |                        |           |      |  |      |           |      |  |     
|                                                      |  |                       
|                                                      |  | (Dollars in thousands)
|Consolidated Statements of Financial
	Condition Data: |  |                        |           |      |  |      |           |      |  |      |           |  |  |   |           |  |  |   |         | 
|Contracts receivable, net                             |  | $                      | 5,083,891 |      |  | $    | 2,978,167 |      |  | $    | 1,459,035 |  |  | $ | 884,825   |  |  | $ | 229,338 | 
|Retained interest in securitized assets               |  |                        | 37,392    |      |  |      | 111,558   |      |  |      | 167,277   |  |  |   | 171,230   |  |  |   | 181,177 | 
|Total assets                                          |  |                        | 5,490,757 |      |  |      | 3,575,137 |      |  |      | 2,130,927 |  |  |   | 1,444,340 |  |  |   | 878,160 | 
|Lines of credit  parent                              |  |                        | 421,175   |      |  |      | 235,984   |      |  |      | 551,189   |  |  |   | 554,836   |  |  |   |         | 
|Notes payable  parent                                |  |                        | 67,500    |      |  |      | 146,219   |      |  |      | 178,908   |  |  |   | 160,000   |  |  |   | 175,000 | 
|Notes payable on automobile secured financing         |  |                        | 4,005,925 |      |  |      | 2,249,363 |      |  |      | 461,104   |  |  |   |           |  |  |   |         | 
|Total shareholders equity                            |  |                        | 465,293   |      |  |      | 317,205   |      |  |      | 212,188   |  |  |   | 164,341   |  |  |   | 179,893 | 




|    |                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Information for 1998 includes a one-time
	restructuring charge of $15.0 million, including
	$1.8 million for employee severance and $13.2 million
	for lease termination fees and the write-off of disposed assets.                                                     
|   
|(2) | Information for 2001 and 1999 includes
	$650 million and $500 million, respectively, of
	contracts securitized in a privately placed conduit facility.                                                                                                                  
|   
|(3) | Operating cash flows are defined as cash flows
	from securitizations, net interest margin on owned loans and
	other fee income less dealer participation and operating costs.                                                                                           
|   
|(4) | Includes delinquency and loss information
	relating to contracts that were sold, but which were originated
	and are managed by us. See Managements Discussion
	and Analysis of Financial Condition and Results of
	Operations  Financial Condition  Asset
	Quality.

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Item 7. Managements Discussion
and Analysis of Financial Condition and Results of
Operations

The following discussion and analysis should be
read in conjunction with our Consolidated Financial Statements
and notes thereto and other information included or incorporated
by reference herein.

Overview

Our primary sources of revenue are net interest
income and servicing income. Net interest income is the
difference between the income earned on interest earning assets
and the interest paid on interest bearing liabilities. The
primary components of servicing income include retained interest
income on contracts sold, contractually specified servicing fees
for the servicing of contracts, late charges and other
miscellaneous servicing fee income.

Results of Operations

Net Interest
Income

Net interest income is affected by the difference
between the rate earned on our interest earning assets and the
rate paid on our interest bearing liabilities (interest rate
spread) and the relative amounts of our interest earning assets
and interest bearing liabilities. Net interest income totaled
$313 million, $184 million and $99.2 million for
the years ended December 31, 2001, 2000 and 1999,
respectively. The increase in net interest income in 2001 is the
result of us holding a greater percentage of contracts on
balance sheet as we utilized the liquidity sources provided by
our parent and completed public securitizations totaling
$2.2 billion and a conduit financing totaling
$650 million that were accounted for as secured financings.

Our decision to account for our securitizations
as secured financings by changing the structure of our
securitizations was based upon our business philosophy that we
approach our business as a portfolio lender rather than as a
seller of contracts. Our securitization structure includes a
provision that provides us with the right to repurchase
contracts at our option. The percentage of contracts that we
could repurchase was increased from 10% to 20% as of
March 2000. Not only does this change provide greater
flexibility in managing our cost of funds, we believe that a
portfolio basis presentation provides a better understanding of
our business and the inherent risks associated with our
securitizations. In addition, by accounting for our
securitizations as secured financings we no longer record a
retained interest asset upon completion of each securitization,
the valuation of which is based upon subjective assumptions. See
Business.

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The following table presents information relative
to the average balances and interest rates on an owned basis for
the periods indicated:

|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |       |  
|-------------------------------------------- | --------------------------------------------- | ------------------------------- | ------- | --------- |  | ------ | ------- | ------- |  | -------- | ---- | ------ | - | ------- | ------- | --------- |  | ------ | ------- | ------- |  |  | ---- | ----- | - |  | ------- | --------- | - | - | ------ | ------- |  |  | ----- | ----- | -
|                                             |                                               |                                
|                                             |                                               | For the Year Ended December 31,
|                                             |                                               |                                
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | 2001                            |         | 2000      |  | 1999  
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | Average                         |         |           |  | Yield/ |         | Average |  |          |      | Yield/ |   | Average |         |           |  | Yield/
|                                             |                                               | Balance                         |         | Interest  |  | Rate   |         | Balance |  | Interest |      | Rate   |   | Balance |         | Interest  |  | Rate  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |       
|                                             |                                               |                                
|                                             |                                               | (Dollars in thousands)         
|Interest earning assets:                     |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Contracts receivable                          |                                 | $       | 3,937,902 |  |        | $       | 539,118 |  |          |      | 13.69  | % |         | $       | 2,152,794 |  |        | $       | 308,722 |  |  |      | 14.34 | % |  | $       | 876,690   |   |   | $      | 135,601 |  |  |       | 15.47 | %
|                                             | Investment securities                         |                                 |         | 163,646   |  |        |         | 6,664   |  |          |      | 4.07   |   |         |         | 94,582    |  |        |         | 5,398   |  |  |      | 5.71  |   |  |         | 97,915    |   |   |        | 4,925   |  |  |       | 5.03  |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Total interest earning assets                 |                                 |         | 4,101,548 |  |        |         | 545,782 |  |          |      | 13.31  | % |         |         | 2,247,376 |  |        |         | 314,120 |  |  |      | 13.98 | % |  |         | 974,605   |   |   |        | 140,526 |  |  |       | 14.42 | %
|Noninterest earning assets:                  |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Amounts due from trusts                       |                                 |         | 217,974   |  |        |         |         |  |          |      |        |   |         |         | 346,009   |  |        |         |         |  |  |      |       |   |  |         | 295,578   |   |   |        |         |  |  |       |       |  
|                                             | Retained interest in securitized assets       |                                 |         | 79,832    |  |        |         |         |  |          |      |        |   |         |         | 141,724   |  |        |         |         |  |  |      |       |   |  |         | 180,538   |   |   |        |         |  |  |       |       |  
|                                             | Premises and equipment, net                   |                                 |         | 36,144    |  |        |         |         |  |          |      |        |   |         |         | 37,816    |  |        |         |         |  |  |      |       |   |  |         | 33,603    |   |   |        |         |  |  |       |       |  
|                                             | Other assets                                  |                                 |         | 218,263   |  |        |         |         |  |          |      |        |   |         |         | 121,720   |  |        |         |         |  |  |      |       |   |  |         | (28,386   | ) |   |        |         |  |  |       |       |  
|                                             | Less: allowance for credit losses             |                                 |         | 87,672    |  |        |         |         |  |          |      |        |   |         |         | 48,525    |  |        |         |         |  |  |      |       |   |  |         | 21,787    |   |   |        |         |  |  |       |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Total                                         |                                 | $       | 4,566,089 |  |        |         |         |  |          |      |        |   |         | $       | 2,846,120 |  |        |         |         |  |  |      |       |   |  | $       | 1,434,151 |   |   |        |         |  |  |       |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|Interest bearing liabilities:                |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Lines of credit  parent                      |                                 | $       | 201,744   |  |        |         | 8,930   |  |          |      | 4.43   | % |         | $       | 541,579   |  |        |         | 37,711  |  |  |      | 6.96  | % |  | $       | 294,961   |   |   |        | 15,728  |  |  |       | 5.33  | %
|                                             | Notes payable  parent                        |                                 |         | 112,854   |  |        |         | 10,529  |  |          |      | 9.33   |   |         |         | 155,888   |  |        |         | 14,238  |  |  |      | 9.13  |   |  |         | 172,915   |   |   |        | 14,716  |  |  |       | 8.51  |  
|                                             | Notes payable on automobile secured financing |                                 |         | 3,137,000 |  |        |         | 213,317 |  |          |      | 6.80   |   |         |         | 1,081,006 |  |        |         | 78,629  |  |  |      | 7.27  |   |  |         | 125,866   |   |   |        | 10,853  |  |  |       | 8.62  |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Total interest bearing liabilities            |                                 |         | 3,451,598 |  |        |         | 232,776 |  |          |      | 6.74   | % |         |         | 1,778,473 |  |        |         | 130,578 |  |  |      | 7.34  | % |  |         | 593,742   |   |   |        | 41,297  |  |  |       | 6.96  | %
|Noninterest bearing liabilities:             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Amounts held on behalf of trustee             |                                 |         | 85,139    |  |        |         |         |  |          |      |        |   |         |         | 670,063   |  |        |         |         |  |  |      |       |   |  |         | 447,309   |   |   |        |         |  |  |       |       |  
|                                             | Other liabilities                             |                                 |         | 593,710   |  |        |         |         |  |          |      |        |   |         |         | 117,480   |  |        |         |         |  |  |      |       |   |  |         | 207,037   |   |   |        |         |  |  |       |       |  
|Shareholders equity                         |                                               |                                 | 435,642 |           |  |        |         |         |  |          |      |        |   |         | 280,104 |           |  |        |         |         |  |  |      |       |   |  | 186,063 |           |   |   |        |         |  |  |       |      
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|                                             | Total                                         |                                 | $       | 4,566,089 |  |        |         |         |  |          |      |        |   |         | $       | 2,846,120 |  |        |         |         |  |  |      |       |   |  | $       | 1,434,151 |   |   |        |         |  |  |       |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|Net interest income and interest rate spread |                                               |                                 |         |           |  | $      | 313,006 |         |  |          | 6.57 | %      |   |         |         |           |  | $      | 183,542 |         |  |  | 6.64 | %     |   |  |         |           |   | $ | 99,229 |         |  |  | 7.46  | %    
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      
|Net yield on average interest earning assets |                                               |                                 |         |           |  |        |         |         |  |          | 7.63 | %      |   |         |         |           |  |        |         |         |  |  | 8.17 | %     |   |  |         |           |   |   |        |         |  |  | 10.18 | %    
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |   |   |        |         |  |  |       |      

The total interest spread decreased 7 basis
points for the year ended December 31, 2001 compared with
the year ended December 31, 2000 due to a decrease of
67 basis points in the yield on interest earning assets and
a decrease in the cost of funds of 60 basis points. The decrease
in the yield on interest earning assets and cost of funds is
primarily due to a lower interest rate environment. The total
interest rate spread decreased 82 basis points in 2000
compared with 1999 due to a decrease in the yield on interest
earning assets of 44 basis points and an increase in the
cost of funds of 38 basis points. The decrease in the yield on
interest earning assets in 2000 was the result of a greater
percentage of prime contracts held on the balance sheet. The
increase in the cost of borrowings in 2000 was the result of an
increase in the rate on our line of credit as well as the
issuance of $2.5 billion in notes in secured financing
transactions with an all-in borrowing cost of 7.19%.

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The following table sets forth the changes in net
interest income attributable to changes in volume (change in
average portfolio volume multiplied by prior period average
rate) and changes in rates (change in weighted average interest
rate multiplied by prior period average portfolio balance):

|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |         |         | 
|--------------------------------- | --------------------------------------------- | ---------------------------------- | - | ------------------------ | ------- | ----- | - | ------- | ------- | ---- | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------ | - | ------ | ------- | ------- | 
|                                  |                                               |                                    |   |                         
|                                  |                                               | 2001 Compared to 2000(1)           |   | 2000 Compared to 1999(1)
|                                  |                                               |                                    |   |                         
|                                  |                                               | Volume                             |   | Rate                     |         | Total |   | Volume  |         | Rate |         | Total  
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |        
|                                  |                                               |                                   
|                                  |                                               | (Dollars in thousands)            
|Interest income:                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|                                  | Contracts receivable                          |                                    | $ | 244,990                  |         |       | $ | (14,594 | )       |      | $       | 230,396 |         |  | $ | 183,715 |         |  | $ | (10,594 | )      |   | $      | 173,121 |        
|                                  | Investment securities                         |                                    |   | 3,135                    |         |       |   | (1,869  | )       |      |         | 1,266   |         |  |   | (188    | )       |  |   | 661     |        |   |        | 473     |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|                                  |                                               | Total interest earning assets      |   | $                        | 248,125 |       |   | $       | (16,463 | )    |         | $       | 231,662 |  |   | $       | 183,527 |  |   | $       | (9,933 | ) |        | $       | 173,594 | 
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|Interest expense:                 |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|                                  | Lines of credit  parent                      |                                    | $ | (18,224                  | )       |       | $ | (10,557 | )       |      | $       | (28,781 | )       |  | $ | 16,096  |         |  | $ | 5,887   |        |   | $      | 21,983  |        
|                                  | Notes payable  parent                        |                                    |   | (4,014                   | )       |       |   | 305     |         |      |         | (3,709  | )       |  |   | (1,507  | )       |  |   | 1,029   |        |   |        | (478    | )      
|                                  | Notes payable on automobile secured financing |                                    |   | 140,088                  |         |       |   | (5,400  | )       |      |         | 134,688 |         |  |   | 69,735  |         |  |   | (1,959  | )      |   |        | 67,776  |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|                                  |                                               | Total interest bearing liabilities |   | $                        | 117,850 |       |   | $       | (15,652 | )    |         | $       | 102,198 |  |   | $       | 84,324  |  |   | $       | 4,957  |   |        | $       | 89,281  | 
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        
|Net change in net interest income |                                               |                                    |   |                          |         |       |   |         |         | $    | 129,464 |         |         |  |   |         |         |  |   |         |        | $ | 84,313 |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |        |   |        |        




|    |                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In the analysis of interest changes due to volume
	and rate, the changes due to the volume/rate variance (the
	combined effect of change in weighted average interest rate and
	change in average portfolio balance) have been allocated
	proportionately based on the absolute value of the volume and
	rate variances. If there is no balance in the previous year, the
	total change is allocated to volume.

Servicing Income

We regularly securitize contracts in the public
asset-backed securities market and retain the servicing rights.
For accounting purposes, these transactions are treated as
either secured financings or sales to a securitization trust.
Since the first quarter of 2000, we have not completed a
securitization that has been accounted for as a sale. For
transactions treated as sales, we recorded a non-cash gain equal
to the present value of the estimated future cash flows from the
portfolio of contracts sold less the write-off of dealer
participation balances and the effect of hedging activities. For
these securitizations, net interest earned on the contracts sold
and fees earned for servicing the automobile contract portfolios
are recognized over the life of the transactions as contractual
servicing income, retained interest income and other fee income.

We occasionally sell contracts to Westcorp in
whole loan sales. These sales are designed to utilize additional
capital raised by Westcorp. These contracts are subsequently
securitized by Westcorp and continue to be managed by us under
the terms of such securitizations. We recognize a cash gain on a
whole loan sale equal to the cash premium received adjusted for
the write-off of dealer participation balances and the effect of
hedging activities.

The components of servicing income were as
follows:

|                                                              |                        |                                 |         |         |  |      |        |         |  |   |        |         | 
|------------------------------------------------------------- | ---------------------- | ------------------------------- | ------- | ------- |  | ---- | ------ | ------- |  | - | ------ | ------- | 
|                                                              |                        |                                
|                                                              |                        | For the Year Ended December 31,
|                                                              |                        |                                
|                                                              |                        | 2001                            |         | 2000    |  | 1999
|                                                              |                        |                                 |         |         |  |     
|                                                              |                        |                                
|                                                              |                        | (Dollars in thousands)         
|Retained interest (expense) income, net of RISA
	amortization |                        | $                               | (27,839 | )       |  | $    | 51,429 |         |  | $ | 47,812 |        
|Contractual servicing income                                  |                        |                                 | 85,845  |         |  |      | 57,718 |         |  |   | 46,847 |        
|Other fee income                                              |                        |                                 | 72,820  |         |  |      | 61,772 |         |  |   | 46,121 |        
|                                                              |                        |                                 |         |         |  |      |        |         |  |   |        |        
|                                                              | Total servicing income |                                 | $       | 130,826 |  |      | $      | 170,919 |  |   | $      | 140,780 | 
|                                                              |                        |                                 |         |         |  |      |        |         |  |   |        |        

Servicing income decreased primarily as a result
of lower retained interest income, offset by increases in
contractual servicing income and other fee income.

Retained interest expense totaled
$27.8 million for the year ended December 31, 2001,
compared with retained interest income of $51.4 million and
$47.8 million for the years ended December 31, 2000
and 1999, respectively. For accounting purposes, this income is
only recognized on contracts sold through securitizations

24



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##### Table of Contents



treated as sales. Retained interest income is
dependent upon the average excess spread on the contracts sold,
credit losses and the size of the sold portfolio. The retained
interest expense recognized in 2001 is the result of higher
chargeoff experience on our sold portfolio as well as revised
estimates of future chargeoffs due to continued slowing in the
economy. Net chargeoffs on the sold portfolio decreased to
$50.4 million in 2001 from $75.5 million in 2000 and
$91.8 million in 1999. The outstanding sold portfolio had a
weighted average gross interest rate spread of 6.97% in 2001
compared with 7.38% and 8.34% in 2000 and 1999, respectively.
The average balance of the sold portfolio, excluding the loans
sold in the whole loan sale on which we do not recognize
retained interest income, was $1.8 billion in 2001 compared
with $3.4 billion in 2000 and $4.0 billion in 1999.


Contractual servicing income earned by us from
Westcorp relating to the whole loan sales totaled approximately
$62.8 million and $16.0 million for the years ended
December 31, 2001 and 2000. Contractual servicing income
earned by us relating to sales to securitization trusts totaled
approximately $23.0 million and $41.7 million for the
years ended December 31, 2001 and 2000, respectively. The
decrease was a result of the decrease in the average balance of
the sold portfolio.

Other fee income consists primarily of
documentation fees, late charges and deferment fees on our
managed portfolio, including contracts securitized in
transactions accounted for as sales and secured financings, as
well as contracts sold in whole loan sales and contracts not
securitized. The increase in other fee income is due to the
growth in our average managed portfolio to $7.6 billion in
2001 from $6.1 billion in 2000 and $4.8 billion in
1999.

Gain on Sale of
Contracts

The following table sets forth our contract sales
and securitizations and related gains on sales:

|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |           |           | 
|------------------------------------------------------------ | ------------------------------- | ---------------------------------- | ------ | --------- | --------- | ---- | --- | --------- | --------- | ---- | ------ | --------- | --------- | - | ------ | --------- | --------- | - | ------- | --------- | --------- | 
|                                                             |                                 |                                   
|                                                             |                                 | For the Year Ended December 31,   
|                                                             |                                 |                                   
|                                                             |                                 | 2001                               |        | 2000      |           | 1999 |     | 1998      |           | 1997
|                                                             |                                 |                                    |        |           |           |      |     |           |           |     
|                                                             |                                 |                                   
|                                                             |                                 | (Dollars in thousands)            
|Contract sales and secured financings:                       |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             | Whole loan sales to Westcorp(1) |                                    | $      | 1,370,000 |           |      | $   | 1,390,000 |           |      |        |           |           |   |        |           |           |   |         |           |          
|                                                             | Sales to securitization trusts  |                                    |        |           |           |      |     | 660,000   |           |      | $      | 2,500,000 |           |   | $      | 1,885,000 |           |   | $       | 2,190,000 |          
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             |                                 | Total sales                        |        |           | 1,370,000 |      |     |           | 2,050,000 |      |        |           | 2,500,000 |   |        |           | 1,885,000 |   |         |           | 2,190,000 | 
|                                                             | Secured financings:             |                                    |        | 2,850,000 |           |      |     | 2,540,000 |           |      |        | 500,000   |           |   |        |           |           |   |         |           |          
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             |                                 | Total sales and secured financings |        | $         | 4,220,000 |      |     | $         | 4,590,000 |      |        | $         | 3,000,000 |   |        | $         | 1,885,000 |   |         | $         | 2,190,000 | 
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|Gain on sale of contracts(2):                                |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             | Non-cash gain on sale           |                                    |        |           |           |      | $   | 7,719     |           |      | $      | 54,977    |           |   | $      | 25,438    |           |   | $       | 39,399    |          
|                                                             | Cash gain on sale               |                                    | $      | 6,741     |           |      |     | 6,004     |           |      |        |           |           |   |        |           |           |   |         |           |          
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             |                                 | Total gain on sale                 |        | $         | 6,741     |      |     | $         | 13,723    |      |        | $         | 54,977    |   |        | $         | 25,438    |   |         | $         | 39,399    | 
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|Hedge gain (loss) included in gain on sale
	of contracts(3): |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             | Non-cash gain on sale           |                                    |        |           |           |      | $   | 5,300     |           |      | $      | 11,051    |           |   | $      | (8,580    | )         |   | $       | (11,236   | )        
|                                                             | Cash gain on sale               |                                    | $      | (6,700    | )         |      |     | (5,000    | )         |      |        |           |           |   |        |           |           |   |         |           |          
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             |                                 | $                                  | (6,700 | )         |           | $    | 300 |           |           | $    | 11,051 |           |           | $ | (8,580 | )         |           | $ | (11,236 | )        
|                                                             |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|Gain on sale of contracts as a % of total
	revenues:         |                                 |                                    |        |           |           |      |     |           |           |      |        |           |           |   |        |           |           |   |         |          
|                                                             | Non-cash gain on sale           |                                    |        |           |           |      |     | 2.10      | %         |      |        | 18.64     | %         |   |        | 15.28     | %         |   |         | 17.14     | %        
|                                                             | Cash gain on sale               |                                    |        | 1.50      | %         |      |     | 1.63      | %         |      |        |           |           |   |        |           |           |   |         |           |          




|    |                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------
|(1) | Amounts represent whole loan sales to Westcorp,
	which Westcorp then securitized.                       
|(2) | Net of the write-off of outstanding dealer
	participation balances and the effect of hedging activities.
|(3) | Included in gain on sale of contracts.                                                                  

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##### Table of Contents



The following table lists each of our public
securitizations. The first issue in 1985 was rated AA by S&P
and Aa by Moodys. All issues since that time were rated
AAA by S&P and Aaa by Moodys, their respective highest
long-term ratings. The money market securities for each
applicable transaction were rated A-1+ by S&P and P-1 by
Moodys, their respective highest short-term ratings. All
securitizations prior to 1998-A were paid in full on or before
their contractual maturity dates.

Securitizations

|       |        |            |  |                        |                 |                   |  |                  |            |             |  |                     |              |           |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|------ | ------ | ---------- |  | ---------------------- | --------------- | ----------------- |  | ---------------- | ---------- | ----------- |  | ------------------- | ------------ | --------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|       |        |            |  |                        |                 |                   |  | Remaining        |            |             |  |                     |              | Gross    
|       |        |            |  |                        |                 | Remaining         |  | Balance as a     |            | Original    |  | Original            |              | Interest 
|Issue  |        |            |  | Original               |                 | Balance at        |  | Percent of       |            | Weighted    |  | Weighted Average    |              | Rate     
|Number |        | Close Date |  | Balance                |                 | December 31, 2001 |  | Original Balance |            | Average APR |  | Securitization Rate |              | Spread(1)
|       |        |            |  |                        |                 |                   |  |                  |            |             |  |                     |              |          
|       |        |            |  |                        |                 |                   |  |                  |            |             |  |                    
|       |        |            |  | (Dollars in thousands) |                 |                   |  |                  |            |             |  |                    
|       | 1985-A |            |  |                        | December, 1985  |                   |  | $                | 110,000    |             |  |                     | Paid in full |           |  |  | 0     | % |  |  | 18.50 | % |  |  | 8.38  | % |  |  | 10.12 | %
|       | 1986-A |            |  |                        | November, 1986  |                   |  |                  | 191,930    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.20 |   |  |  | 6.63  |   |  |  | 7.57  |  
|       | 1987-A |            |  |                        | March, 1987     |                   |  |                  | 125,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 12.42 |   |  |  | 6.75  |   |  |  | 5.67  |  
|       | 1987-B |            |  |                        | July, 1987      |                   |  |                  | 110,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 12.68 |   |  |  | 7.80  |   |  |  | 4.88  |  
|       | 1988-A |            |  |                        | February, 1988  |                   |  |                  | 155,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 13.67 |   |  |  | 7.75  |   |  |  | 5.92  |  
|       | 1988-B |            |  |                        | May, 1988       |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.01 |   |  |  | 8.50  |   |  |  | 5.51  |  
|       | 1988-C |            |  |                        | July, 1988      |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.41 |   |  |  | 8.50  |   |  |  | 6.91  |  
|       | 1988-D |            |  |                        | October, 1988   |                   |  |                  | 105,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.95 |   |  |  | 8.85  |   |  |  | 6.10  |  
|       | 1989-A |            |  |                        | March, 1989     |                   |  |                  | 75,000     |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.88 |   |  |  | 10.45 |   |  |  | 5.43  |  
|       | 1989-B |            |  |                        | June, 1989      |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.96 |   |  |  | 9.15  |   |  |  | 6.81  |  
|       | 1990-A |            |  |                        | August, 1990    |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 16.05 |   |  |  | 8.35  |   |  |  | 7.70  |  
|       | 1990-1 |            |  |                        | November, 1990  |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.56 |   |  |  | 8.50  |   |  |  | 7.06  |  
|       | 1991-1 |            |  |                        | April, 1991     |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 16.06 |   |  |  | 7.70  |   |  |  | 8.36  |  
|       | 1991-2 |            |  |                        | May, 1991       |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.75 |   |  |  | 7.30  |   |  |  | 8.45  |  
|       | 1991-3 |            |  |                        | August, 1991    |                   |  |                  | 175,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.69 |   |  |  | 6.75  |   |  |  | 8.94  |  
|       | 1991-4 |            |  |                        | December, 1991  |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.53 |   |  |  | 5.63  |   |  |  | 9.90  |  
|       | 1992-1 |            |  |                        | March, 1992     |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.49 |   |  |  | 5.85  |   |  |  | 8.64  |  
|       | 1992-2 |            |  |                        | June, 1992      |                   |  |                  | 165,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.94 |   |  |  | 5.50  |   |  |  | 9.44  |  
|       | 1992-3 |            |  |                        | September, 1992 |                   |  |                  | 135,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.45 |   |  |  | 4.70  |   |  |  | 9.75  |  
|       | 1993-1 |            |  |                        | March, 1993     |                   |  |                  | 250,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 13.90 |   |  |  | 4.45  |   |  |  | 9.45  |  
|       | 1993-2 |            |  |                        | June, 1993      |                   |  |                  | 175,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 13.77 |   |  |  | 4.70  |   |  |  | 9.07  |  
|       | 1993-3 |            |  |                        | September, 1993 |                   |  |                  | 187,500    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 13.97 |   |  |  | 4.25  |   |  |  | 9.72  |  
|       | 1993-4 |            |  |                        | December, 1993  |                   |  |                  | 165,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 12.90 |   |  |  | 4.60  |   |  |  | 8.30  |  
|       | 1994-1 |            |  |                        | March, 1994     |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 13.67 |   |  |  | 5.10  |   |  |  | 8.57  |  
|       | 1994-2 |            |  |                        | May, 1994       |                   |  |                  | 230,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.04 |   |  |  | 6.38  |   |  |  | 7.66  |  
|       | 1994-3 |            |  |                        | August, 1994    |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 14.59 |   |  |  | 6.65  |   |  |  | 7.94  |  
|       | 1994-4 |            |  |                        | October, 1994   |                   |  |                  | 212,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.58 |   |  |  | 7.10  |   |  |  | 8.48  |  
|       | 1995-1 |            |  |                        | January, 1995   |                   |  |                  | 190,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.71 |   |  |  | 8.05  |   |  |  | 7.66  |  
|       | 1995-2 |            |  |                        | March, 1995     |                   |  |                  | 190,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 16.36 |   |  |  | 7.10  |   |  |  | 9.26  |  
|       | 1995-3 |            |  |                        | June, 1995      |                   |  |                  | 300,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.05 |   |  |  | 6.05  |   |  |  | 9.00  |  
|       | 1995-4 |            |  |                        | September, 1995 |                   |  |                  | 375,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.04 |   |  |  | 6.20  |   |  |  | 8.84  |  
|       | 1995-5 |            |  |                        | December, 1995  |                   |  |                  | 425,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.35 |   |  |  | 5.88  |   |  |  | 9.47  |  
|       | 1996-A |            |  |                        | March, 1996     |                   |  |                  | 485,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.46 |   |  |  | 6.13  |   |  |  | 9.33  |  
|       | 1996-B |            |  |                        | June, 1996      |                   |  |                  | 525,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.74 |   |  |  | 6.75  |   |  |  | 8.99  |  
|       | 1996-C |            |  |                        | September, 1996 |                   |  |                  | 535,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.83 |   |  |  | 6.60  |   |  |  | 9.23  |  
|       | 1996-D |            |  |                        | December, 1996  |                   |  |                  | 545,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|       | 1997-A |            |  |                        | March, 1997     |                   |  |                  | 500,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.33 |   |  |  | 6.60  |   |  |  | 8.73  |  
|       | 1997-B |            |  |                        | June, 1997      |                   |  |                  | 590,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.36 |   |  |  | 6.37  |   |  |  | 8.99  |  
|       | 1997-C |            |  |                        | September, 1997 |                   |  |                  | 600,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|       | 1997-D |            |  |                        | December, 1997  |                   |  |                  | 500,000    |             |  |                     | Paid in full |           |  |  | 0     |   |  |  | 15.19 |   |  |  | 6.34  |   |  |  | 8.85  |  
|       | 1998-A |            |  |                        | March, 1998     |                   |  |                  | 525,000    |             |  | $                   | 49,627       |           |  |  | 9.45  |   |  |  | 14.72 |   |  |  | 6.01  |   |  |  | 8.71  |  
|       | 1998-B |            |  |                        | June, 1998      |                   |  |                  | 660,000    |             |  |                     | 94,062       |           |  |  | 14.25 |   |  |  | 14.68 |   |  |  | 6.06  |   |  |  | 8.62  |  
|       | 1998-C |            |  |                        | November, 1998  |                   |  |                  | 700,000    |             |  |                     | 135,444      |           |  |  | 19.35 |   |  |  | 14.42 |   |  |  | 5.81  |   |  |  | 8.61  |  
|       | 1999-A |            |  |                        | January, 1999   |                   |  |                  | 1,000,000  |             |  |                     | 231,712      |           |  |  | 23.17 |   |  |  | 14.42 |   |  |  | 5.70  |   |  |  | 8.72  |  
|       | 1999-B |            |  |                        | July, 1999      |                   |  |                  | 1,000,000  |             |  |                     | 343,081      |           |  |  | 34.31 |   |  |  | 14.62 |   |  |  | 6.36  |   |  |  | 8.26  |  
|       | 1999-C |            |  |                        | November, 1999  |                   |  |                  | 500,000    |             |  |                     | 209,400      |           |  |  | 41.88 |   |  |  | 14.77 |   |  |  | 7.01  |   |  |  | 7.76  |  
|       | 2000-A |            |  |                        | March, 2000     |                   |  |                  | 1,200,000  |             |  |                     | 555,202      |           |  |  | 46.27 |   |  |  | 14.66 |   |  |  | 7.28  |   |  |  | 7.38  |  
|       | 2000-B |            |  |                        | May, 2000       |                   |  |                  | 1,000,000  |             |  |                     | 521,620      |           |  |  | 52.16 |   |  |  | 14.84 |   |  |  | 7.78  |   |  |  | 7.06  |  
|       | 2000-C |            |  |                        | August, 2000    |                   |  |                  | 1,390,000  |             |  |                     | 708,094      |           |  |  | 50.94 |   |  |  | 15.04 |   |  |  | 7.32  |   |  |  | 7.72  |  
|       | 2000-D |            |  |                        | November, 2000  |                   |  |                  | 1,000,000  |             |  |                     | 766,367      |           |  |  | 76.64 |   |  |  | 15.20 |   |  |  | 6.94  |   |  |  | 8.26  |  
|       | 2001-A |            |  |                        | January, 2001   |                   |  |                  | 1,000,000  |             |  |                     | 837,369      |           |  |  | 83.74 |   |  |  | 14.87 |   |  |  | 5.77  |   |  |  | 9.10  |  
|       | 2001-B |            |  |                        | May, 2001       |                   |  |                  | 1,370,000  |             |  |                     | 1,084,218    |           |  |  | 79.14 |   |  |  | 14.41 |   |  |  | 4.23  |   |  |  | 10.18 |  
|       | 2001-C |            |  |                        | August, 2001    |                   |  |                  | 1,200,000  |             |  |                     | 1,081,034    |           |  |  | 90.09 |   |  |  | 13.90 |   |  |  | 4.50  |   |  |  | 9.40  |  
|       | 2002-1 |            |  |                        | March, 2002(2)  |                   |  |                  | 1,800,000  |             |  |                     |              |           |  |  |       |   |  |  | 13.50 |   |  |  | 3.71  |   |  |  | 9.79  |  
|       |        |            |  |                        |                 |                   |  |                  |            |             |  |                     |              |           |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|       |        |            |  |                        | Total           |                   |  | $                | 24,371,430 |             |  | $                   | 6,617,230    |           |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|       |        |            |  |                        |                 |                   |  |                  |            |             |  |                     |              |           |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  




|    |                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the difference between the original
	weighted average annual percentage rate, also known as APR, and
	the estimated weighted average securitization rate on the
	closing date of the securitization.
|   
|(2) | The 2002-1 securitization closed on
	March 20, 2002.                                                                                                                                                           

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##### Table of Contents



Provision for Credit
Losses

We maintain an allowance for credit losses to
cover probable losses that can be reasonably estimated for
contracts held on the balance sheet. The allowance for credit
losses is increased by charging the provision for credit losses
and decreased by actual losses on such contracts or by reversing
the allowance for credit losses through the provision for credit
losses when the amount of contracts held on balance sheet is
reduced from securitization transactions treated as sales and
from whole loan sales. The level of the allowance is based
principally on the outstanding balance of contracts held on
balance sheet and historical loss trends. We believe that the
allowance for credit losses is currently adequate to absorb
probable losses in our owned portfolio that can be reasonably
estimated.

The provision for credit losses totaled
$144 million in 2001 compared with $69.0 million in
2000 and $36.6 million in 1999. The increase in provision
for credit losses in 2001 and 2000 was the result of a higher
level of contracts held on balance sheet and chargeoffs related
to such contracts as our securitizations in those years were
predominately accounted for as secured financings. In 2001 we
recorded $65.1 million in provisions for credit losses in
excess of chargeoffs. The increase in provision for credit
losses was due to higher chargeoffs related to continued slowing
in the economy. Of the total $69.0 million reported in
provision for credit losses in 2000, $34.3 million was for
chargeoffs incurred during the period and $37.6 million
represented the increase in the amount of contracts held on the
balance sheet. Provision for credit losses was reduced by
$2.9 million due to the lower level of allowance held for
contracts due to improving asset quality. The increase in
provision for credit losses in 1999 was the result of an
increase in the amount of reserves held on contracts available
for sale as $500 million of such contracts were used as
collateral for the issuance of notes to a conduit facility in a
transaction treated as a secured financing. In addition, another
$540 million of contracts available for sale were expected
to be placed in a securitization transaction in the first
quarter of 2000 that would also be accounted for as a secured
financing and, therefore, the contracts would remain on our
balance sheet and higher levels of reserves would be required
for probable losses that could be reasonably estimated. See
Financial Condition  Allowance for Credit
Losses.



| |                   
| | ------------------
| | Operating Expenses

Operating expenses totaled $205 million in
2001, $189 million in 2000 and $173 million in 1999.
Operating expenses as a percentage of average managed contracts
declined to 2.7% in 2001 compared with 3.1% in 2000 and 3.6% in
1999 as the result of the completion of our restructuring
program in 1999, as well as other operating efficiencies
achieved. Operating expenses as a percentage of total revenues
were 46% in 2001 compared with 51% in 2000 and 59% in 1999.

The efficiencies realized include increasing the
conversion ratios on contracts purchased through dealer
education, the automation of the loan application and
underwriting system, the centralization of data entry and
verification processes, and the implementation of proprietary
credit scorecards and electronic funds transfers for our
dealers. Operating efficiencies also include the implementation
of automated dialers, the centralization and upgrade of payment
processing and asset recovery processes, the upgrading of toll
free lines for customer service and interactive voice response
technology, direct debit for our borrowers, imaging for record
retention and retrieval, and the implementation of a new
behavioral scoring collection system.

Currently, we pay a monthly management fee to the
Bank and Westcorp, which covers various administrative expenses.
Additionally, the Bank and Westcorp pay fees to us for
information technology and other services. The management fee is
based on the actual costs incurred and estimates of actual
usage. We believe that the management fee approximates the cost
to perform these services on our own behalf or to acquire them
from third parties. We have the option, under the management
agreements, to procure these services on our own should it be
more economically beneficial for us to do so. See
Business  Transactions with Related
Parties  Management Agreements.



| |             
| | ------------
| | Income Taxes

We file federal and certain state tax returns as
part of a consolidated group that includes the Bank and
Westcorp, the holding company parent of the Bank. We file other
state tax returns as a separate entity. Tax

27



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##### Table of Contents



liabilities from the consolidated returns are
allocated in accordance with a tax sharing agreement based on
the relative income or loss of each entity on a stand-alone
basis. Our effective tax rate was approximately 39% in 2001
compared with 40% in 2000 and 42% in 1999, respectively. See
Business  Transactions with Related
Parties  Tax Sharing Agreement.




| |                                                
| | -----------------------------------------------
| | Pro Forma Portfolio Basis Statements of
	Income

During the first quarter of 2000, we changed the
structure of our securitizations so that they would no longer be
accounted for as sales but rather recorded as secured
financings. This decision is consistent with our business
strategy to record high quality earnings and to maintain a
conservative, well-capitalized balance sheet. If treated as
secured financings, no gain on sale or subsequent contractual
servicing and retained interest income is recognized. Instead,
the earnings of the contracts in the trust and the related
financing costs are reflected over the life of the underlying
pool of contracts as net interest income. Additionally, no RISA
is recorded on the balance sheet, which must be written off over
the life of a securitization. This asset is subject to
impairment if assumptions made about the performance of a
securitization are not realized.

Over time, our securitizations that were recorded
as sales will mature and an increasing percentage of securitized
contracts will be represented by securitizations that are
accounted for as secured financings. In the interim, we will
present pro forma portfolio basis statements of income that
present our results under the assumption that all our
outstanding securitizations and whole loan sales to Westcorp are
treated as secured financings rather than as sales. These
statements provide a method by which to gauge our year to year
performance while we make this transition.

We believe that such a presentation is an
important performance measure of our operations during this
transitory period. Differences between portfolio basis earnings
and reported earnings represent the transitional effect of
treating securitizations as secured financings rather than
sales. Ultimately, our reported earnings will approach our
portfolio basis earnings as we continue to treat future
securitizations as secured financings. We refer to these pro
forma results as portfolio basis statements of
operations since all contracts sold would have remained in our
on balance sheet automobile contract portfolio if we had
accounted for the transactions as secured financings.

The growth in our portfolio basis earnings
reflects the growth in our managed contract portfolio to
$8.2 billion at December 31, 2001, compared with
$6.8 billion and $5.4 billion at December 31,
2000 and 1999, respectively. We monitor the periodic portfolio
basis earnings of our managed contract portfolio and believe
these portfolio basis statements assist in better understanding
our business.

28



---



##### Table of Contents



The following tables present the portfolio basis
statements of income, portfolio yields and reconciliation to net
income as reflected in our Consolidated Statements of Income.

PORTFOLIO BASIS STATEMENTS OF INCOME

|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------ | ------------------------------------------------------ | ------------------------------------------------ | --------- | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                       |                                                        |                                                 
|                                                       |                                                        | For the Year Ended December 31,                 
|                                                       |                                                        |                                                 
|                                                       |                                                        | 2001(1)                                          |           | 2000    |  | 1999
|                                                       |                                                        |                                                  |           |         |  |     
|                                                       |                                                        |                                                 
|                                                       |                                                        | (Dollars in thousands, except per share amounts)
|Interest income                                        |                                                        | $                                                | 1,010,104 |         |  | $    | 817,072 |         |  | $ | 642,497 |        
|Interest expense                                       |                                                        |                                                  | 494,859   |         |  |      | 409,051 |         |  |   | 300,243 |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|                                                       | Net interest income                                    |                                                  |           | 515,245 |  |      |         | 408,021 |  |   |         | 342,254 | 
|Net chargeoffs(1)                                      |                                                        |                                                  | 172,209   |         |  |      | 116,224 |         |  |   | 102,937 |        
|Provision for growth(2)                                |                                                        |                                                  | 19,087    |         |  |      | 23,416  |         |  |   | 19,190  |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|                                                       | Provision for credit losses                            |                                                  |           | 191,296 |  |      |         | 139,640 |  |   |         | 122,127 | 
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|                                                       | Net interest income after provision for
	credit losses |                                                  |           | 323,949 |  |      |         | 268,381 |  |   |         | 220,127 | 
|Other income                                           |                                                        |                                                  | 72,712    |         |  |      | 61,771  |         |  |   | 46,121  |        
|Operating expenses                                     |                                                        |                                                  | 207,771   |         |  |      | 190,328 |         |  |   | 180,100 |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|Income before income tax                               |                                                        |                                                  | 188,890   |         |  |      | 139,824 |         |  |   | 86,148  |        
|Income tax(3)                                          |                                                        |                                                  | 73,211    |         |  |      | 55,803  |         |  |   | 36,080  |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|Portfolio basis net income                             |                                                        | $                                                | 115,679   |         |  | $    | 84,021  |         |  | $ | 50,068  |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        
|Portfolio basis net income per common
	share  diluted |                                                        | $                                                | 3.57      |         |  | $    | 2.97    |         |  | $ | 1.94    |        
|                                                       |                                                        |                                                  |           |         |  |      |         |         |  |   |         |        




|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|(1) | Represents actual chargeoffs incurred during the
	period, net of recoveries.                                            
|   
|(2) | Represents additional allowance for credit losses
	that would be set aside due to an increase in the managed
	portfolio.
|   
|(3) | Such tax effect is based upon our tax rate for
	the respective period.                                                  

29



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##### Table of Contents



PORTFOLIO BASIS YIELDS

|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |     | 
|-------------------------- | ------------------------------------------------------ | ------------------------------- | --------- | ------- |  | ------- | --------- | --- |  | - | --------- | --- | 
|                           |                                                        |                                
|                           |                                                        | For the Year Ended December 31,
|                           |                                                        |                                
|                           |                                                        | 2001(1)                         |           | 2000(1) |  | 1999(1)
|                           |                                                        |                                 |           |         |  |        
|                           |                                                        |                                
|                           |                                                        | (Dollars in thousands)         
|Interest income            |                                                        |                                 | 13.3      | %       |  |         | 13.5      | %   |  |   | 13.3      | %  
|Interest expense           |                                                        |                                 | 6.5       |         |  |         | 6.7       |     |  |   | 6.2       |    
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Net interest income                                    |                                 |           | 6.8     |  |         |           | 6.8 |  |   |           | 7.1 | 
|Net chargeoffs             |                                                        |                                 | 2.3       |         |  |         | 1.9       |     |  |   | 2.1       |    
|Provision for growth       |                                                        |                                 | 0.2       |         |  |         | 0.4       |     |  |   | 0.4       |    
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Provision for
	credit losses                           |                                 |           | 2.5     |  |         |           | 2.3 |  |   |           | 2.5 | 
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Net interest income
	after provision for credit losses |                                 |           | 4.3     |  |         |           | 4.5 |  |   |           | 4.6 | 
|Other income               |                                                        |                                 | 1.0       |         |  |         | 1.0       |     |  |   | 1.0       |    
|Operating expenses         |                                                        |                                 | 2.8       |         |  |         | 3.2       |     |  |   | 3.8       |    
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|Income before income tax   |                                                        |                                 | 2.5       |         |  |         | 2.3       |     |  |   | 1.8       |    
|Income tax                 |                                                        |                                 | 1.0       |         |  |         | 0.9       |     |  |   | 0.8       |    
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|Portfolio basis net income |                                                        |                                 | 1.5       | %       |  |         | 1.4       | %   |  |   | 1.0       | %  
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    
|Average managed contracts  |                                                        | $                               | 7,576,681 |         |  | $       | 6,076,814 |     |  | $ | 4,840,363 |    
|                           |                                                        |                                 |           |         |  |         |           |     |  |   |           |    




|    |                                                                                                   
|--- | --------------------------------------------------------------------------------------------------
|(1) | Rates are calculated by dividing amounts by
	average managed contracts for the respective periods.

RECONCILIATION OF GAAP BASIS NET
INCOME

TO PORTFOLIO BASIS NET INCOME


|                                  |                                    |                                 |        |         |         |      |        |         |        |   |        |         |        | 
|--------------------------------- | ---------------------------------- | ------------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------ | - | ------ | ------- | ------ | 
|                                  |                                    |                                
|                                  |                                    | For the Year Ended December 31,
|                                  |                                    |                                
|                                  |                                    | 2001                            |        | 2000    |         | 1999
|                                  |                                    |                                 |        |         |         |     
|                                  |                                    |                                
|                                  |                                    | (Dollars in thousands)         
|GAAP basis net income             |                                    | $                               | 61,648 |         |         | $    | 66,372 |         |        | $ | 49,375 |        
|Portfolio basis adjustments:      |                                    |                                 |        |         |         |      |        |         |        |   |        |        
|                                  | Gain on sale of contracts          |                                 |        | (6,741  | )       |      |        | (13,723 | )      |   |        | (54,977 | )     
|                                  | Retained interest expense (income) |                                 |        | 27,839  |         |      |        | (51,429 | )      |   |        | (47,812 | )     
|                                  | Contractual servicing income       |                                 |        | (85,845 | )       |      |        | (57,718 | )      |   |        | (46,847 | )     
|                                  | Net interest income                |                                 |        | 202,239 |         |      |        | 224,243 |        |   |        | 242,878 |       
|                                  | Provision for credit losses        |                                 |        | (47,166 | )       |      |        | (70,677 | )      |   |        | (85,549 | )     
|                                  | Operating expenses                 |                                 |        | (2,587  | )       |      |        | (1,460  | )      |   |        | (6,500  | )     
|                                  |                                    |                                 |        |         |         |      |        |         |        |   |        |        
|Total portfolio basis adjustments |                                    |                                 | 87,739 |         |         |      | 29,236 |         |        |   | 1,193  |        
|Net tax effect(1)                 |                                    |                                 | 33,708 |         |         |      | 11,587 |         |        |   | 500    |        
|                                  |                                    |                                 |        |         |         |      |        |         |        |   |        |        
|                                  |                                    | Portfolio basis net income      |        | $       | 115,679 |      |        | $       | 84,021 |   |        | $       | 50,068 | 
|                                  |                                    |                                 |        |         |         |      |        |         |        |   |        |        




|    |                                                              
|--- | -------------------------------------------------------------
|(1) | Such tax is based on our tax rate for the
	respective period.

Financial Condition



| |         
| | --------
| | Overview

We originated $4.9 billion and
$4.2 billion of contracts for the years ended
December 31, 2001 and 2000, respectively. As a result of
higher automobile contract originations, our portfolio of
managed contracts reached $8.2 billion at December 31,
2001, up from $6.8 billion at December 31, 2000 and
$5.4 billion at December 31, 1999.

30



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| |                        
| | -----------------------
| | Amounts Due From Trusts

The excess cash flows generated by contracts sold
to each of the securitization trusts are deposited into spread
accounts in the name of the trustee under the terms of the
securitizations. In addition, at the time a securitization
closes, we advance additional monies to our subsidiary that
originated the securitization trust to initially fund these
spread accounts. For transactions treated as sales, we establish
a liability associated with the use of the spread account funds,
which is reduced as such funds reach predetermined funding
levels. We are released from these obligations after the spread
account reaches a predetermined funding level. The amounts due
from trusts represent amounts due to us that are still under
obligation to be held in the spread accounts for transactions
treated as sales. The amounts due from trusts at
December 31, 2001 was $136 million compared with
$357 million at December 31, 2000. The decrease is the
result of a reduction in the outstanding amount of
securitizations treated as sales for accounting purposes.



| |                                         
| | ----------------------------------------
| | Retained Interest in Securitized
	Assets

RISA is capitalized upon the sale of contracts to
securitization trusts. RISA represents the present value of the
estimated future cash flows to be received by us from the excess
spread created in securitization transactions. The determination
of the value of the RISA is a critical accounting process.
Future cash flows are calculated by taking the coupon rate of
the contracts securitized less the interest rate paid to the
investors less contractually specified servicing fees and
guarantor fees, after giving effect to estimated credit losses
and prepayments.

RISA is classified in a manner similar to
available for sale securities and as such is marked to market
each quarter. Market value changes are calculated by discounting
estimated cash flows using a current market discount rate. Any
changes in the market value of the RISA are reported as a
separate component of shareholders equity on our
Consolidated Statements of Financial Condition as accumulated
other comprehensive income (loss), net of applicable taxes. On a
quarterly basis, we evaluate the carrying value of the RISA in
light of the actual performance of the underlying contracts and
make adjustments to reduce the carrying value, if appropriate.

None of our securitization transactions in 2001
were treated as sales. Therefore, we did not record any retained
interest in securitized assets in 2001. Selected original
assumptions used to estimate future cash flows for contracts
securitized in 2000 and 1999 were as follows:

|                                                |  |                            |        |         |  |              |        |             |  |  |        |  |  | 
|----------------------------------------------- |  | -------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  |  | ------ |  |  | 
|                                                |  |                           
|                                                |  | For the Three Months Ended
|                                                |  |                           
|                                                |  | March 31                   |        | June 30 |  | September 30 |        | December 31
|                                                |  |                            |        |         |  |              |        |            
|2000                                            |  |                            | 2000-A |         |  |              |        |             |  |  |        |  |  | 
|Cumulative net credit losses                    |  |                            | 6.1%   |         |  |              |        |             |  |  |        |  |  | 
|Average monthly ABS prepayment speed            |  |                            | 1.5%   |         |  |              |        |             |  |  |        |  |  | 
|Discount rate                                   |  |                            | 10.8%  |         |  |              |        |             |  |  |        |  |  | 
|Weighted average remaining maturity (in months) |  |                            | 61     |         |  |              |        |             |  |  |        |  |  | 
|                                               
|1999                                            |  |                            | 1999-A |         |  |              | 1999-B |             |  |  | 1999-C |  |  | 
|Cumulative net credit losses                    |  |                            | 6.2%   |         |  |              | 6.1%   |             |  |  | 6.1%   |  |  | 
|Average monthly ABS prepayment speed            |  |                            | 1.5%   |         |  |              | 1.5%   |             |  |  | 1.5%   |  |  | 
|Discount rate                                   |  |                            | 9.1%   |         |  |              | 9.7%   |             |  |  | 10.2%  |  |  | 
|Weighted average remaining maturity (in months) |  |                            | 59     |         |  |              | 59     |             |  |  | 61     |  |  | 

31



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At December 31, 2001 and 2000, key economic
assumptions and the sensitivity of the fair value of the RISA to
immediate 10% and 20% adverse changes in assumed economics were
as follows:

|                                                                         |  |                        |  |            
|------------------------------------------------------------------------ |  | ---------------------- |  | -----------
|                                                                         |  |                       
|                                                                         |  | December 31,          
|                                                                         |  |                       
|                                                                         |  | 2001                   |  | 2000       
|                                                                         |  |                        |  |            
|                                                                         |  |                       
|                                                                         |  | (Dollars in thousands)
|Fair value of the RISA                                                   |  | $37,392                |  | $111,558   
|Weighted average remaining maturity of underlying
	contracts (in months) |  | 33                     |  | 41         
|                                                                        
|Prepayment speed (monthly ABS)                                           |  | 1.0%                   |  | 1.5%       
|Fair value after 10% adverse change                                      |  | $35,184                |  | $107,843   
|Fair value after 20% adverse change                                      |  | $34,266                |  | $103,574   
|                                                                        
|Cumulative net credit losses (pool life rate)                            |  | 6.1%  7.0%            |  | 6.1%  7.6%
|Fair value after 10% adverse change                                      |  | $32,928                |  | $103,880   
|Fair value after 20% adverse change                                      |  | $29,752                |  | $95,925    
|                                                                        
|Discount rate (annual rate)                                              |  | 7.28%                  |  | 10.16%     
|Fair value after 10% adverse change                                      |  | $37,135                |  | $110,963   
|Fair value after 20% adverse change                                      |  | $36,880                |  | $109,810   

The following table sets forth the components of
the RISA:

|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2001                            |         | 2000 |  | 1999
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               | 111,558 |      |  | $    | 167,277 |   |  | $ | 171,230  |  
|Additions                                 |  |                                 |         |      |  |      | 19,240  |   |  |   | 111,767  |  
|Amortization                              |  |                                 | (75,546 | )    |  |      | (75,958 | ) |  |   | (111,752 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 | 1,380   |      |  |      | 999     |   |  |   | (3,968   | )
|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  
|Balance at end of period(2)               |  | $                               | 37,392  |      |  | $    | 111,558 |   |  | $ | 167,277  |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The change in unrealized gain/loss on RISA
	represents temporary changes in valuation including changes in
	the discount rate based on the current interest rate
	environment. Such amounts will not be realized unless the RISA
	is sold. Changes in prepayment and credit loss assumptions for
	the RISA are other than temporary in nature and impact the value
	of the RISA. Such other than temporary differences are
	immediately recognized in income as a component of retained
	interest income.
|   
|(2) | There are no restrictions on the RISA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The following table presents the estimated future
undiscounted cash flows to be received from securitizations:

|                                                                                                      |  |                        |           |      |  |   |           |  
|----------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | -
|                                                                                                      |  |                       
|                                                                                                      |  | December 31,          
|                                                                                                      |  |                       
|                                                                                                      |  | 2001                   |           | 2000
|                                                                                                      |  |                        |           |     
|                                                                                                      |  |                       
|                                                                                                      |  | (Dollars in thousands)
|Estimated net undiscounted RISA earnings                                                              |  | $                      | 87,358    |      |  | $ | 235,270   |  
|Off balance sheet allowance for credit losses                                                         |  |                        | (47,235   | )    |  |   | (110,339  | )
|Discount to present value                                                                             |  |                        | (2,731    | )    |  |   | (13,373   | )
|                                                                                                      |  |                        |           |      |  |   |           |  
|Retained interest in securitized assets                                                               |  | $                      | 37,392    |      |  | $ | 111,558   |  
|                                                                                                      |  |                        |           |      |  |   |           |  
|Outstanding balance of contracts sold through
	securitizations                                        |  | $                      | 1,215,058 |      |  | $ | 2,608,017 |  
|Off balance sheet allowance for credit losses as
	a percent of contracts sold through securitizations |  |                        | 3.89      | %    |  |   | 4.23      | %

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The decline in the off balance sheet allowance
for credit losses both on a dollar and percent basis is the
result of our securitization transactions no longer being
treated as sales. Older transactions treated as sales have lower
losses each month after securitization as estimated future
credit losses are realized.

We believe that the off balance sheet allowance
for credit losses is currently adequate to absorb probable
losses in the sold portfolio that can be reasonably estimated.

The following table summarizes certain cash flows
received from and paid to securitization trusts on
securitizations treated as sales and on whole loan sales:

|                                 |  |                                 |           |      |  |      |           |  |  |   |           | 
|-------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                 |  |                                
|                                 |  | For the Year Ended December 31,
|                                 |  |                                
|                                 |  | 2001                            |           | 2000 |  | 1999
|                                 |  |                                 |           |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  | $                               | 1,370,000 |      |  | $    | 2,050,000 |  |  | $ | 2,500,000 | 
|Excess cash flows from trust     |  |                                 | 47,357    |      |  |      | 127,294   |  |  |   | 159,564   | 
|Servicing fees received          |  |                                 | 85,845    |      |  |      | 57,718    |  |  |   | 46,847    | 
|Servicing advances               |  |                                 | 26,191    |      |  |      | 39,097    |  |  |   | 55,593    | 
|Repayments on servicing advances |  |                                 | 28,222    |      |  |      | 49,825    |  |  |   | 63,940    | 

The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$144 million and $146 million at December 31,
2001 and 2000, respectively. Net chargeoffs for these
securitization trusts totaled $93.2 million,
$81.9 million and $91.8 million for 2001, 2000 and
1999, respectively.

Asset Quality

Overview

We provide financing in a market where there is a
risk of default by borrowers. Chargeoffs directly impact our
earnings and cash flows. To minimize the amount of credit losses
we incur, we monitor delinquent accounts, promptly repossess and
remarket vehicles, and seek to collect on deficiency balances.

At December 31, 2001, the percentage of
accounts delinquent 30 days or greater was 3.72% compared
with 3.18% at December 31, 2000 and 2.84% at
December 31, 1999. We calculate delinquency based on the
contractual due date. Net chargeoffs on average contracts
outstanding for the year ended December 31, 2001 were 2.27%
compared with 1.91% and 2.13% for the years ended
December 31, 2000 and 1999, respectively. The increase in
delinquency and credit loss experience is a result of a slowing
economy.

The following table sets forth information with
respect to the delinquency of our portfolio of contracts
managed, which includes contracts that are owned by us and
contracts that have been sold and/or securitized but are managed
by us:

|                                                                                   |                 |                        |           |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |      |  
|---------------------------------------------------------------------------------- | --------------- | ---------------------- | --------- | ---------- |  | ------ | ---- | ---------- | - | ------ | --------- | ---------- |  |  | ---- | ---- | - | - | --------- | ------- |  |  | ---- | ---- | -
|                                                                                   |                 |                       
|                                                                                   |                 | December 31,          
|                                                                                   |                 |                       
|                                                                                   |                 |                        |           |            |  |       
|                                                                                   |                 | 2001                   |           | 2000       |  | 1999  
|                                                                                   |                 |                        |           |            |  |       
|                                                                                   |                 | Amount                 |           | Percentage |  | Amount |      | Percentage |   | Amount |           | Percentage
|                                                                                   |                 |                        |           |            |  |        |      |            |   |        |           |           
|                                                                                   |                 |                       
|                                                                                   |                 | (Dollars in thousands)
|Contracts managed                                                                  |                 | $                      | 8,152,882 |            |  |        |      |            |   | $      | 6,818,182 |            |  |  |      |      |   | $ | 5,354,385 |         |  |  |      |     
|                                                                                   |                 |                        |           |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Period of delinquency:                                                             |                 |                        |           |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|                                                                                   | 30  59 days    |                        | $         | 217,873    |  |        |      | 2.67       | % |        | $         | 157,843    |  |  |      | 2.32 | % |   | $         | 107,416 |  |  |      | 2.01 | %
|                                                                                   | 60 days or more |                        |           | 85,290     |  |        |      | 1.05       |   |        |           | 59,166     |  |  |      | 0.86 |   |   |           | 44,610  |  |  |      | 0.83 |  
|                                                                                   |                 |                        |           |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Total contracts delinquent and delinquencies as a
	percentage of contracts managed |                 | $                      | 303,163   |            |  |        | 3.72 | %          |   | $      | 217,009   |            |  |  | 3.18 | %    |   | $ | 152,026   |         |  |  | 2.84 | %   
|                                                                                   |                 |                        |           |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     

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The following table sets forth information with
respect to repossessions in our portfolio of managed contracts:

|                                                                                  |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|--------------------------------------------------------------------------------- |  | ---------------------- | ------- | ------ |  | --------- | --------- | ------ |  | --------- | ------- | ------ |  | - | --------- | - |  |  | ------- | - |  | - | --------- | -
|                                                                                  |  |                       
|                                                                                  |  | December 31,          
|                                                                                  |  |                       
|                                                                                  |  |                        |         |        |  |          
|                                                                                  |  | 2001                   |         | 2000   |  | 1999     
|                                                                                  |  |                        |         |        |  |          
|                                                                                  |  | Number of              |         |        |  | Number of |           |        |  | Number of |         |       
|                                                                                  |  | Contracts              |         | Amount |  | Contracts |           | Amount |  | Contracts |         | Amount
|                                                                                  |  |                        |         |        |  |           |           |        |  |           |         |       
|                                                                                  |  |                       
|                                                                                  |  | (Dollars in thousands)
|Contracts managed                                                                 |  |                        | 690,401 |        |  | $         | 8,152,882 |        |  |           | 616,011 |        |  | $ | 6,818,182 |   |  |  | 524,709 |   |  | $ | 5,354,385 |  
|                                                                                  |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed vehicles                                                              |  |                        | 1,168   |        |  | $         | 7,553     |        |  |           | 946     |        |  | $ | 6,199     |   |  |  | 559     |   |  | $ | 3,374     |  
|                                                                                  |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed assets as a percentage of number and
	amount of contracts outstanding |  |                        | 0.17    | %      |  |           | 0.09      | %      |  |           | 0.15    | %      |  |   | 0.09      | % |  |  | 0.11    | % |  |   | 0.06      | %

The following table sets forth information with
respect to actual credit loss experience on our portfolio of
contracts managed:

|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  
|-------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | -
|                                                                           |  |                                
|                                                                           |  | For the Year Ended December 31,
|                                                                           |  |                                
|                                                                           |  | 2001                            |           | 2000 |  | 1999
|                                                                           |  |                                 |           |      |  |     
|                                                                           |  |                                
|                                                                           |  | (Dollars in thousands)         
|Contracts managed at end of period                                         |  | $                               | 8,152,882 |      |  | $    | 6,818,182 |   |  | $ | 5,354,385 |  
|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  
|Average contracts managed during period                                    |  | $                               | 7,576,681 |      |  | $    | 6,076,814 |   |  | $ | 4,840,363 |  
|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  
|Gross chargeoffs                                                           |  | $                               | 236,834   |      |  | $    | 165,937   |   |  | $ | 150,518   |  
|Recoveries                                                                 |  |                                 | 64,626    |      |  |      | 49,697    |   |  |   | 47,581    |  
|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs                                                             |  | $                               | 172,208   |      |  | $    | 116,240   |   |  | $ | 102,937   |  
|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs as a percentage of average
	contracts managed during period |  |                                 | 2.27      | %    |  |      | 1.91      | % |  |   | 2.13      | %
|                                                                           |  |                                 |           |      |  |      |           |   |  |   |           |  

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##### Table of Contents



Cumulative static pool losses are another means
of analyzing contract quality. The cumulative static pool loss
of a securitization is the cumulative amount of losses actually
recognized, net of recoveries, as to the contracts securitized,
up to and including a given month, divided by the original
principal balance of the contracts in that securitization. The
following table sets forth the cumulative static pool losses by
month for all outstanding securitized pools:

CUMULATIVE STATIC POOL LOSS CURVES

AT DECEMBER 31, 2001


|             |    |        |     |        |  |        |     |        |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|------------ | -- | ------ | --- | ------ |  | ------ | --- | ------ |  | ------ | --- | ------ |  | ------ | --- | ------ |  | --------- | --- | ------ |  | ------ | --- | --------- |  | ------ | --- | ----- |  |  | --- | ----- |  |  | --- | ----- |  |  | --- | ----- |  |  | --- | ----- |  |  | --- | ----- |  |  | --- | ----- | 
|Period(1)    |    | 1998-A |     | 1998-B |  | 1998-C |     | 1999-A |  | 1999-B |     | 1999-C |  | 2000-A |     | 2000-B |  | 2000-C(3) |     | 2000-D |  | 2001-A |     | 2001-B(3) |  | 2001-C
|             |    |        |     |        |  |        |     |        |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |       
|             | 1  |        |     | 0.00%  |  |        |     | 0.00%  |  |        |     | 0.00%  |  |        |     | 0.00%  |  |           |     | 0.00%  |  |        |     | 0.00%     |  |        |     | 0.00% |  |  |     | 0.00% |  |  |     | 0.00% |  |  |     | 0.00% |  |  |     | 0.00% |  |  |     | 0.00% |  |  |     | 0.00% | 
|             | 2  |        |     | 0.04%  |  |        |     | 0.02%  |  |        |     | 0.04%  |  |        |     | 0.04%  |  |           |     | 0.04%  |  |        |     | 0.02%     |  |        |     | 0.03% |  |  |     | 0.02% |  |  |     | 0.04% |  |  |     | 0.04% |  |  |     | 0.03% |  |  |     | 0.03% |  |  |     | 0.04% | 
|             | 3  |        |     | 0.11%  |  |        |     | 0.08%  |  |        |     | 0.11%  |  |        |     | 0.11%  |  |           |     | 0.11%  |  |        |     | 0.10%     |  |        |     | 0.10% |  |  |     | 0.09% |  |  |     | 0.13% |  |  |     | 0.11% |  |  |     | 0.09% |  |  |     | 0.10% |  |  |     | 0.09% | 
|             | 4  |        |     | 0.25%  |  |        |     | 0.18%  |  |        |     | 0.23%  |  |        |     | 0.20%  |  |           |     | 0.26%  |  |        |     | 0.25%     |  |        |     | 0.20% |  |  |     | 0.24% |  |  |     | 0.27% |  |  |     | 0.24% |  |  |     | 0.20% |  |  |     | 0.21% |  |  |     | 0.20% | 
|             | 5  |        |     | 0.44%  |  |        |     | 0.38%  |  |        |     | 0.39%  |  |        |     | 0.33%  |  |           |     | 0.47%  |  |        |     | 0.40%     |  |        |     | 0.36% |  |  |     | 0.39% |  |  |     | 0.46% |  |  |     | 0.39% |  |  |     | 0.33% |  |  |     | 0.33% |  |  |     | 0.35% | 
|             | 6  |        |     | 0.66%  |  |        |     | 0.59%  |  |        |     | 0.50%  |  |        |     | 0.46%  |  |           |     | 0.66%  |  |        |     | 0.56%     |  |        |     | 0.55% |  |  |     | 0.59% |  |  |     | 0.65% |  |  |     | 0.54% |  |  |     | 0.50% |  |  |     | 0.50% |  |  |     |       | 
|             | 7  |        |     | 0.95%  |  |        |     | 0.83%  |  |        |     | 0.61%  |  |        |     | 0.62%  |  |           |     | 0.87%  |  |        |     | 0.71%     |  |        |     | 0.71% |  |  |     | 0.78% |  |  |     | 0.81% |  |  |     | 0.74% |  |  |     | 0.70% |  |  |     | 0.69% |  |  |     |       | 
|             | 8  |        |     | 1.23%  |  |        |     | 1.03%  |  |        |     | 0.75%  |  |        |     | 0.76%  |  |           |     | 1.00%  |  |        |     | 0.86%     |  |        |     | 0.91% |  |  |     | 0.99% |  |  |     | 0.93% |  |  |     | 0.93% |  |  |     | 0.84% |  |  |     | 0.87% |  |  |     |       | 
|             | 9  |        |     | 1.50%  |  |        |     | 1.21%  |  |        |     | 0.86%  |  |        |     | 0.92%  |  |           |     | 1.13%  |  |        |     | 1.01%     |  |        |     | 1.10% |  |  |     | 1.17% |  |  |     | 1.07% |  |  |     | 1.13% |  |  |     | 1.04% |  |  |     |       |  |  |     |       | 
|             | 10 |        |     | 1.79%  |  |        |     | 1.40%  |  |        |     | 1.00%  |  |        |     | 1.11%  |  |           |     | 1.24%  |  |        |     | 1.14%     |  |        |     | 1.27% |  |  |     | 1.33% |  |  |     | 1.24% |  |  |     | 1.34% |  |  |     | 1.24% |  |  |     |       |  |  |     |       | 
|             | 11 |        |     | 2.03%  |  |        |     | 1.53%  |  |        |     | 1.17%  |  |        |     | 1.30%  |  |           |     | 1.35%  |  |        |     | 1.34%     |  |        |     | 1.45% |  |  |     | 1.44% |  |  |     | 1.41% |  |  |     | 1.50% |  |  |     | 1.45% |  |  |     |       |  |  |     |       | 
|             | 12 |        |     | 2.21%  |  |        |     | 1.62%  |  |        |     | 1.32%  |  |        |     | 1.47%  |  |           |     | 1.44%  |  |        |     | 1.52%     |  |        |     | 1.58% |  |  |     | 1.57% |  |  |     | 1.62% |  |  |     | 1.74% |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 13 |        |     | 2.39%  |  |        |     | 1.74%  |  |        |     | 1.48%  |  |        |     | 1.61%  |  |           |     | 1.58%  |  |        |     | 1.74%     |  |        |     | 1.73% |  |  |     | 1.72% |  |  |     | 1.86% |  |  |     | 1.95% |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 14 |        |     | 2.49%  |  |        |     | 1.84%  |  |        |     | 1.66%  |  |        |     | 1.73%  |  |           |     | 1.74%  |  |        |     | 1.94%     |  |        |     | 1.85% |  |  |     | 1.86% |  |  |     | 2.04% |  |  |     | 2.21% |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 15 |        |     | 2.60%  |  |        |     | 1.96%  |  |        |     | 1.79%  |  |        |     | 1.81%  |  |           |     | 1.85%  |  |        |     | 2.09%     |  |        |     | 2.00% |  |  |     | 2.04% |  |  |     | 2.25% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 16 |        |     | 2.72%  |  |        |     | 2.10%  |  |        |     | 1.91%  |  |        |     | 1.89%  |  |           |     | 2.03%  |  |        |     | 2.27%     |  |        |     | 2.15% |  |  |     | 2.24% |  |  |     | 2.45% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 17 |        |     | 2.85%  |  |        |     | 2.22%  |  |        |     | 2.01%  |  |        |     | 2.00%  |  |           |     | 2.16%  |  |        |     | 2.39%     |  |        |     | 2.37% |  |  |     | 2.39% |  |  |     | 2.68% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 18 |        |     | 2.98%  |  |        |     | 2.40%  |  |        |     | 2.07%  |  |        |     | 2.10%  |  |           |     | 2.30%  |  |        |     | 2.53%     |  |        |     | 2.52% |  |  |     | 2.55% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 19 |        |     | 3.11%  |  |        |     | 2.55%  |  |        |     | 2.11%  |  |        |     | 2.24%  |  |           |     | 2.42%  |  |        |     | 2.67%     |  |        |     | 2.67% |  |  |     | 2.73% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 20 |        |     | 3.25%  |  |        |     | 2.69%  |  |        |     | 2.17%  |  |        |     | 2.35%  |  |           |     | 2.50%  |  |        |     | 2.81%     |  |        |     | 2.83% |  |  |     | 2.93% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 21 |        |     | 3.35%  |  |        |     | 2.79%  |  |        |     | 2.24%  |  |        |     | 2.46%  |  |           |     | 2.58%  |  |        |     | 2.92%     |  |        |     | 2.99% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 22 |        |     | 3.48%  |  |        |     | 2.85%  |  |        |     | 2.34%  |  |        |     | 2.55%  |  |           |     | 2.67%  |  |        |     | 3.10%     |  |        |     | 3.16% |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 23 |        |     | 3.62%  |  |        |     | 2.89%  |  |        |     | 2.43%  |  |        |     | 2.63%  |  |           |     | 2.77%  |  |        |     | 3.28%     |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 24 |        |     | 3.70%  |  |        |     | 2.92%  |  |        |     | 2.52%  |  |        |     | 2.71%  |  |           |     | 2.87%  |  |        |     | 3.38%     |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 25 |        |     | 3.75%  |  |        |     | 2.97%  |  |        |     | 2.62%  |  |        |     | 2.77%  |  |           |     | 3.01%  |  |        |     | 3.55%     |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 26 |        |     | 3.80%  |  |        |     | 3.04%  |  |        |     | 2.71%  |  |        |     | 2.82%  |  |           |     | 3.14%  |  |        |     | 3.68%     |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 27 |        |     | 3.87%  |  |        |     | 3.13%  |  |        |     | 2.80%  |  |        |     | 2.89%  |  |           |     | 3.16%  |  |        |     | 3.84%     |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 28 |        |     | 3.92%  |  |        |     | 3.18%  |  |        |     | 2.87%  |  |        |     | 2.96%  |  |           |     | 3.29%  |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 29 |        |     | 3.98%  |  |        |     | 3.24%  |  |        |     | 2.90%  |  |        |     | 3.02%  |  |           |     | 3.40%  |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 30 |        |     | 4.06%  |  |        |     | 3.32%  |  |        |     | 2.95%  |  |        |     | 3.09%  |  |           |     | 3.50%  |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 31 |        |     | 4.11%  |  |        |     | 3.38%  |  |        |     | 3.00%  |  |        |     | 3.17%  |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 32 |        |     | 4.17%  |  |        |     | 3.43%  |  |        |     | 3.02%  |  |        |     | 3.20%  |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 33 |        |     | 4.22%  |  |        |     | 3.47%  |  |        |     | 3.08%  |  |        |     | 3.27%  |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 34 |        |     | 4.27%  |  |        |     | 3.48%  |  |        |     | 3.14%  |  |        |     | 3.35%  |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 35 |        |     | 4.32%  |  |        |     | 3.52%  |  |        |     | 3.15%  |  |        |     | 3.41%  |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 36 |        |     | 4.34%  |  |        |     | 3.54%  |  |        |     | 3.21%  |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 37 |        |     | 4.35%  |  |        |     | 3.58%  |  |        |     | 3.25%  |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 38 |        |     | 4.38%  |  |        |     | 3.63%  |  |        |     | 3.30%  |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 39 |        |     | 4.39%  |  |        |     | 3.66%  |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 40 |        |     | 4.43%  |  |        |     | 3.65%  |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 41 |        |     | 4.45%  |  |        |     | 3.69%  |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 42 |        |     | 4.50%  |  |        |     | 3.73%  |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 43 |        |     | 4.47%  |  |        |     | 3.75%  |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 44 |        |     | 4.50%  |  |        |     |        |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 45 |        |     | 4.52%  |  |        |     |        |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|             | 46 |        |     | 4.55%  |  |        |     |        |  |        |     |        |  |        |     |        |  |           |     |        |  |        |     |           |  |        |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       |  |  |     |       | 
|Prime Mix(2) |    |        | 57% |        |  |        | 67% |        |  |        | 70% |        |  |        | 70% |        |  |           | 70% |        |  |        | 67% |           |  |        | 69% |       |  |  | 69% |       |  |  | 68% |       |  |  | 70% |       |  |  | 72% |       |  |  | 73% |       |  |  | 76% |      




|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents the number of months since the
	inception of the securitization.                                                                                                                      
|(2) | Represents the original percentage of prime
	contracts securitized within each pool.                                                                                                             
|(3) | Represents loans sold to Westcorp in whole loan
	sales and subsequently securitized by Westcorp. We manage these
	contracts pursuant to an agreement with Westcorp and the
	securitization trust.

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Allowance
for Credit Losses

Our allowance for credit losses was
$132 million at December 31, 2001 compared with
$71.3 million at December 31, 2000. Management
determines the amount of the allowance for credit losses based
on a review of various quantitative and qualitative analyses.
The methodology for determining the level of allowance for
credit losses is a critical accounting process. Quantitative
analyses include the review of chargeoff trends by loan program
and loan type on an owned and managed basis; evaluation of
cumulative loss curves on both a managed and sold basis;
evaluation of credit loss experience by credit tier and
geographic location. Other quantitative analyses include the
evaluation of the size of any particular asset group; the
concentration of any credit tier; the level of non-performance
and the percentage of delinquency.

Qualitative analyses include trends in chargeoffs
over various time periods and at various statistical midpoints
and high points; the severity of depreciated values of
repossessions; trends in the number of days repossessions are
held in inventory; trends in the number of loan modifications;
trends in delinquency roll rates; trends in deficiency balance
collections both internally and from collection agencies; trends
in custom scores and the effectiveness of our custom scores; and
trends in the economy generally or in specific geographic
locations. Despite these analyses, we recognize that
establishing allowance for credit losses is not an exact science
and can be highly judgmental in nature.

The analysis of the adequacy of the allowance for
credit losses is not only dependent upon effective quantitative
and qualitative analyses, but also effective contract review and
asset classification. We classify our assets in accordance with
regulatory guidance into five categories: Pass, Special Mention,
Substandard, Doubtful and Loss. Based upon our asset
classifications, we establish general and specific valuation
allowances.

General valuation allowances are established
based on quantitative analysis of our portfolio and other
qualitative factors. Specific valuation allowances are
established based on analysis of our portfolio that is
classified as Loss. General valuation allowances are determined
by applying various factors to loan balances that are classified
as Pass, Special Mention, Substandard or Doubtful. Specific
valuation allowances represent contracts that are classified as
Loss. Some assets may be split into more than one asset
classification due to fair value or net realizable value
calculations. This approach allows for enhanced analysis as it
highlights the need for more allowance than would be generally
allocated if held in one classification.

All contracts that are 60 to 90 days
delinquent are automatically classified as Special Mention. Any
contract that is 90 or more days delinquent is automatically
classified as Substandard. Any contract where the borrower has
filed for bankruptcy or the vehicle has been repossessed by us
and is subject to a redemption period is classified as
Substandard, with the difference between the wholesale book
value and contract balance classified as Loss.

Based upon the process described above, we
believe that our allowance for credit losses is currently
adequate to cover probable losses in our automobile contract
portfolio that can be reasonably estimated. No single contract,
borrower or series of such contracts comprises a significant
portion of the total portfolio. The allowance for credit losses
is reduced by net chargeoffs as well as decreases in required
allowances due to sales of contracts and by lowering the level
of required reserves based upon improved contract performance.
The allowance for credit losses is increased by recording
amounts to the provision for credit losses.

The provision for credit losses was
$144 million, $69.0 million and $36.6 million for the
years ended December 31, 2001, 2000 and 1999, respectively.
Net chargeoffs were $79.0 million, $34.3 million and
$11.1 million for the same respective periods. The increase
in the dollar amount of the allowance for credit losses and
provision for credit losses is the result of a greater amount of
contracts held on balance sheet as well as higher credit losses
due to slowing in the economy. The increase in the percentage of
allowance to total contracts at December 31, 1999 is the
result of an increase in the amount of reserves on contracts
held for sale as $500 million of such contracts were used
as collateral for the issuance of notes to a conduit facility in
a transaction treated as a secured financing. In addition,
another $540 million of contracts held for sale were
expected to be placed in a securitization in the first quarter
of 2000 that would also be accounted for as a secured financing
and, therefore, the contracts would remain on our balance sheet
and higher levels of reserves

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would be required for probable losses that could
be reasonably estimated. We applied a reserve factor consistent
with our annualized loss experience on contracts on a managed
basis.


We have increased our percentage of allowance for
credit losses from 2.3% at December 31, 2000 to 2.5% at
December 31, 2001 as we have experienced higher losses in
our owned portfolio due to a slowing economy. Credit loss
experience for contracts on a managed basis increased from 1.91%
in 2000 to 2.27% in 2001. We expect our owned loss experience to
ultimately be equivalent to our managed loss experience as more
of our securitizations are accounted for as a secured financing
and as the average age of our owned portfolio continues to
increase.

Capital Resources and Liquidity

Overview

We require substantial capital resources and cash
to support our business. Our ability to maintain positive cash
flows from operations is the result of our consistent managed
growth, favorable loss experience and efficient operations.

In addition to our indirect statement of cash
flows as presented under GAAP, we also analyze the key cash
flows from our operations on a direct basis excluding certain
items such as the purchase or sale of contracts. The following
table shows our operating cash flows:

|                             |  |                                 |         |      |  |      |         |  |  |   |         | 
|---------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                             |  |                                
|                             |  | For the Year Ended December 31,
|                             |  |                                
|                             |  | 2001                            |         | 2000 |  | 1999
|                             |  |                                 |         |      |  |     
|                             |  |                                
|                             |  | (Dollars in thousands)         
|Cash flows from owned loans  |  | $                               | 285,078 |      |  | $    | 182,059 |  |  | $ | 106,058 | 
|Cash flows from trusts       |  |                                 | 47,357  |      |  |      | 127,294 |  |  |   | 159,564 | 
|Contractual servicing income |  |                                 | 85,845  |      |  |      | 57,718  |  |  |   | 46,847  | 
|Cash gain on sale            |  |                                 | 6,741   |      |  |      | 6,004   |  |  |   |         | 
|Other fee income             |  |                                 | 72,820  |      |  |      | 61,772  |  |  |   | 46,121  | 
|Less:                        |  |                                 |         |      |  |      |         |  |  |   |         | 
|Dealer participation         |  |                                 | 119,715 |      |  |      | 100,300 |  |  |   | 83,435  | 
|Operating costs              |  |                                 | 205,293 |      |  |      | 188,634 |  |  |   | 173,453 | 
|                             |  |                                 |         |      |  |      |         |  |  |   |         | 
|Operating cash flows         |  | $                               | 172,833 |      |  | $    | 145,913 |  |  | $ | 101,702 | 
|                             |  |                                 |         |      |  |      |         |  |  |   |         | 

Operating cash flows improved for 2001 compared
with 2000 as a result of improved risk-adjusted returns on our
portfolio as well as improved operating efficiencies.

Principal
Sources of Cash

Collections
of Principal and Interest from Contracts

Our primary source of funds is the collection of
principal and interest from contracts originated and
securitized, to the extent that the transaction is an on balance
sheet transaction. These monies are deposited into collection
accounts established in connection with each securitization, or
into our accounts for non-securitized contracts. Pursuant to
reinvestment contracts entered into in connection with each
securitization, the Bank and WFAL2 receive access to the amounts
deposited into each collection account and the amounts held in
the spread accounts for each securitization. The Bank and WFAL2
then make these funds available to us, in the case of the Bank
pursuant to our reinvestment contract with the Bank, and in the
case of WFAL2 through its purchase of contracts from us. We use
those amounts so received in our daily operations to fund the
purchase of contracts or to cover the day to day costs of our
operations. If delinquency or chargeoff rates in a
securitization exceed established triggers, amounts required to
be held in spread accounts will increase, requiring additional
pledged collateral. We may bear additional expense due to an
increase in required collateral. If the reinvestment contracts
were no longer deemed an eligible investment, which
determination would be made by the rating agencies or FSA, we
would no longer have the ability to use this cash in the
ordinary course of business and would need to obtain alternative
financing, which may only be available on less

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attractive terms. If we were unable to obtain
additional financing, we may have to curtail our automobile
contract purchasing activities, which would also have a material
adverse effect on our financial position, liquidity and results
of operations. Also, a significant increase in credit losses
could have a material adverse impact on our collections of
principal and interest from contracts.


Principal and interest collections totaled
$4.9 billion, $3.8 billion and $3.0 billion for
the years ended December 31, 2001, 2000 and 1999,
respectively. The increase in principal and interest collections
is primarily due to an increase in the amount of contracts
managed.

Contract
Sales and Securitizations

Our business depends on our ability to aggregate
and sell contracts in the form of asset-backed securities. These
sales generate cash proceeds that allow us to repay amounts
borrowed and to purchase additional contracts. Changes in our
asset-backed securities program could materially adversely
affect our earnings or ability to purchase and resell contracts
on a timely basis. Such changes could include a:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | delay in the completion of a planned
	securitization;                                                      
|
| |  | negative market perception of us; or                                                                       
|
| |  | failure of the contracts we intend to sell to
	conform to insurance company and rating agency requirements.

If we are unable to effectively securitize our
contracts, we may have to reduce or even curtail our automobile
contract purchasing activities, which would have a material
adverse effect on our financial position, liquidity and results
of operations.

Since 1985, we have sold or securitized over
$24 billion of automobile receivables in 54 public
offerings, making us the fourth largest issuer by dollar amount
of such securities in the nation. We sold and securitized $3.6
billion of contracts in 2001, including $1.4 billion of
contracts sold to Westcorp in a whole loan sale and subsequently
securitized by Westcorp, compared with $4.6 billion in
2000, which also included a $1.4 billion whole loan sale to
Westcorp, and $2.5 billion in 1999. On March 20, 2002,
we completed the issuance of $1.8 billion of notes secured
by contracts. We expect to continue to use securitizations as
part of our liquidity strategy when appropriate market
conditions exist.

Borrowings
from Parent

Our parent company is a federally insured savings
institution. It has the ability to raise significant amounts of
liquidity by attracting both short-term and long-term deposits
from the general public, commercial enterprises and institutions
by offering a variety of accounts and rates. The Bank may also
raise funds by issuing commercial paper, obtaining advances from
the Federal Home Loan Bank, also known as the FHLB, and selling
securities under agreements to repurchase and utilizing other
borrowings. Savings associations such as the Bank also have
authority to borrow from the Federal Reserve System, also known
as the FRS, discount window. FRS regulations require
these institutions to exhaust all reasonable alternative sources
of funds, including FHLB sources, before borrowing from the FRS.
Federal regulations have been promulgated which connect
Community Reinvestment Act performance with access to long-term
advances from the FHLB to member institutions. We are able to
utilize these liquidity sources through agreements entered into
by our parent and us. These include notes, lines of credit and
the WFS Reinvestment Contract. The notes are long-term,
unsecured debt, while the lines of credit are designed to
provide financing to us and our subsidiaries.

These financing arrangements provide us with
another source of liquidity beyond the secondary markets,
thereby providing a source of short-term funding and affording
us a greater ability to choose the timing of our
securitizations. The availability of these financing sources
depend upon factors outside of our control, including regulatory
issues such as the capital requirements of the Bank and
availability of funds at the Bank. If the Bank were unable to
extend this financing to us, we would need to replace it with
outside sources or curtail contract purchasing activities, which
would have a material adverse effect on our financial position,
liquidity and results of operations, by increasing our interest
expense, reducing our interest income, and

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negatively impacting our ability to remain a
preferred source of financing for the dealers from whom we
purchase contracts.


Conduit
Financing

We enter into secured conduit financing
transactions using an automobile receivable securitization
structure for short-term financing needs. For the year ended
December 31, 2001, we issued $650 million of notes
secured by contracts through a conduit facility established in
December 2001. We terminated this facility in March 2002 in
conjunction with a $1.8 billion public automobile contract
asset-backed securitization. We also established a
$500 million conduit facility secured by contracts in
September 1999, which we terminated in March 2000. On
January 31, 2002, we issued $775 million of notes
through a conduit facility.

Principal
Uses of Cash

Purchase
of Contracts

Our most significant use of cash is the purchase
of contracts. We acquire these contracts through our nationwide
relationship with franchised and select independent automobile
dealers. Payments for such contracts are sent to our dealers
either via an electronic funds transfer or check. We purchased
$4.9 billion of contracts in 2001 compared with
$4.2 billion in 2000 and $3.3 billion in 1999.

Payments
of Principal and Interest on Securitizations

Under the terms of our reinvestment contract, we
fund quarterly payments of interest and principal to security
holders derived from the cash flows on the securitized contracts
that we service. Payments of principal and interest to security
holders totaled $3.7 billion in 2001 compared with
$2.7 billion and $2.3 billion in 2000 and 1999,
respectively.

Amounts
Paid to Dealers

Consistent with industry practice, we generally
pay a participation to the originating dealer for each
automobile contract purchased. Participation paid to dealers
during 2001 totaled $120 million compared with
$100 million and $83.4 million in 2000 and 1999,
respectively. Typically, the acquisition of prime quality
contracts higher up the prime credit quality spectrum requires a
higher amount of participation paid to the dealer due to
increased level of competition for such contracts.

Advances
to Spread Accounts

At the time a securitization closes, we are
required to advance monies to initially fund the spread account.
Funds on deposit in each spread account increase through receipt
of excess cash flows until predetermined levels are met. The
amounts due from trusts represent funds due to us that have not
yet been disbursed from the spread accounts on securitizations
treated as sales. The amounts due from trusts at
December 31, 2001, including initial advances not yet
returned, was $136 million compared with $357 million
at December 31, 2000. See Business 
Transactions with Related Parties  Reinvestment
Contracts.

Advances
Due to Servicer

As the servicer of contracts sold in
securitizations, we periodically make advances to the
securitization trusts to provide for temporary delays in the
receipt of required payments from borrowers in accordance with
servicing agreements. We receive reimbursement of these advances
without interest through payments from the obligors on the
contracts or from the trustee at the time an automobile contract
liquidates.

Operating
Our Business

Our largest operating expenditure is salaries and
benefits paid to our associates. Other amounts include occupancy
costs, costs associated with collection and repossession,
telephone and data processing costs. We also use substantial
amounts of cash in capital expenditures for automation and new
technologies to remain

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##### Table of Contents



competitive and to become more efficient. See
Business  Our Business Strategy 
Create Operating Efficiencies Through Technology and Best
Practices.


Accounting Pronouncements

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Accounting for
Business Combinations, also known as SFAS No. 141, and
Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Intangible Assets, also known as
SFAS No. 142. Under SFAS No. 141 and SFAS
No. 142, companies may no longer use the
pooling-of-interest accounting method for business combinations
or account for mergers on their financial statements under the
traditional purchase method, which required companies to
amortize goodwill assets over a specific time period. Instead
purchased goodwill will remain on the balance sheet as an asset
subject to impairment reviews. We adopted SFAS No. 141 and
SFAS No. 142 on January 1, 2002, and they did not have
a material effect on our earnings or financial position.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations, also known as SFAS No. 143, in
which retirement obligations would be recorded as a liability
using the present value of the estimated cash flows and a
corresponding amount would be capitalized as part of the
assets carrying amount. The capitalized asset retirement
cost would be amortized to expense over the assets useful
life using a systematic and rational allocation method. The
estimate of the asset retirement obligation will change and have
to be revised over time. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. If applicable, an
accounting change to adopt the standard would be made as of the
beginning of the companys fiscal year. We do not expect
SFAS No. 143 to have a material effect on our earnings or
financial position.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, also known as SFAS
No. 144, to supercede Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,
also known as SFAS No. 121. The basic recognition and
measurement model for assets held for use and held for sale
under SFAS No. 121 has been retained, however SFAS
No. 144 removes goodwill from the scope as goodwill is now
subject to the provisions of SFAS No. 141 and SFAS
No. 142. SFAS No. 144 provides guidance on
differentiating between assets held and used, held for sale, and
held for disposal other than by sale. Assets held for
sale/disposal must be stated at the lower of the assets
carrying amounts or fair values and depreciation would no longer
be recognized. Assets to be disposed of by sale would be
classified as held for sale when management, having the
authority to approve the action, commits to a plan to sell the
assets meeting several strict criteria. The three-step approach
for recognizing and measuring impairment of assets to be held
and used under SFAS No. 121 remains applicable. SFAS
No. 144 is effective for fiscal years beginning after
December 15, 2001 and for interim periods within those
fiscal years. We adopted SFAS No. 144 on January 1,
2002, and it did not have a material effect on our earnings or
financial position.

Forward-Looking Statements

This Form 10-K includes and incorporates by
reference forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
statements relate to analyses and other information which are
based on forecasts of future results and estimates of amounts
not yet determinable. These statements also relate to our future
prospects, developments and business strategies. These
statements are subject to uncertainties and factors relating to
our operations and business environment, all of which are
difficult to predict and many of which are beyond our control,
that could cause actual results to differ materially from those
expressed in or implied by these forward-looking statements.

These forward-looking statements are identified
by their use of terms and phrases such as
anticipate, believe, could,
estimate, expect, intend,
may, plan, predict,
project, will, and similar terms and
phrases, including references to assumptions.

40



---



##### Table of Contents



The following factors are among those that may
cause actual results to differ materially from the
forward-looking statements:



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | changes in general economic and business
	conditions;                             
|
| |  | interest rate fluctuations;                                                       
|
| |  | our financial condition and liquidity, as well as
	future cash flows and earnings;
|
| |  | competition;                                                                      
|
| |  | our level of operating expenses;                                                  
|
| |  | the effect of new laws, regulations and court
	decisions;                         
|
| |  | the availability of sources of funding;                                           
|
| |  | the level of chargeoffs on the automobile
	contracts that we originate; and       
|
| |  | significant litigation.                                                           

If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those expected,
estimated or projected.

We do not undertake to update our forward-looking
statements or risk factors to reflect future events or
circumstances.




Item 7A. Quantitative and Qualitative
Disclosure About Market Risk

Fluctuations in interest rates and early
prepayment of contracts are the primary market risks facing us.
The Credit and Pricing Committee is responsible for setting
credit and pricing policies and for monitoring credit quality.
Our Asset/ Liability Committee is responsible for the management
of interest rate and prepayment risks. Asset/liability
management is the process of measuring and controlling interest
rate risk through matching the maturity and repricing
characteristics of interest earning assets with those of
interest bearing liabilities.

The Asset/ Liability Committee closely monitors
interest rate and prepayment risks and recommends policies for
managing such risks. The primary measurement tool for evaluating
this risk is the use of interest rate shock analysis. This
analysis simulates the effect of an instantaneous and sustained
change in interest rates (in increments of 100 basis points) on
our assets and liabilities and measures the resulting increase
or decrease to the net present value, also known as NPV, of our
assets and liabilities. It should be noted that shock analysis
is objective but not entirely realistic in that it assumes an
instantaneous and isolated set of events.

The contracts originated and held by us are fixed
rate and, accordingly, we have exposure to changes in interest
rates. To protect against potential changes in interest rates
affecting interest payments on future securitization
transactions, we enter into various hedge agreements. We enter
into Euro-dollar swap agreements and forward agreements in order
to hedge our future interest payments on our notes payable on
automobile secured financing. The market value of these hedge
agreements responds inversely to changes in interest rates.
Because of this inverse relationship, we can effectively lock in
a gross interest rate spread at the time of entering into the
hedge transaction. Gains and losses on these agreements are
recorded in accumulated other comprehensive income (loss). Any
ineffective portion is recognized in interest expense during
that period if the hedge is greater than 100% effective. Upon
completion of the securitization, the gains or losses are
recognized in full as an adjustment to the gain or loss on the
sale of the contracts if the securitization is treated as a sale
or amortized on a level yield basis over the duration of the
notes issued if the transaction is treated as a secured
financing. These hedge instruments are settled daily, and
therefore, there are no related financial instruments recorded
on the Consolidated Statements of Financial Condition. Credit
risk related to these hedge instruments is minimal.

41



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##### Table of Contents



As we issued certain variable rate notes payable
in 2001, we also entered into interest rate swap agreements in
order to hedge our variable interest rate exposure on future
interest payments. The fair value of the interest rate swap
agreements is included in notes payable on automobile secured
financing, and any change in the fair value is reported as
accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. Any
ineffective portion is recorded in interest expense during that
period if the hedge is greater than 100% effective. Related
interest income or expense is settled on a quarterly basis and
recognized as an adjustment to interest expense in our
Consolidated Statements of Income.

The Asset/ Liability Committee monitors our
hedging activities to ensure that the value of hedges, their
correlation to the contracts being hedged and the amounts being
hedged continue to provide effective protection against interest
rate risk. The amount and timing of hedging transactions are
determined by our senior management based upon the monitoring
activities of the Asset/ Liability Committee. The methodology
for the determination, valuation and monitoring of our hedges is
a critical accounting process. As a result of our approach to
interest rate risk management and our hedging strategies, we do
not anticipate that changes in interest rates will materially
affect our results of operations or liquidity, although we can
provide no assurance in this regard. There were no material
changes in market risks in the current year compared with the
prior year.

The following table provides information about
our derivative financial instruments and other financial
instruments used that are sensitive to changes in interest
rates. For contracts and liabilities with contractual
maturities, the table presents principal cash flows and related
weighted average interest rates by contractual maturities as
well as our historical experience of the impact of interest rate
fluctuations on the prepayment of contracts. For interest rate
swap agreements, the table presents notional amounts and, as
applicable, weighted average interest rates by contractual
maturity date. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts. For
Euro-dollar swap agreements, the table presents the amount of
future debt that is being hedged by the current contracts
outstanding.

|                               |                       |                        |           |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           |       |   |   |           |   | 
|------------------------------ | --------------------- | ---------------------- | --------- | ----- | - | ---- | --------- | ----- | - | ---- | --------- | ---------- | - | ----- | -------- | ----- | - | - | ------- | ----- | - | - | ------ | ----- | - | - | --------- | ----- | - | - | --------- | - | 
|                               |                       |                        |           |       |   |      |           |       |   |      |           |            |   |       |          | Fair 
|                               |                       | 2002                   |           | 2003  |   | 2004 |           | 2005  |   | 2006 |           | Thereafter |   | Total |          | Value
|                               |                       |                        |           |       |   |      |           |       |   |      |           |            |   |       |          |      
|                               |                       |                       
|                               |                       | (Dollars in thousands)
|Rate sensitive assets:         |                       |                        |           |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           |       |   |   |           |  
|Fixed interest rate contracts  |                       | $                      | 1,672,256 |       |   | $    | 1,396,584 |       |   | $    | 1,055,404 |            |   | $     | 720,210  |       |   | $ | 334,860 |       |   | $ | 36,404 |       |   | $ | 5,215,718 |       |   | $ | 5,736,193 |  
|                               | Average interest rate |                        |           | 13.10 | % |      |           | 13.16 | % |      |           | 13.23      | % |       |          | 13.10 | % |   |         | 12.42 | % |   |        | 10.89 | % |   |           | 13.08 | % |   |           |   | 
|Fixed interest rate securities |                       | $                      | 4,668     |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   | $ | 4,668     |       |   | $ | 4,668     |  
|                               | Average interest rate |                        |           | 5.50  | % |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           | 5.50  | % |   |           |   | 
|Rate sensitive liabilities:    |                       |                        |           |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           |       |   |   |           |  
|Automobile secured financing   |                       | $                      | 2,802,109 |       |   | $    | 427,680   |       |   | $    | 515,602   |            |   | $     | 260,534  |       |   |   |         |       |   |   |        |       |   | $ | 4,005,925 |       |   | $ | 4,084,091 |  
|                               | Average interest rate |                        |           | 5.34  | % |      |           | 4.61  | % |      |           | 4.88       | % |       |          | 5.80  | % |   |         |       |   |   |        |       |   |   |           | 5.04  | % |   |           |   | 
|Notes payable  parent         |                       | $                      | 67,500    |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   | $ | 67,500    |       |   | $ | 69,786    |  
|                               | Average interest rate |                        |           | 9.42  | % |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           | 9.42  | % |   |           |   | 
|Lines of credit                |                       | $                      | 421,175   |       |   |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   | $ | 421,175   |       |   | $ | 421,294   |  
|                               | Average interest rate |                        |           | 2.51  | % |      |           |       |   |      |           |            |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           | 2.51  | % |   |           |   | 
|Interest rate swap agreements  |                       | $                      | 864,411   |       |   | $    | (543,986  | )     |   | $    | (320,425  | )          |   |       |          |       |   |   |         |       |   |   |        |       |   |   |           |       |   | $ | (31,751   | )
|                               | Average pay rate      |                        |           | 5.18  | % |      |           | 5.18  | % |      |           | 5.03       | % |       |          |       |   |   |         |       |   |   |        |       |   |   |           | 5.18  | % |   |           |   | 
|                               | Average receive rate  |                        |           | 2.25  | % |      |           | 2.25  | % |      |           | 2.18       | % |       |          |       |   |   |         |       |   |   |        |       |   |   |           | 2.25  | % |   |           |   | 
|Euro-dollar swap agreements    |                       | $                      | 995,778   |       |   | $    | (522,974  | )     |   | $    | (298,300  | )          |   | $     | (152,946 | )     |   | $ | (21,558 | )     |   |   |        |       |   |   |           |       |   |   |           |  

42



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##### Table of Contents






Item 8. Financial Statements and
Supplementary Data

Our Consolidated Financial Statements begin on
page F-3 of this report.




Item 9. Changes in and Disagreements
With Accountants on Accounting and Financial
Disclosure

None

43



---



##### Table of Contents






PART III

Certain information required by Part III is
omitted from this report, as we will file a definitive proxy
statement, also known as the Proxy Statement, within
120 days after the end of our fiscal year pursuant to
Regulation 14A of the Securities Exchange Act of 1934 for
our Annual Meeting of Shareholders to be held May 2, 2002,
and the information included therein is incorporated herein by
reference.




Item 10. Directors and Executive
Officers of the Registrant

Information regarding directors appears under the
caption Election of Directors in the Proxy Statement
and is incorporated herein by reference. Information regarding
executive officers appears under the caption Executive
Officers Who Are Not Directors in the Proxy Statement and
is incorporated herein by reference. Information regarding
Section 16(a) Beneficial Ownership Reporting Compliance
appears under that caption in the Proxy Statement and is
incorporated herein by reference.




Item 11. Executive
Compensation

Information regarding executive compensation
appears under the caption Compensation of Executive
Officers in the Proxy Statement and is incorporated herein
by reference.




Item 12. Security Ownership of Certain
Beneficial Owners and Management

Information regarding security ownership of
certain beneficial owners and management appears under the
caption Security Ownership of Certain Beneficial Owners
and Management in the Proxy Statement and is incorporated
herein by reference.




Item 13. Certain Relationships and
Related Transactions

None.

44



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##### Table of Contents






PART IV




Item 14. Financial Statement
Schedules, Exhibits and Reports on Form 8-K

Our audited consolidated financial statements
incorporated herein shall modify and supersede all documents
filed prior to March 26, 2002.

(a) List of documents filed as part of
this report:

(1) Financial Statements



| |                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following consolidated financial statements
	and report of independent auditors for us and our subsidiaries
	are included in this report commencing on page F-2.
|
| | Report of Independent Auditors                                                                                                                                      
|
| | Consolidated Statements of Financial Condition at
	December 31, 2001 and 2000                                                                                       
|
| | Consolidated Statements of Income for the years
	ended December 31, 2001, 2000 and 1999                                                                             
|
| | Consolidated Statements of Changes in
	Shareholders Equity for the years ended December 31,
	2001, 2000 and 1999                                                   
|
| | Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                                                                         
|
| | Notes to Consolidated Financial Statements                                                                                                                          

(2) Financial Statement Schedules



| |                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Schedules to the consolidated financial
	statements are omitted because the required information is
	inapplicable or the information is presented in our consolidated
	financial statements or related notes.

(3) Exhibits

|        |        |                        |  |                                                                                                                                                  
|------- | ------ | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                       
|No.     |        | Description of Exhibit
|        |        |                       
|        | 4      |                        |  | Specimen WFS Financial Inc Common Stock
	Certificate(5)                                                                                          
|        | 10.1   |                        |  | Westcorp Incentive Stock Option Plan(2)                                                                                                          
|        | 10.2   |                        |  | Westcorp Employee Stock Ownership and Salary
	Savings Plan(3)                                                                                    
|        | 10.3   |                        |  | Westcorp 1991 Stock Option Plan(4)                                                                                                               
|        | 10.3.1 |                        |  | Westcorp 2001 Stock Option Plan                                                                                                                  
|        | 10.4   |                        |  | 1985 Executive Deferral Plan(1)                                                                                                                  
|        | 10.5   |                        |  | 2000 Executive Deferral Plan V                                                                                                                   
|        | 10.6   |                        |  | Revolving Line of Credit Agreement between WFS
	Funding, Inc. and Western Financial Bank, dated
	November 30, 2001                               
|        | 10.6.1 |                        |  | Revolving Line of Credit Agreement between WFS
	Financial Auto Loans, Inc. and Western Financial Bank, dated
	November 30, 2001                  
|        | 10.6.2 |                        |  | Revolving Line of Credit Agreement between WFS
	Receivables Corporation and Western Financial Bank, dated
	November 30, 2001                     
|        | 10.7   |                        |  | Transfer Agreement between WFS Financial Inc and
	Western Financial Bank, F.S.B., dated May 1, 1995(1)                                           
|        | 10.8   |                        |  | Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank, F.S.B., dated May 1, 1995(1)                                           
|        | 10.9   |                        |  | Revolving Line of Credit Agreement between WFS
	Financial Inc and Western Financial Bank, dated June 15,
	1999(11)                               
|        | 10.9.1 |                        |  | Amendment No. 1, dated as of August 1,
	1999, to the Revolving Line of Credit Agreement between WFS
	Financial Inc and Western Financial Bank(11)

45



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##### Table of Contents



|        |         |                        |  |                                                                                                                                         
|------- | ------- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.9.2  |                        |  | Amendment No. 2, dated May 23, 2000, to
	the Revolving Line of Credit Agreement between WFS Financial Inc
	and Western Financial Bank   
|        | 10.9.3  |                        |  | Amendment No. 3, dated January 1, 2002,
	to the Revolving Line of Credit Agreement between WFS Financial
	Inc and Western Financial Bank
|        | 10.10   |                        |  | Tax Sharing Agreement between WFS Financial Inc
	and Western Financial Bank, F.S.B., dated January 1, 1994(1)                           
|        | 10.11   |                        |  | Master Reinvestment Contract between WFS
	Financial Inc and Western Financial Bank, F.S.B., dated
	May 1, 1995(1)                       
|        | 10.12   |                        |  | Amendment No. 1, dated as of June 1,
	1995, to the Restated Master Reinvestment Reimbursement
	Agreement(10)                            
|        | 10.13   |                        |  | Amended and Restated Master Collateral Assignment
	Agreement, dated as of March 1, 2000(11)                                             
|        | 10.14   |                        |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                           
|        | 10.15   |                        |  | Form of WFS Financial Inc Loan Application(5)                                                                                           
|        | 10.16   |                        |  | Westcorp Employee Stock Ownership and Salary
	Savings Plan(7)                                                                           
|        | 10.16.1 |                        |  | Amended and Restated Westcorp Employee Stock
	Ownership and Salary Savings Plan, dated January 1, 2001                                  
|        | 10.16.2 |                        |  | Amendment No. 1, dated as of January 1,
	2001, to Amended and Restated Westcorp Employee Stock Ownership
	and Salary Savings Plan       
|        | 10.16.3 |                        |  | Amendment No. 2, dated as of January 1,
	2001, to Amended and Restated Westcorp Employee Stock Ownership
	and Salary Savings Plan       
|        | 10.17   |                        |  | Amended and Restated WFS 1996 Incentive Stock
	Option Plan(6)                                                                           
|        | 10.18   |                        |  | Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank, F.S.B., dated August 1, 1997(10)                              
|        | 10.18.1 |                        |  | Amendment No. 1, dated February 23,
	1999, to the Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank(10)          
|        | 10.18.2 |                        |  | Amendment No. 2, dated July 30, 1999,
	to the Promissory Note of WFS Financial Inc in favor of Western
	Financial Bank(10)              
|        | 10.18.3 |                        |  | Amendment No. 3, dated January 1, 2002,
	to the Promissory Note of WFS Financial Inc in favor of Western
	Financial Bank                
|        | 10.19   |                        |  | Investment Agreement between WFS Financial Inc
	and Western Financial Bank, F.S.B., dated January 1,
	1996(10)                          
|        | 10.19.1 |                        |  | Amendment No. 1, dated January 1, 2002,
	to the Investment Agreement between WFS Financial Inc and
	Western Financial Bank, F.S.B.      
|        | 10.20   |                        |  | Allocation Agreement between WFS Financial Inc,
	Western Financial Bank, F.S.B., Westcorp, and their subsidiaries
	dated January 1, 2002
|        | 10.21   |                        |  | Employment Agreement(8)(9)                                                                                                              
|        | 21.1    |                        |  | Subsidiaries of WFS Financial Inc                                                                                                       
|        | 23.1    |                        |  | Consent of Independent Auditors, Ernst &
	Young LLP                                                                                     




|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exhibits previously filed with WFS Financial Inc
	Registration Statement on Form S-1 (File
	No. 33-93068), filed August 8, 1995 incorporated
	herein by reference under Exhibit Number indicated.
|   
|(2) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-1 (File No. 33-4295),
	filed May 2, 1986 incorporated herein by reference under
	Exhibit Number indicated.             
|   
|(3) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-4 (File
	No. 33-34286), filed April 11, 1990 incorporated
	herein by reference under Exhibit Number indicated.         
|   
|(4) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-8 (File
	No. 33-43898), filed December 11, 1991 incorporated
	herein by reference under Exhibit Number indicated.      

46



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##### Table of Contents





|    |                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(5) | Amendment No. 1, dated as of July 14,
	1995 to the WFS Financial Inc. Registration Statement on
	Form S-1 (File No. 33-93068) incorporated herein by
	reference under Exhibit Number indicated.
|   
|(6) | Exhibit previously filed as Exhibit 4.1 to
	the WFS Registration Statement on Form S-8 (File No.
	333-40121), filed November 13, 1997, and incorporated
	herein by reference.                  
|   
|(7) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-8 (File
	No. 333-11039), filed August 29, 1996 incorporated
	herein by reference under Exhibit Number indicated.     
|   
|(8) | Employment Agreement dated February 27, 1998
	between WFS Financial Inc, Westcorp and Lee A. Whatcott (will be
	provided to the SEC upon request).                                             
|   
|(9) | Employment Agreement, dated November 15,
	1998 between WFS Financial Inc, Westcorp and Mark Olson (will be
	provided to the SEC upon request).                                                 



|     |                                                                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibits previously filed with Annual Report on
	Form 10-K of WFS Financial Inc for the year ended
	December 31, 1998 (File No. 33-93068) as filed on or
	about March 31, 1999.                                               
|    
|(11) | Exhibits previously filed with WFS Registration
	Statements on Form S-2 (File No. 333-91277) filed
	November 19, 1999 and subsequently amended on
	January 20, 2000 incorporated by reference under
	Exhibit Number indicated.

(b) Report on Form 8-K

None

47



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Dated: March 22, 2002

| |                  
| | -----------------
| | WFS FINANCIAL INC



| |     |                    
| | --- | -------------------
| | By: | /s/ THOMAS A. WOLFE

| |                        
| | -----------------------
| |                        
| | Thomas A. Wolfe        
| | President, Director and
| | Chief Executive Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following on behalf of the registrant in the capacities and on
the dates indicated.

|                                         |  |                                                                                                            |  |               
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                |  | Title                                                                                                      |  | Date          
|                                         |  |                                                                                                            |  |               
|/s/ ERNEST S. RADYErnest S. Rady         |  | Chairman of the Board                                                                                      |  | March 22, 2002
|                                        
|/s/ THOMAS A. WOLFEThomas A. Wolfe       |  | President, Director and
	Chief Executive Officer                                                           |  | March 22, 2002
|                                        
|/s/ JAMES R. DOWLANJames R. Dowlan       |  | Director                                                                                                   |  | March 22, 2002
|                                        
|/s/ JUDITH M. BARDWICKJudith M. Bardwick |  | Director                                                                                                   |  | March 22, 2002
|                                        
|/s/ BERNARD E. FIPPBernard E. Fipp       |  | Director                                                                                                   |  | March 22, 2002
|                                        
|/s/ DUANE A. NELLESDuane A. Nelles       |  | Director                                                                                                   |  | March 22, 2002
|                                        
|/s/ LEE A. WHATCOTTLee A. Whatcott       |  | Senior Executive Vice President
	(Principal Financial and Accounting Officer)
	and Chief Financial Officer |  | March 22, 2002

48



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORT OF INDEPENDENT AUDITORS


|                                                                                                                  |  |      |     | 
|----------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                  |  | Page
|                                                                                                                  |  |     
|Report of Independent Auditors                                                                                    |  |      | F-2 | 
|Consolidated Financial Statements:                                                                                |  |      |     | 
|Consolidated Statements of Financial Condition at
	December 31, 2001 and 2000                                     |  |      | F-3 | 
|Consolidated Statements of Income for the years
	ended December 31, 2001, 2000 and 1999                           |  |      | F-4 | 
|Consolidated Statements of Changes in
	Shareholders Equity for the years ended December 31,
	2001, 2000 and 1999 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
	years ended December 31, 2001, 2000 and 1999                       |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                        |  |      | F-7 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Board of Directors

WFS Financial Inc


We have audited the accompanying consolidated
statements of financial condition of WFS Financial Inc and
subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, shareholders
equity and cash flows for each of the three years in the period
ended December 31, 2001. These consolidated financial
statements are the responsibility of WFS Financial Incs
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of WFS Financial
Inc and subsidiaries at December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles
generally accepted in the United States.



| |                  
| | -----------------
| | ERNST & YOUNG LLP

Los Angeles, California

January 22, 2002


F-2



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

|                                                                                                                                            |                           |                                            |           |           |           |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                            |                           |                                           
|                                                                                                                                            |                           | December 31,                              
|                                                                                                                                            |                           |                                           
|                                                                                                                                            |                           | 2001                                       |           | 2000     
|                                                                                                                                            |                           |                                            |           |          
|                                                                                                                                            |                           |                                           
|                                                                                                                                            |                           | (Dollars in thousands)                    
|ASSETS                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|Cash and short-term investments                                                                                                             |                           | $                                          | 30,100    |           |           | $ | 25,296    |          
|Investment securities available for sale                                                                                                    |                           |                                            | 4,668     |           |           |   | 6,517     |          
|Contracts receivable                                                                                                                        |                           |                                            | 5,215,718 |           |           |   | 3,049,475 |          
|Allowance for credit losses                                                                                                                 |                           |                                            | (131,827  | )         |           |   | (71,308   | )        
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|                                                                                                                                            | Contracts receivable, net |                                            |           | 5,083,891 |           |   |           | 2,978,167 |          
|Amounts due from trusts                                                                                                                     |                           |                                            | 136,447   |           |           |   | 357,051   |          
|Retained interest in securitized assets                                                                                                     |                           |                                            | 37,392    |           |           |   | 111,558   |          
|Premises and equipment, net                                                                                                                 |                           |                                            | 33,826    |           |           |   | 36,526    |          
|Accrued interest receivable                                                                                                                 |                           |                                            | 37,100    |           |           |   | 23,116    |          
|Other assets                                                                                                                                |                           |                                            | 127,333   |           |           |   | 36,906    |          
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|                                                                                                                                            |                           | TOTAL ASSETS                               |           | $         | 5,490,757 |   |           | $         | 3,575,137 | 
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|LIABILITIES                                                                                                                                 |                           |                                            |           |           |           |   |           |          
|Lines of credit  parent                                                                                                                    |                           | $                                          | 421,175   |           |           | $ | 235,984   |          
|Notes payable on automobile secured financing                                                                                               |                           |                                            | 4,005,925 |           |           |   | 2,249,363 |          
|Notes payable  parent                                                                                                                      |                           |                                            | 67,500    |           |           |   | 146,219   |          
|Amounts held on behalf of trustee                                                                                                           |                           |                                            | 476,910   |           |           |   | 590,715   |          
|Other liabilities                                                                                                                           |                           |                                            | 53,954    |           |           |   | 35,651    |          
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|                                                                                                                                            |                           | TOTAL LIABILITIES                          |           |           | 5,025,464 |   |           |           | 3,257,932 | 
|SHAREHOLDERS EQUITY                                                                                                                        |                           |                                            |           |           |           |   |           |          
|Common stock (no par value; authorized 50,000,000
	shares; issued and outstanding 34,820,178 shares in 2001 and
	28,446,837 shares in 2000) |                           |                                            | 227,568   |           |           |   | 112,070   |          
|Paid-in capital                                                                                                                             |                           |                                            | 4,337     |           |           |   | 4,337     |          
|Retained earnings                                                                                                                           |                           |                                            | 262,710   |           |           |   | 201,062   |          
|Accumulated other comprehensive loss, net of tax                                                                                            |                           |                                            | (29,322   | )         |           |   | (264      | )        
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|                                                                                                                                            |                           | TOTAL SHAREHOLDERS EQUITY                 |           |           | 465,293   |   |           |           | 317,205   | 
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|                                                                                                                                            |                           | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |           | $         | 5,490,757 |   |           | $         | 3,575,137 | 
|                                                                                                                                            |                           |                                            |           |           |           |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |            |         |         | 
|------------------------------------------------------ | --------------------------- | ------------------------------------------------ | ------------------------ | ---------- | ------- | ------- | ------- | ---------- | ------- | ------- | ------ | ---------- | ------- | ------- | 
|                                                       |                             |                                                 
|                                                       |                             | For the Year Ended December 31,                 
|                                                       |                             |                                                 
|                                                       |                             | 2001                                             |                          | 2000       |         | 1999   
|                                                       |                             |                                                  |                          |            |         |        
|                                                       |                             |                                                 
|                                                       |                             | (Dollars in thousands, except per share amounts)
|REVENUES:                                              |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Interest income             |                                                  | $                        | 545,782    |         |         | $       | 314,120    |         |         | $      | 140,526    |        
|                                                       | Interest expense            |                                                  |                          | 232,776    |         |         |         | 130,578    |         |         |        | 41,297     |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       |                             | Net interest income                              |                          |            | 313,006 |         |         |            | 183,542 |         |        |            | 99,229  |        
|                                                       | Servicing income            |                                                  |                          | 130,826    |         |         |         | 170,919    |         |         |        | 140,780    |        
|                                                       | Gain on sale of contracts   |                                                  |                          | 6,741      |         |         |         | 13,723     |         |         |        | 54,977     |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       |                             |                                                  | TOTAL REVENUES           |            |         | 450,573 |         |            |         | 368,184 |        |            |         | 294,986 | 
|EXPENSES:                                              |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Provision for credit losses |                                                  |                          | 144,130    |         |         |         | 68,962     |         |         |        | 36,578     |        
|                                                       | Operating expenses:         |                                                  |                          |            |         |         |         |            |         |         |        |            |        
|                                                       |                             | Salaries and associate benefits                  |                          |            | 126,748 |         |         |            | 116,753 |         |        |            | 110,289 |        
|                                                       |                             | Credit and collections                           |                          |            | 27,497  |         |         |            | 21,103  |         |        |            | 21,634  |        
|                                                       |                             | Data processing                                  |                          |            | 17,160  |         |         |            | 16,158  |         |        |            | 14,568  |        
|                                                       |                             | Occupancy                                        |                          |            | 12,591  |         |         |            | 10,592  |         |        |            | 9,145   |        
|                                                       |                             | Telephone                                        |                          |            | 5,803   |         |         |            | 5,504   |         |        |            | 5,883   |        
|                                                       |                             | Miscellaneous                                    |                          |            | 15,493  |         |         |            | 18,524  |         |        |            | 11,934  |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       |                             |                                                  | TOTAL OPERATING EXPENSES |            |         | 205,292 |         |            |         | 188,634 |        |            |         | 173,453 | 
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       |                             |                                                  | TOTAL EXPENSES           |            |         | 349,422 |         |            |         | 257,596 |        |            |         | 210,031 | 
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|INCOME BEFORE INCOME TAX                               |                             |                                                  | 101,151                  |            |         |         | 110,588 |            |         |         | 84,955 |           
|                                                       | Income tax                  |                                                  |                          | 39,503     |         |         |         | 44,216     |         |         |        | 35,580     |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|NET INCOME                                             |                             | $                                                | 61,648                   |            |         | $       | 66,372  |            |         | $       | 49,375 |           
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|Net income per common share:                           |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Basic                       |                                                  | $                        | 1.91       |         |         | $       | 2.36       |         |         | $      | 1.92       |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Diluted                     |                                                  | $                        | 1.90       |         |         | $       | 2.35       |         |         | $      | 1.91       |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|Weighted average number of common shares
	outstanding: |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Basic                       |                                                  |                          | 32,308,649 |         |         |         | 28,178,151 |         |         |        | 25,732,089 |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           
|                                                       | Diluted                     |                                                  |                          | 32,398,357 |         |         |         | 28,283,735 |         |         |        | 25,842,648 |        
|                                                       |                             |                                                  |                          |            |         |         |         |            |         |         |        |           

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |         |  
|---------------------------- | ------------------------------------------------------------------------------------------------- | ---------------------- | ---------- | --------- |  | ------- | ------- | -------- |  | -------------- | ----- | ----- |  | - | ------- | ------ |  | - | ------- | ------- | - | - | ------- | ------- | -
|                             |                                                                                                   |                        |            |           |  |         |         |          |  | Accumulated    |       |      
|                             |                                                                                                   |                        |            |           |  |         |         |          |  | Other          |       |      
|                             |                                                                                                   |                        |            |           |  |         |         |          |  | Comprehensive  |       |      
|                             |                                                                                                   |                        |            | Common    |  | Paid-in |         | Retained |  | Income (Loss), |       |      
|                             |                                                                                                   | Shares                 |            | Stock     |  | Capital |         | Earnings |  | Net of Tax     |       | Total
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |      
|                             |                                                                                                   |                       
|                             |                                                                                                   | (Dollars in thousands)
|Balance at January 1, 1999   |                                                                                                   |                        | 25,708,611 |           |  | $       | 73,564  |          |  | $              | 4,000 |       |  | $ | 85,315  |        |  | $ | 1,462   |         |   | $ | 164,341 |        
|                             | Net income                                                                                        |                        |            |           |  |         |         |          |  |                |       |       |  |   |         | 49,375 |  |   |         |         |   |   |         | 49,375  |  
|                             | Unrealized losses on retained interest in
	securitized assets, net of tax(1)                      |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | (2,301  | ) |   |         | (2,301  | )
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|                             | Comprehensive income                                                                              |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         | 47,074  |  
|                             | Issuance of common stock                                                                          |                        |            | 63,345    |  |         |         | 446      |  |                |       | 327   |  |   |         |        |  |   |         |         |   |   |         | 773     |  
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|Balance at December 31, 1999 |                                                                                                   |                        | 25,771,956 |           |  |         | 74,010  |          |  |                | 4,327 |       |  |   | 134,690 |        |  |   | (839    | )       |   |   | 212,188 |        
|                             | Net income                                                                                        |                        |            |           |  |         |         |          |  |                |       |       |  |   |         | 66,372 |  |   |         |         |   |   |         | 66,372  |  
|                             | Unrealized gains on retained interest in
	securitized assets, net of tax(1)                       |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | 575     |   |   |         | 575     |  
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|                             | Comprehensive income                                                                              |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         | 66,947  |  
|                             | Issuance of common stock                                                                          |                        |            | 2,674,881 |  |         |         | 38,060   |  |                |       | 10    |  |   |         |        |  |   |         |         |   |   |         | 38,070  |  
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|Balance at December 31, 2000 |                                                                                                   |                        | 28,446,837 |           |  |         | 112,070 |          |  |                | 4,337 |       |  |   | 201,062 |        |  |   | (264    | )       |   |   | 317,205 |        
|                             | Net income                                                                                        |                        |            |           |  |         |         |          |  |                |       |       |  |   |         | 61,648 |  |   |         |         |   |   |         | 61,648  |  
|                             | Unrealized gains on retained interest in
	securitized assets, net of tax(1)                       |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | 814     |   |   |         | 814     |  
|                             | Unrealized losses on cash flow hedges, net of
	tax(2)                                             |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | (42,237 | ) |   |         | (42,237 | )
|                             | Reclassification adjustment for losses on cash
	flow hedges included in net income, net of tax(3) |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | 12,365  |   |   |         | 12,365  |  
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|                             | Comprehensive income                                                                              |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         | 32,590  |  
|                             | Issuance of common stock                                                                          |                        |            | 6,373,341 |  |         |         | 115,498  |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         | 115,498 |  
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|Balance at December 31, 2001 |                                                                                                   |                        | 34,820,178 |           |  | $       | 227,568 |          |  | $              | 4,337 |       |  | $ | 262,710 |        |  | $ | (29,322 | )       |   | $ | 465,293 |        
|                             |                                                                                                   |                        |            |           |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        




|    |                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pre-tax amount of unrealized gains and losses
	on retained interest in securitized assets was $1.4 million
	for the year ended December 31, 2001 compared with
	$1.0 million and $4.0 million for the years ended
	December 31, 2000 and 1999, respectively.
|   
|(2) | The pre-tax amount of unrealized losses on cash
	flow hedges was $71.6 million for the year ended
	December 31, 2001.                                                                                                                                           
|   
|(3) | The pre-tax amount of unrealized losses on cash
	flow hedges reclassified into net income was $21.0 million
	for the year ended December 31, 2001.                                                                                                              

See accompanying notes to consolidated financial
statements.

F-5



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |            |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | -------- | ---------- | -
|                                                                                             |                                                          |                                
|                                                                                             |                                                          | For the Year Ended December 31,
|                                                                                             |                                                          |                                
|                                                                                             |                                                          | 2001                            |            | 2000       |   | 1999
|                                                                                             |                                                          |                                 |            |            |   |     
|                                                                                             |                                                          |                                
|                                                                                             |                                                          | (Dollars in thousands)         
|OPERATING ACTIVITIES                                                                         |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|Net income                                                                                   |                                                          | $                               | 61,648     |            |   | $    | 66,372     |            |   | $ | 49,375   |           
|Adjustments to reconcile net income to net cash
	provided by (used in) operating activities: |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|                                                                                             | Provision for credit losses                              |                                 |            | 144,130    |   |      |            | 68,962     |   |   |          | 36,578     |  
|                                                                                             | Depreciation and amortization                            |                                 |            | 56,762     |   |      |            | 28,545     |   |   |          | 10,165     |  
|                                                                                             | Amortization of retained interest in securitized
	assets |                                 |            | 75,545     |   |      |            | 75,958     |   |   |          | 111,752    |  
|Contracts held for sale:                                                                     |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|                                                                                             | Purchase of contracts                                    |                                 |            |            |   |      |            |            |   |   |          | (3,179,903 | )
|                                                                                             | Participation paid to dealers                            |                                 |            |            |   |      |            |            |   |   |          | (79,433    | )
|                                                                                             | Proceeds from contract sales                             |                                 |            | 1,414,303  |   |      |            | 2,091,231  |   |   |          | 2,500,000  |  
|                                                                                             | Contract payments and payoffs                            |                                 |            |            |   |      |            |            |   |   |          | 294,688    |  
|Increase in other assets                                                                     |                                                          |                                 | (92,059    | )          |   |      | (46,369    | )          |   |   | (6,462   | )         
|Increase (decrease) in other liabilities                                                     |                                                          |                                 | 18,303     |            |   |      | (4,613     | )          |   |   | 4,858    |           
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|NET CASH PROVIDED BY (USED IN) OPERATING
	ACTIVITIES                                         |                                                          |                                 | 1,678,632  |            |   |      | 2,280,086  |            |   |   | (258,382 | )         
|INVESTING ACTIVITIES                                                                         |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|Contracts receivable:                                                                        |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|                                                                                             | Purchase of contracts                                    |                                 |            | (4,863,279 | ) |      |            | (4,219,227 | ) |   |          | (160,243   | )
|                                                                                             | Participation paid to dealers                            |                                 |            | (119,834   | ) |      |            | (100,300   | ) |   |          | (4,003     | )
|                                                                                             | Contract payments and payoffs                            |                                 |            | 1,278,325  |   |      |            | 621,584    |   |   |          | 14,850     |  
|Increase in retained interest in securitized
	assets                                         |                                                          |                                 |            |            |   |      | (19,240    | )          |   |   | (111,767 | )         
|Decrease (increase) in amounts due from trust                                                |                                                          |                                 | 220,604    |            |   |      | 81,971     |            |   |   | (106,290 | )         
|Purchase of premises and equipment                                                           |                                                          |                                 | (8,398     | )          |   |      | (8,574     | )          |   |   | (18,385  | )         
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|NET CASH USED IN INVESTING ACTIVITIES                                                        |                                                          |                                 | (3,492,582 | )          |   |      | (3,643,786 | )          |   |   | (385,838 | )         
|FINANCING ACTIVITIES                                                                         |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|Proceeds from notes payable on automobile secured
	financing                                 |                                                          |                                 | 2,845,655  |            |   |      | 2,480,032  |            |   |   | 500,000  |           
|Payments on notes payable on automobile secured
	financing                                   |                                                          |                                 | (1,120,844 | )          |   |      | (691,773   | )          |   |   | (38,896  | )         
|(Payments on) proceeds from notes payable 
	parent, net                                     |                                                          |                                 | (78,719    | )          |   |      | (32,689    | )          |   |   | 18,908   |           
|Proceeds from (payments on) lines of credit, net                                             |                                                          |                                 | 185,191    |            |   |      | (315,205   | )          |   |   | (3,647   | )         
|(Decrease) increase in amounts held on behalf of
	trustee                                    |                                                          |                                 | (113,805   | )          |   |      | (96,559    | )          |   |   | 159,182  |           
|Proceeds from issuance of common stock                                                       |                                                          |                                 | 115,498    |            |   |      | 38,070     |            |   |   | 773      |           
|Payments on cash flow hedges                                                                 |                                                          |                                 | (14,222    | )          |   |      |            |            |   |   |          |           
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                    |                                                          |                                 | 1,818,754  |            |   |      | 1,381,876  |            |   |   | 636,320  |           
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|INCREASE (DECREASE) IN CASH AND CASH
	EQUIVALENTS                                            |                                                          |                                 | 4,804      |            |   |      | 18,176     |            |   |   | (7,900   | )         
|Cash and cash equivalents at beginning of year                                               |                                                          |                                 | 25,296     |            |   |      | 7,120      |            |   |   | 15,020   |           
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                                     |                                                          | $                               | 30,100     |            |   | $    | 25,296     |            |   | $ | 7,120    |           
|                                                                                             |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|                                                                                            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                            |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|Cash paid for:                                                                               |                                                          |                                 |            |            |   |      |            |            |   |   |          |           
|                                                                                             | Interest                                                 |                                 | $          | 220,099    |   |      | $          | 112,071    |   |   | $        | 39,067     |  
|                                                                                             | Income taxes                                             |                                 |            | 67,540     |   |      |            | 63,410     |   |   |          | 32,607     |  

See accompanying notes to consolidated financial
statements.

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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1  Summary of Significant
Accounting Policies

Basis of Presentation

The accompanying consolidated financial
statements include our accounts and the accounts of our
subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation. Certain prior
year amounts have been reclassified to conform with the current
years presentation. We are a majority owned subsidiary of
Western Financial Bank, also known as the Bank, which is a
wholly owned subsidiary of Westcorp, our ultimate parent company.

Use of Estimates

The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States requires us to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those
estimates.

Nature of Operations

We are a consumer finance company that
specializes in the purchase, securitization and servicing of
fixed rate consumer automobile contracts. We purchase contracts
from franchised new and independent pre-owned car dealers on a
nonrecourse basis and originate loans directly with consumers.

Cash and Cash
Equivalents

Cash and cash equivalents include short-term
investments with the Bank. There are no material restrictions as
to the withdrawal or usage of this amount.

Securitization
Transactions

Automobile contract asset-backed securitization
transactions are treated as either sales or secured financings
for accounting purposes depending upon the securitization
structure. In September 2000, the Financial Accounting Standards
Board, also known as the FASB, issued Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities, also known as SFAS No. 140, to replace
Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, also known as SFAS No. 125.
SFAS No. 140 revises the standards for accounting for
securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it generally
carries over most of SFAS No. 125s provisions without
reconsideration. SFAS No. 140 defines the criteria used to
evaluate securitization structures in determining the proper
accounting treatment. These criteria pertain to whether or not
the transferor has surrendered control over the transferred
assets. If a securitization transaction meets all the criteria
defined in SFAS No. 140, the transaction is required to be
treated as a sale. If any one of the criteria is not met, the
transaction is required to be treated as a secured financing.
Since March 31, 2000, our securitization transactions
included certain provisions which allow us to effectively
maintain control over the transferred assets. As a result, these
securitization transactions are required to be treated as
secured financings. Our securitization transactions prior to
March 31, 2000 did not give us this right and, therefore,
we were required to treat such transactions as sales.

For securitization transactions treated as sales,
we recorded a non-cash gain equal to the present value of the
estimated future cash flows on a cash out basis, net of the
write-off of dealer participation and gains or losses on hedges.
We determined whether or not we must record a servicing asset or
liability by estimating future servicing revenues, including
servicing fees, late charges, other ancillary income, and float
benefit, less the actual cost to service the loans.

F-7



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WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


In determining the fair value of our retained
interest in securitized assets, also known as RISA, we evaluated
the cost basis of automobile contracts relative to the fair
value of such contracts and the fair value of the RISA recorded.
The RISA was capitalized and amortized over the expected life of
the underlying contracts. Net interest income and servicing fees
earned on these contracts are recognized over the life of the
securitization transactions as contractual servicing income,
retained interest income and other fee income. The amortization
of the RISA is calculated so as to recognize retained interest
income on an effective yield basis. These amounts are reported
as servicing income on our Consolidated Statements of Income.

RISA is classified in a manner similar to
available for sale securities and as such is marked to market
each quarter. Market value changes are calculated by discounting
estimated future cash flows using a current market discount
rate. Any changes in the market value of the RISA are reported
as accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. On a
quarterly basis, we evaluate the carrying value of the RISA in
light of the actual performance of the underlying contracts and
make adjustments to reduce the carrying value, if appropriate.

For securitization transactions treated as
secured financings, the contracts are retained on the balance
sheet with the securities issued to finance the contracts
recorded as notes payable on automobile secured financing. We
record interest income on the securitized contracts and interest
expense on the notes issued through the securitization
transactions.

The excess cash flows generated by securitized
contracts are deposited into spread accounts in the name of the
trustee under the terms of the securitization transactions. In
addition, we advance additional monies to initially fund these
spread accounts. For securitization transactions treated as
sales, amounts due to us held in the spread accounts and
servicing income earned by us for which we have not yet received
repayment from the trust are reported as amounts due from trust
on our Consolidated Statements of Financial Condition. These
amounts are valued using the cash out method.

As servicer of these contracts, we hold and remit
funds collected from the borrowers on behalf of the trustee
pursuant to reinvestment contracts that we have entered into.
For securitization transactions treated as sales, these amounts
are reported as amounts held on behalf of trustee on our
Consolidated Statements of Financial Condition.

Allowance for Credit
Losses

The allowance for credit losses is maintained at
a level that we believe is adequate to absorb probable losses in
the on balance sheet contract portfolio that can be reasonably
estimated. Our determination of the adequacy of the allowance is
based on an evaluation of the portfolio, past credit loss
experience, current economic conditions, volume, pending
contract sales, growth and composition of the contract
portfolio, and other relevant factors. The allowance is
increased by provisions for credit losses charged against income.

Nonaccrual Contracts

We continue to accrue interest income on
contracts until the contracts are charged off, which occurs
automatically after the contracts are past due 120 days except
for accounts that are in Chapter 13 bankruptcy. At the time
that a contract is charged off, all accrued interest is
reversed. For those accounts that are in Chapter 13
bankruptcy and contractually past due greater than
120 days, all accrued interest is reversed and income is
recognized on a cash basis. As of December 31, 2001 and
2000, the amount of accrued interest reversed was not material.

Premises and Equipment

Premises and equipment are recorded at cost less
accumulated depreciation and amortization and are depreciated
over their estimated useful lives principally using the straight
line method for financial reporting

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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


and accelerated methods for tax purposes.
Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements,
whichever is shorter.

Repossessed Assets

All accounts for which collateral has been
repossessed and the redemption period has expired are
reclassified from contracts receivable to repossessed assets at
fair value with any adjustment recorded against the allowance
for credit losses. Repossessed assets were included in other
assets on the Consolidated Statements of Financial Condition and
were not material.

Nonperforming Assets

Accounts that are in Chapter 13 bankruptcy
and are contractually past due greater than 120 days are
reclassified from contracts receivable to nonperforming assets
at fair value with any adjustment recorded against the allowance
for credit losses. Nonperforming assets were included in other
assets on the Consolidated Statements of Financial Condition and
were not material.

Interest Income and Fee
Income

Interest income is earned in accordance with the
terms of the contracts. For pre-computed contracts, interest is
earned monthly and for simple interest contracts, interest is
earned daily. Interest income on certain contracts is earned
using the effective yield method and classified as interest
receivable to the extent not collected and reported in other
assets on the Consolidated Statements of Financial Condition.
Other contracts use the sum of the months digits method,
which approximates the effective yield method.

We defer contract origination fees and premiums
paid to dealers. The net amount is amortized as an adjustment to
the related contracts yield over the contractual life of
the related contract or until the contract is sold, at which
time any remaining amounts are included as part of the gain on
sale of contracts. Fees for other services are recorded as
income when earned.

Income Taxes

We file consolidated federal and state tax
returns as part of a consolidated group that includes the Bank
and Westcorp. Our taxes are paid in accordance with a tax
sharing agreement that allocates taxes based on the relative
income or loss of each entity on a stand-alone basis.

Fair Value of Financial
Instruments

Fair value information about financial
instruments is reported using quoted market prices for which it
is practicable to estimate that value. In cases where quoted
market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and in
many cases, could not be realized in immediate settlement of the
instrument. Fair values for certain financial instruments and
all non-financial instruments are not required to be disclosed.
Accordingly, the aggregate fair value of amounts presented does
not represent our underlying value. Our financial instruments,
including short-term investments and amounts held on behalf of
trustee, are accounted for on a historical cost basis which, due
to the nature of these financial instruments, approximates fair
value. The fair value for contracts receivable is based on
quoted market prices of similar contracts sold in conjunction
with securitization transactions, adjusted for differences in
contract characteristics. The fair value of retained interest in
securitized assets is determined by discounting estimated cash
flows using a current market discount rate. The fair value of
forward agreements, Euro-dollar swap agreements, and interest
rate swap agreements is estimated by obtaining market

F-9



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


quotes from brokers. The fair value of notes
payable and the lines of credit is estimated using discounted
cash flow analysis based on current borrowing rates for similar
instruments.

Derivative Financial
Instruments

Effective January 1, 2001, we adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended, also known as SFAS No. 133, which requires all
derivatives to be recognized on the balance sheet at fair value.
Changes in the fair value of derivatives that are hedges will be
either offset against the change in fair value of the hedged
assets, liabilities or firm commitments directly through income
or recognized through accumulated other comprehensive income
(loss) on the balance sheet until the hedged items are
recognized in earnings, depending on the nature of the hedges.
The ineffective portion of a derivatives change in fair
value for a cash flow hedge will be recognized in accumulated
other comprehensive income (loss) on the balance sheet if the
hedge is less than 100% effective or in earnings if the hedge is
greater than 100% effective. We employ regression analysis and
discounted cash flow analysis to test the effectiveness of our
hedges on a quarterly basis. All of our hedge instruments
qualify as cash flow hedges under SFAS No. 133.

The contracts originated and held by us are fixed
rate and, accordingly, we have exposure to changes in interest
rates. To protect against potential changes in interest rates
affecting interest payments on future securitization
transactions, we enter into various hedge agreements. We enter
into Euro-dollar swap agreements and forward agreements in order
to hedge our future interest payments on our notes payable on
automobile secured financing. The market value of these hedge
agreements responds inversely to changes in interest rates.
Because of this inverse relationship, we can effectively lock in
a gross interest rate spread at the time of entering into the
hedge transaction. Gains and losses on these agreements are
recorded in accumulated other comprehensive income (loss). Any
ineffective portion is recognized in interest expense during
that period if the hedge is greater than 100% effective. Upon
completion of the securitization transaction, the gains or
losses are recognized in full as an adjustment to the gain or
loss on the sale of the contracts if the securitization
transaction is treated as a sale or amortized on a level yield
basis over the duration of the notes issued if the transaction
is treated as a secured financing. These hedge instruments are
settled daily, and therefore, there are no related financial
instruments recorded on the Consolidated Statements of Financial
Condition. Credit risk related to these hedge instruments is
minimal.

As we issued certain variable rate notes payable
in 2001, we also entered into interest rate swap agreements in
order to hedge our variable interest rate exposure on future
interest payments. The fair value of the interest rate swap
agreements is included in notes payable on automobile secured
financing, and any change in the fair value is reported as
accumulated other comprehensive income (loss), net of tax, on
our Consolidated Statements of Financial Condition. Any
ineffective portion is recorded in interest expense during that
period if the hedge is greater than 100% effective. Related
interest income or expense is settled on a quarterly basis and
recognized as an adjustment to interest expense in our
Consolidated Statements of Income.

As part of the adoption of SFAS No. 133, we
recorded a cumulative effect adjustment to accumulated other
comprehensive income (loss) of $4.8 million, net of
tax, which represents the deferred loss on hedge agreements
outstanding at January 1, 2001. Of the $4.8 million,
$1.8 million was reclassified into earnings during 2001.

Accounting
Pronouncements

In June 2001, the FASB issued Statement of
Financial Accounting Standards No. 141, Accounting for
Business Combinations, also known as SFAS No. 141, and
Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Intangible Assets, also known as
SFAS No. 142. Under SFAS No. 141 and SFAS
No. 142, companies may no longer use the
pooling-of-interest accounting method for business

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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


combinations or account for mergers on their
financial statements under the traditional purchase method,
which required companies to amortize goodwill assets over a
specific time period. Instead purchased goodwill will remain on
the balance sheet as an asset subject to impairment reviews. We
adopted SFAS No. 141 and SFAS No. 142 on
January 1, 2002, and they did not have a material effect on
our earnings or financial position.

In July 2001, the FASB issued Statement of
Financial Accounting Standards No. 143, Accounting for
Asset Retirement Obligations, also known as SFAS No. 143,
in which retirement obligations would be recorded as a liability
using the present value of the estimated cash flows and a
corresponding amount would be capitalized as part of the
assets carrying amount. The capitalized asset retirement
cost would be amortized to expense over the assets useful
life using a systematic and rational allocation method. The
estimate of the asset retirement obligation will change and have
to be revised over time. SFAS No. 143 is effective for fiscal
years beginning after June 15, 2002. If applicable, an
accounting change to adopt the standard would be made as of the
beginning of the companys fiscal year. We do not expect
SFAS No. 143 to have a material effect on our earnings or
financial position.

In August 2001, the FASB issued Statement of
Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, also known as SFAS
No. 144, to supercede Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of,
also known as SFAS No. 121. The basic recognition and
measurement model for assets held for use and held for sale
under SFAS No. 121 has been retained, however SFAS
No. 144 removes goodwill from the scope as goodwill is now
subject to the provisions of SFAS No. 141 and SFAS
No. 142. SFAS No. 144 provides guidance on
differentiating between assets held and used, held for sale, and
held for disposal other than by sale. Assets held for
sale/disposal must be stated at the lower of the assets
carrying amounts or fair values and depreciation would no longer
be recognized. Assets to be disposed of by sale would be
classified as held for sale when management, having the
authority to approve the action, commits to a plan to sell the
assets meeting several strict criteria. The three-step approach
for recognizing and measuring impairment of assets to be held
and used under SFAS No. 121 remains applicable. SFAS
No. 144 is effective for fiscal years beginning after
December 15, 2001 and for interim periods within those
fiscal years. We adopted SFAS No. 144 on January 1,
2002, and it did not have a material effect on our earnings or
financial position.

Note 2  Investment Securities Available
for Sale

Investment securities available for sale are
comprised of owner trust certificates retained on securitization
transactions treated as sales. The balances of these investment
securities were $4.7 million and $6.5 million at
December 31, 2001 and 2000, respectively. The book value of
these investment securities approximates fair value. As of
December 31, 2001, $4.2 million had stated maturity
dates of one to five years and $0.5 million had stated
maturity dates of five to ten years.

F-11



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 3  Net Contracts
Receivable

Our contract portfolio consists of contracts
purchased from automobile dealers on a nonrecourse basis and
contracts financed directly with the consumer. If pre-computed
finance charges are added to a contract, they are added to the
contract balance and carried as an offset against the contract
balance as unearned discounts. Amounts paid to dealers are
capitalized as dealer participation and amortized over the life
of the contract.

Net contracts receivable consisted of the
following:

|                                                     |                          |                        |           |           |  |   |           |           | 
|---------------------------------------------------- | ------------------------ | ---------------------- | --------- | --------- |  | - | --------- | --------- | 
|                                                     |                          |                       
|                                                     |                          | December 31,          
|                                                     |                          |                       
|                                                     |                          | 2001                   |           | 2000     
|                                                     |                          |                        |           |          
|                                                     |                          |                       
|                                                     |                          | (Dollars in thousands)
|Contracts                                            |                          | $                      | 5,200,244 |           |  | $ | 3,057,558 |          
|Unearned discounts                                   |                          |                        | (81,197   | )         |  |   | (67,109   | )        
|                                                     |                          |                        |           |           |  |   |           |          
|                                                     | Net contracts            |                        |           | 5,119,047 |  |   |           | 2,990,449 | 
|Allowance for credit losses                          |                          |                        | (131,827  | )         |  |   | (71,308   | )        
|Dealer participation, net of deferred contract
	fees |                          |                        | 96,671    |           |  |   | 59,026    |          
|                                                     |                          |                        |           |           |  |   |           |          
|                                                     | Net contracts receivable |                        | $         | 5,083,891 |  |   | $         | 2,978,167 | 
|                                                     |                          |                        |           |           |  |   |           |          

Contracts managed by us totaled $8.2 billion
and $6.8 billion at December 31, 2001 and 2000,
respectively. Of the $8.2 billion contracts managed at
December 31, 2001, $5.2 billion were owned by us,
$1.8 billion were owned by Westcorp, our ultimate parent,
and $1.2 billion were owned by securitization trusts. Of
the $6.8 billion contracts managed at December 31,
2000, $3.0 billion were owned by us, $1.2 billion were
owned by Westcorp, and $2.6 billion were owned by
securitization trusts.

Note 4  Allowance for Credit
Losses

Changes in the allowance for credit losses were
as follows:

|                                   |  |                                 |          |      |  |      |         |   |  |   |         |  
|---------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                   |  |                                
|                                   |  | For the Year Ended December 31,
|                                   |  |                                
|                                   |  | 2001                            |          | 2000 |  | 1999
|                                   |  |                                 |          |      |  |     
|                                   |  |                                
|                                   |  | (Dollars in thousands)         
|Balance at beginning of period     |  | $                               | 71,308   |      |  | $    | 36,682  |   |  | $ | 11,246  |  
|Provision for credit losses        |  |                                 | 144,130  |      |  |      | 68,962  |   |  |   | 36,578  |  
|Charged off contracts              |  |                                 | (110,359 | )    |  |      | (47,929 | ) |  |   | (18,696 | )
|Write-down of nonperforming assets |  |                                 | (4,583   | )    |  |      |         |   |  |   |         |  
|Recoveries                         |  |                                 | 31,331   |      |  |      | 13,593  |   |  |   | 7,554   |  
|                                   |  |                                 |          |      |  |      |         |   |  |   |         |  
|Balance at end of period           |  | $                               | 131,827  |      |  | $    | 71,308  |   |  | $ | 36,682  |  
|                                   |  |                                 |          |      |  |      |         |   |  |   |         |  

F-12



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 5  Retained Interest in Securitized
Assets

None of our securitization transactions in 2001
were treated as sales. Therefore, we did not record any retained
interest in securitized assets in 2001. Selected original
assumptions used to estimate future cash flows for contracts
securitized in 2000 and 1999 were as follows:

|                                                |  |                            |        |         |  |              |        |             |  |  |        |   |  |  |  | 
|----------------------------------------------- |  | -------------------------- | ------ | ------- |  | ------------ | ------ | ----------- |  |  | ------ | - |  |  |  | 
|                                                |  |                           
|                                                |  | For the Three Months Ended
|                                                |  |                           
|                                                |  | March 31                   |        | June 30 |  | September 30 |        | December 31
|                                                |  |                            |        |         |  |              |        |            
|2000                                            |  |                            | 2000-A |         |  |              |        |             |  |  |        |   |  |  |  | 
|Cumulative net credit losses                    |  |                            | 6.1    | %       |  |              |        |             |  |  |        |   |  |  |  | 
|Average monthly ABS prepayment speed            |  |                            | 1.5    | %       |  |              |        |             |  |  |        |   |  |  |  | 
|Discount rate                                   |  |                            | 10.8   | %       |  |              |        |             |  |  |        |   |  |  |  | 
|Weighted average remaining maturity (in months) |  |                            | 61     |         |  |              |        |             |  |  |        |   |  |  |  | 
|                                               
|1999                                            |  |                            | 1999-A |         |  |              | 1999-B |             |  |  | 1999-C |   |  |  |  | 
|Cumulative net credit losses                    |  |                            | 6.2    | %       |  |              | 6.1    | %           |  |  | 6.1    | % |  |  |  | 
|Average monthly ABS prepayment speed            |  |                            | 1.5    | %       |  |              | 1.5    | %           |  |  | 1.5    | % |  |  |  | 
|Discount rate                                   |  |                            | 9.1    | %       |  |              | 9.7    | %           |  |  | 10.2   | % |  |  |  | 
|Weighted average remaining maturity (in months) |  |                            | 59     |         |  |              | 59     |             |  |  | 61     |   |  |  |  | 

At December 31, 2001 and 2000, key economic
assumptions and the sensitivity of the fair value of the RISA to
immediate 10% and 20% adverse changes in assumed economics were
as follows:

|                                                                         |  |                        |            |      |  |  |            |  
|------------------------------------------------------------------------ |  | ---------------------- | ---------- | ---- |  |  | ---------- | -
|                                                                         |  |                       
|                                                                         |  | December 31,          
|                                                                         |  |                       
|                                                                         |  | 2001                   |            | 2000
|                                                                         |  |                        |            |     
|                                                                         |  |                       
|                                                                         |  | (Dollars in thousands)
|Fair value of the RISA                                                   |  |                        | $37,392    |      |  |  | $111,558   |  
|Weighted average remaining maturity of underlying
	contracts (in months) |  |                        | 33         |      |  |  | 41         |  
|                                                                        
|Prepayment speed (monthly ABS)                                           |  |                        | 1.0        | %    |  |  | 1.5        | %
|Fair value after 10% adverse change                                      |  |                        | $35,184    |      |  |  | $107,843   |  
|Fair value after 20% adverse change                                      |  |                        | $34,266    |      |  |  | $103,574   |  
|                                                                        
|Cumulative net credit losses (pool life rate)                            |  |                        | 6.1% - 7.0 | %    |  |  | 6.1% - 7.6 | %
|Fair value after 10% adverse change                                      |  |                        | $32,928    |      |  |  | $103,880   |  
|Fair value after 20% adverse change                                      |  |                        | $29,752    |      |  |  | $95,925    |  
|                                                                        
|Discount rate (annual rate)                                              |  |                        | 7.28       | %    |  |  | 10.16      | %
|Fair value after 10% adverse change                                      |  |                        | $37,135    |      |  |  | $110,963   |  
|Fair value after 20% adverse change                                      |  |                        | $36,880    |      |  |  | $109,810   |  

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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


The following table sets forth the components of
the RISA:

|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | -------- | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2001                            |         | 2000 |  | 1999
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               | 111,558 |      |  | $    | 167,277 |   |  | $ | 171,230  |  
|Additions                                 |  |                                 |         |      |  |      | 19,240  |   |  |   | 111,767  |  
|Amortization                              |  |                                 | (75,546 | )    |  |      | (75,958 | ) |  |   | (111,752 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 | 1,380   |      |  |      | 999     |   |  |   | (3,968   | )
|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  
|Balance at end of period(2)               |  | $                               | 37,392  |      |  | $    | 111,558 |   |  | $ | 167,277  |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |          |  




|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The change in unrealized gain/loss on RISA
	represents temporary changes in valuation including changes in
	the discount rate based on the current interest rate
	environment. Such amounts will not be realized unless the RISA
	is sold. Changes in prepayment and credit loss assumptions for
	the RISA are other than temporary in nature and impact the value
	of the RISA. Such other than temporary differences are
	immediately recognized in income as a component of retained
	interest income.
|   
|(2) | There are no restrictions on the RISA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The following table presents the estimated future
undiscounted retained interest earnings to be received from
securitizations:

|                                                                                                      |  |                        |           |      |  |   |           |  
|----------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | ---- |  | - | --------- | -
|                                                                                                      |  |                       
|                                                                                                      |  | December 31,          
|                                                                                                      |  |                       
|                                                                                                      |  | 2001                   |           | 2000
|                                                                                                      |  |                        |           |     
|                                                                                                      |  |                       
|                                                                                                      |  | (Dollars in thousands)
|Estimated net undiscounted RISA earnings                                                              |  | $                      | 87,358    |      |  | $ | 235,270   |  
|Off balance sheet allowance for credit losses                                                         |  |                        | (47,235   | )    |  |   | (110,339  | )
|Discount to present value                                                                             |  |                        | (2,731    | )    |  |   | (13,373   | )
|                                                                                                      |  |                        |           |      |  |   |           |  
|Retained interest in securitized assets                                                               |  | $                      | 37,392    |      |  | $ | 111,558   |  
|                                                                                                      |  |                        |           |      |  |   |           |  
|Outstanding balance of contracts sold through
	securitizations                                        |  | $                      | 1,215,058 |      |  | $ | 2,608,017 |  
|Off balance sheet allowance for credit losses as
	a percent of contracts sold through securitizations |  |                        | 3.89      | %    |  |   | 4.23      | %

The following table summarizes certain cash flows
received from and paid to securitization trusts on
securitization transactions treated as sales and on whole loan
sales:

|                                 |  |                                 |           |      |  |      |           |  |  |   |           | 
|-------------------------------- |  | ------------------------------- | --------- | ---- |  | ---- | --------- |  |  | - | --------- | 
|                                 |  |                                
|                                 |  | For the Year Ended December 31,
|                                 |  |                                
|                                 |  | 2001                            |           | 2000 |  | 1999
|                                 |  |                                 |           |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  | $                               | 1,370,000 |      |  | $    | 2,050,000 |  |  | $ | 2,500,000 | 
|Excess cash flows from trust     |  |                                 | 47,357    |      |  |      | 127,294   |  |  |   | 159,564   | 
|Servicing fees received          |  |                                 | 85,845    |      |  |      | 57,718    |  |  |   | 46,847    | 
|Servicing advances               |  |                                 | 26,191    |      |  |      | 39,097    |  |  |   | 55,593    | 
|Repayments on servicing advances |  |                                 | 28,222    |      |  |      | 49,825    |  |  |   | 63,940    | 

The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$144 million and $146 million at December 31,
2001 and 2000, respectively. Net chargeoffs for these
securitization trusts totaled $93.2 million,
$81.9 million and $91.8 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

F-14



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 6  Premises and
Equipment

Premises and equipment consisted of the following
at:

|                                               |  |                        |        |      |  |   |        | 
|---------------------------------------------- |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                                               |  |                       
|                                               |  | December 31,          
|                                               |  |                       
|                                               |  | 2001                   |        | 2000
|                                               |  |                        |        |     
|                                               |  |                       
|                                               |  | (Dollars in thousands)
|Land                                           |  | $                      | 2,017  |      |  | $ | 2,017  | 
|Buildings                                      |  |                        | 13,727 |      |  |   | 13,682 | 
|Computers and software                         |  |                        | 44,008 |      |  |   | 37,969 | 
|Furniture, fixtures and leasehold improvements |  |                        | 5,483  |      |  |   | 4,060  | 
|Equipment                                      |  |                        | 5,174  |      |  |   | 4,444  | 
|Other                                          |  |                        | 306    |      |  |   | 284    | 
|                                               |  |                        |        |      |  |   |        | 
|                                               |  |                        | 70,715 |      |  |   | 62,456 | 
|Less: accumulated depreciation                 |  |                        | 36,889 |      |  |   | 25,930 | 
|                                               |  |                        |        |      |  |   |        | 
|                                               |  | $                      | 33,826 |      |  | $ | 36,526 | 
|                                               |  |                        |        |      |  |   |        | 

Note 7  Intercompany
Agreements

As of December 31, 2001, we had a
$67.5 million promissory note payable to the Bank at a rate
of 9.42% per annum with a maturity date in July 2007. Interest
payments are due quarterly, in arrears. Interest expense on the
note totaled $10.1 million, $12.7 million, and
$9.3 million for the years ended December 31, 2001,
2000 and 1999, respectively.

During 2001, we made a final paydown of
$11.2 million on a senior note payable to the Bank with a
maturity date in April 2003. Under the original terms of the
note, interest payments on the note were due quarterly, in
arrears, at a rate of 7.25% per annum. Interest expense on the
note totaled $0.5 million, $1.5 million, and
$5.4 million for the years ended December 31, 2001,
2000 and 1999, respectively.

Pursuant to the terms of the note, we may not
incur any other indebtedness which is senior to the obligations
evidenced by the promissory note except for
(i) indebtedness under the senior note
(ii) indebtedness collateralized or secured under a line of
credit and (iii) indebtedness for similar types of
warehouse lines of credit.

We have a secured line of credit from the Bank
permitting us to draw up to $1.8 billion as needed to be
used in our operations. The secured line of credit terminates on
December 31, 2004, although the term may be extended by us
for additional periods up to 60 months. Amounts outstanding
were $374 million, $236 million, and $551 million at
December 31, 2001, 2000, and 1999, respectively. On
November 30, 2001, we entered into additional unsecured
lines of credit with the Bank. These lines permit us to draw up
to a total of $180 million to fund our initial deposits to
spread accounts on securitization transactions. The unsecured
lines of credit terminate on December 1, 2006, although the
term may be extended by us for additional periods up to
60 months. At December 31, 2001, the amount
outstanding was $47.3 million.

The lines of credit carry an interest rate based
on the one-month London Interbank Offer Rate, also know as
LIBOR, and an interest spread of 125 basis points and
75 basis points for the unsecured and secured line,
respectively. Interest on the amounts outstanding under the
lines of credit is paid monthly, in arrears, and is calculated
on the daily average amount outstanding that month. Interest
expense totaled $8.9 million, $37.9 million, and
$26.0 million for the years ended December 31, 2001,
2000 and 1999, respectively. The weighted average interest rates
for the lines of credit were 4.43%, 7.09% and 5.33% for the
years ended December 31, 2001, 2000 and 1999, respectively.

F-15



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


We also invest our excess cash at the Bank at an
interest rate based on the federal composite commercial paper
rate. The weighted average interest rates were 3.8%, 6.58% and
5.23% for the years ended December 31, 2001, 2000 and 1999,
respectively. Interest income earned under this agreement
totaled $4.9 million, $1.2 million and
$0.1 million for the years ended December 31, 2001,
2000 and 1999, respectively.

We have entered into certain management
agreements with the Bank and Westcorp pursuant to which we pay a
portion of certain costs and expenses incurred by the Bank and
Westcorp with respect to services or facilities of the Bank and
Westcorp used by us or our subsidiaries, including our principal
office facilities, our field offices, and overhead and associate
benefits pertaining to Bank and Westcorp associates who also
provide services to us or our subsidiaries. Net amounts paid to
us by the Bank, Westcorp and their affiliates under these
agreements were $5.9 million, $2.4 million, and
$6.2 million for the years ended December 31, 2001,
2000 and 1999, respectively.

In connection with our securitization
transactions, we entered into a reinvestment contract with the
Bank which allows us access to the cash flows of each of the
outstanding securitization transactions and the cash held in
each spread account for each of those transactions. We are
permitted to use that cash as we determine, including in our
ordinary business activities. We paid the Bank
$1.1 million, $0.7 million, and $0.6 million for
the years ended December 31, 2001, 2000 and 1999,
respectively, pursuant to these agreements.

Note 8  Notes Payable on
Automobile Secured Financing

For the year ended December 31, 2001, we
issued $2.9 billion of notes secured by automobile
contracts, of which approximately $2.3 billion was through
public transactions and $650 million was through a private
placement. The private placement was through a conduit facility
established in December 2001. We also established a
$500 million conduit facility secured by automobile
contracts in September 1999. At December 31, 2001, we had
$650 million outstanding on the conduit facility compared
to no amount and $461 million at December 31, 2000 and
1999, respectively.

Interest payments on the public transactions are
due quarterly, in arrears, based on the respective notes
interest rate. Interest payments on the conduit facility are due
monthly, in arrears, based on the respective notes
interest rate. Interest expense on all notes payable on
automobile secured financing, including interest payments under
interest rate swap agreements, totaled $216 million for the
year ended December 31, 2001, compared with
$87.0 million and $11.0 million for the years ended
December 31, 2000 and 1999, respectively.

At December 31, 2001, the stated maturities
of our notes payable on automobile secured financing and their
weighted average interest rates, including the effect of
interest rate swap agreements on variable rate notes payable,
were as follows:

|           |  |             |           |               |  |  |      |  
|---------- |  | ----------- | --------- | ------------- |  |  | ---- | -
|           |  |             |           | Weighted     
|           |  | (Dollars in |           | Average      
|           |  | thousands)  |           | Interest Rate
|           |  |             |           |              
|2002       |  | $           | 710,859   |               |  |  | 2.29 | %
|2003       |  |             | 117,590   |               |  |  | 6.76 |  
|2004       |  |             | 903,367   |               |  |  | 5.99 |  
|2005       |  |             | 685,463   |               |  |  | 6.15 |  
|2006       |  |             | 583,964   |               |  |  | 5.56 |  
|Thereafter |  |             | 1,004,682 |               |  |  | 6.19 |  
|           |  |             |           |               |  |  |      |  
|           |  | $           | 4,005,925 |               |  |  | 5.37 | %
|           |  |             |           |               |  |  |      |  

F-16



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 9  Whole Loan
Sales

We sold $1.4 billion of contracts to
Westcorp in whole loan sales in each of the years ended
December 31, 2001 and 2000. We continue to service the
contracts pursuant to servicing agreements. We recorded cash
gain on sale, net of the write-off of outstanding dealer
participation balances and the effect of hedging activities of
$6.7 million and $6.0 million on these transactions,
respectively.

Note 10  Commitments and
Contingencies

Future minimum payments under noncancelable
operating leases on premises and equipment with terms of one
year or more were as follows:

|           |  |                        |        | 
|---------- |  | ---------------------- | ------ | 
|           |  | December 31,          
|           |  | 2001                  
|           |  |                       
|           |  | (Dollars in thousands)
|2002       |  | $                      | 4,787  | 
|2003       |  |                        | 4,726  | 
|2004       |  |                        | 4,384  | 
|2005       |  |                        | 3,435  | 
|2006       |  |                        | 1,465  | 
|Thereafter |  |                        | 1,701  | 
|           |  |                        |        | 
|           |  | $                      | 20,498 | 
|           |  |                        |        | 

In certain cases, these agreements include
various renewal options and contingent rental agreements. Rental
expense for premises and equipment totaled $5.4 million,
$4.8 million and $5.1 million for the years ended
December 31, 2001, 2000 and 1999, respectively.

We have pledged certain automobile contracts in
amounts totaling $441 million and $317 million as of
December 31, 2001 and 2000, respectively, relative to
amounts held on behalf of trustee.

We or our subsidiaries are involved as a party in
certain legal proceedings incidental to our business. We do not
believe that the outcome of these proceedings will have a
material effect upon our financial condition, results of
operations and cash flows.

Note 11  Servicing
Income

Servicing income consisted of the following
components:

|                                                              |  |                                 |         |      |  |      |         |  |  |   |         | 
|------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                                              |  |                                
|                                                              |  | For the Year Ended December 31,
|                                                              |  |                                
|                                                              |  | 2001                            |         | 2000 |  | 1999
|                                                              |  |                                 |         |      |  |     
|                                                              |  |                                
|                                                              |  | (Dollars in thousands)         
|Retained interest (expense) income, net of RISA
	amortization |  | $                               | (27,839 | )    |  | $    | 51,429  |  |  | $ | 47,812  | 
|Contractual servicing income                                  |  |                                 | 85,845  |      |  |      | 57,718  |  |  |   | 46,847  | 
|Other fee income                                              |  |                                 | 72,820  |      |  |      | 61,772  |  |  |   | 46,121  | 
|                                                              |  |                                 |         |      |  |      |         |  |  |   |         | 
|Total servicing income                                        |  | $                               | 130,826 |      |  | $    | 170,919 |  |  | $ | 140,780 | 
|                                                              |  |                                 |         |      |  |      |         |  |  |   |         | 

Contractual servicing income received by us from
Westcorp relating to the whole loan sales totaled approximately
$62.8 million and $16.0 million for the years ended
December 31, 2001 and 2000. Contractual servicing income
received by us relating to sales to securitization trusts
totaled approximately $23.0 million and $41.7 million for
the years ended December 31, 2001 and 2000, respectively.
Other fee income consists primarily of documentation fees, late
charges, deferment fees and other additional servicing fees.

F-17



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 12  Employee Benefit
Plans

We participate in Westcorps three employee
benefit plans, which vary on the types of associates covered and
the benefits received. These plans include the Westcorp Employee
Stock Ownership and Salary Savings Plan, the Executive Deferral
Plan, and the Long Term Incentive Plan.

The Westcorp Employee Stock Ownership Plan, also
known as the ESOP, covers essentially all associates, excluding
contract or temporary employees, who have completed six months
of service. Contributions to the ESOP are discretionary and
determined by the Board of Directors of Westcorp within limits
set forth under the Employee Retirement Income Security Act of
1974. These contributions are allocated to the associates
account based upon years of service and annual compensation. All
shares purchased by the ESOP are allocated to associates who
participate in the ESOP. As of December 31, 2001, the plan
held 2,043,872 shares of Westcorps common stock. All ESOP
shares are considered outstanding for purposes of calculating
our earnings per share. The Salary Savings Plan, also known as
the 401(k) Plan, covers essentially all associates, excluding
contract or temporary employees, who have completed three months
of service. Contributions to the 401(k) Plan are guaranteed and
based on a fixed percent of the associates payroll
deferral for the calendar year. Contributions to the ESOP and
401(k) Plan totaled $8.4 million, $8.0 million and
$7.0 million in 2001, 2000, and 1999, respectively.
Compensation expense related to the ESOP and 401(k) Plan totaled
$4.8 million, $7.3 million and $3.4 million in
2001, 2000 and 1999, respectively.

The Executive Deferral Plan, also known as the
EDP, covers a select group of our management or highly
compensated associates as determined by Westcorps Board of
Directors. The EDP is designed to allow participants to defer a
portion of their compensation on a pre-tax basis and earn
tax-deferred interest on these deferrals. The EDP also provides
for us to match portions of the amounts contributed by our
associates at the discretion of Westcorps Board of
Directors. For the year ended December 31, 2001, expense
related to the EDP for Westcorp and its subsidiaries totaled
$0.3 million compared with $0.5 million and
$0.6 million for the years ended December 31, 2000 and
1999, respectively.

The Long Term Incentive Plan, also known as the
LTIP, covers certain key executive officers in which such
officers will be entitled to receive a fixed incentive amount
provided that Westcorps tangible net book value per common
share as of December 31, 2004 equals or exceeds $28.08, as
adjusted at Westcorps sole discretion, and the executive
officer remains continuously employed by Westcorp or its
subsidiaries through April 30, 2005. Westcorp expensed
$0.9 million in 2001 and 2000 related to the LTIP.

Note 13  Stock
Options

In 1996, we reserved 550,000 shares of common
stock for future issuance to certain associates under an
incentive stock option plan, also known as the Stock Options
Plan. In 1997, we reserved an additional 550,000 shares of
common stock for future issuance under the Stock Options Plan.
The options may be exercised within seven years after the date
of grant. There were 806,788 shares available for future grants
at December 31, 2001. The weighted average life of the
options outstanding at December 31, 2001 was 3.7 years
and the exercise prices were either $6.94 or $13.00 per share.

Options outstanding and exercisable at
December 31, 2001 were as follows:

|                |              |                     |  |                     |         |          |  |             |      |          |  |   |       |  |  |  |         |  |  |   |       | 
|--------------- | ------------ | ------------------- |  | ------------------- | ------- | -------- |  | ----------- | ---- | -------- |  | - | ----- |  |  |  | ------- |  |  | - | ----- | 
|                |              |                     |  |                    
|                |              | Options Outstanding |  | Options Exercisable
|                |              |                     |  |                    
|                |              |                     |  | Weighted            |         | Weighted |  |             |      | Weighted
|                |              |                     |  | Average             |         | Average  |  |             |      | Average 
|                |              | Number              |  | Remaining           |         | Exercise |  | Number      |      | Exercise
|Exercise Prices |              | Outstanding         |  | Life                |         | Price    |  | Exercisable |      | Price   
|                |              |                     |  |                     |         |          |  |             |      |         
|$               | 6.94         |                     |  |                     | 129,165 |          |  |             | 3.71 |          |  | $ | 6.94  |  |  |  | 125,223 |  |  | $ | 6.94  | 
|                | 13.00        |                     |  |                     | 3,875   |          |  |             | 2.83 |          |  |   | 13.00 |  |  |  | 3,875   |  |  |   | 13.00 | 
|                |              |                     |  |                     |         |          |  |             |      |          |  |   |       |  |  |  |         |  |  |   |       | 
|$               | 6.94  13.00 |                     |  |                     | 133,040 |          |  |             | 3.69 |          |  | $ | 7.11  |  |  |  | 129,098 |  |  | $ | 7.11  | 
|                |              |                     |  |                     |         |          |  |             |      |          |  |   |       |  |  |  |         |  |  |   |       | 

F-18



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Stock option activity is summarized as follows:

|                                 |           |        |         |                  |   |   |      |       | 
|-------------------------------- | --------- | ------ | ------- | ---------------- | - | - | ---- | ----- | 
|                                 |           |        |         | Weighted Average
|                                 |           | Shares |         | Exercise Price  
|                                 |           |        |         |                 
|Outstanding at January 1, 1999   |           |        | 317,949 |                  |   | $ | 8.14 |      
|                                 | Granted   |        |         |                  |   |   |      |       | 
|                                 | Exercised |        |         | (63,345          | ) |   |      | 7.02  | 
|                                 | Canceled  |        |         | (35,636          | ) |   |      | 14.18 | 
|                                 |           |        |         |                  |   |   |      |      
|Outstanding at December 31, 1999 |           |        | 218,968 |                  |   |   | 7.47 |      
|                                 | Granted   |        |         |                  |   |   |      |       | 
|                                 | Exercised |        |         | (24,881          | ) |   |      | 6.94  | 
|                                 | Canceled  |        |         | (10,739          | ) |   |      | 13.74 | 
|                                 |           |        |         |                  |   |   |      |      
|Outstanding at December 31, 2000 |           |        | 183,348 |                  |   |   | 7.18 |      
|                                 | Granted   |        |         |                  |   |   |      |       | 
|                                 | Exercised |        |         | (47,503          | ) |   |      | 7.37  | 
|                                 | Canceled  |        |         | (2,805           | ) |   |      | 6.94  | 
|                                 |           |        |         |                  |   |   |      |      
|Outstanding at December 31, 2001 |           |        | 133,040 |                  |   | $ | 7.11 |      
|                                 |           |        |         |                  |   |   |      |      

The fair value of options outstanding was
estimated at the date of grant using a Black-Scholes option
pricing model. The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded options
which have no vesting restrictions and are fully transferable.
In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price
volatility. Because our employee stock options have
characteristics significantly different from those traded
options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in our opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of our employee stock options.

We elected to follow Accounting Principles Board
Opinion No. 25, also known as APB No. 25, and related
Interpretations in accounting for our employee stock options.
Under APB No. 25, the exercise price of our employee stock
options equals the market price of the underlying stock on the
date of grant and, therefore, no compensation expense is
recognized. Pro forma information regarding net income and
earnings per share is required by Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, also known as SFAS No. 123, and has been
determined as if we had accounted for our employee stock options
under the fair value method of that statement. Pro forma net
income and diluted earnings per share for the respective periods
were as follows:

|                     |  |                                 |        |      |  |      |        |  |  |   |        | 
|-------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                     |  |                                
|                     |  | For the Year Ended December 31,
|                     |  |                                
|                     |  | 2001                            |        | 2000 |  | 1999
|                     |  |                                 |        |      |  |     
|                     |  |                                
|                     |  | (Dollars in thousands, except  
|                     |  | per share amounts)             
|Pro forma net income |  | $                               | 61,566 |      |  | $    | 66,275 |  |  | $ | 49,270 | 
|Per diluted share    |  | $                               | 1.90   |      |  | $    | 2.34   |  |  | $ | 1.91   | 

The difference between our proforma net income
and diluted earnings per share and our reported net income and
earnings per share is immaterial.

Note 14  Dividends

We have not declared or paid any cash dividends
on our common stock. We currently expect to retain future
earnings, if any, for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the
foreseeable future. We are not currently under any regulatory or
contractual limitations on our ability to declare or pay
dividends.

F-19



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 15  Income Taxes

Income tax expense consisted of the following:

|          |         |                                 |         |         |   |      |        |        |   |   |         |         |  
|--------- | ------- | ------------------------------- | ------- | ------- | - | ---- | ------ | ------ | - | - | ------- | ------- | -
|          |         |                                
|          |         | For the Year Ended December 31,
|          |         |                                
|          |         | 2001                            |         | 2000    |   | 1999
|          |         |                                 |         |         |   |     
|          |         |                                
|          |         | (Dollars in thousands)         
|Current:  |         |                                 |         |         |   |      |        |        |   |   |         |        
|          | Federal |                                 | $       | 69,143  |   |      | $      | 39,404 |   |   | $       | 37,629  |  
|          | State   |                                 |         | 13,799  |   |      |        | 8,227  |   |   |         | 8,536   |  
|          |         |                                 |         |         |   |      |        |        |   |   |         |        
|          |         |                                 | 82,942  |         |   |      | 47,631 |        |   |   | 46,165  |        
|Deferred: |         |                                 |         |         |   |      |        |        |   |   |         |        
|          | Federal |                                 |         | (35,335 | ) |      |        | (4,396 | ) |   |         | (11,185 | )
|          | State   |                                 |         | (8,104  | ) |      |        | 981    |   |   |         | 600     |  
|          |         |                                 |         |         |   |      |        |        |   |   |         |        
|          |         |                                 | (43,439 | )       |   |      | (3,415 | )      |   |   | (10,585 | )      
|          |         |                                 |         |         |   |      |        |        |   |   |         |        
|          |         | $                               | 39,503  |         |   | $    | 44,216 |        |   | $ | 35,580  |        
|          |         |                                 |         |         |   |      |        |        |   |   |         |        

A reconciliation of total tax provisions and the
amounts computed by applying the statutory federal income tax
rate of 35% to income before taxes is as follows:

|                                       |  |                                 |        |      |  |      |        |   |  |   |        |  
|-------------------------------------- |  | ------------------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                       |  |                                
|                                       |  | For the Year Ended December 31,
|                                       |  |                                
|                                       |  | 2001                            |        | 2000 |  | 1999
|                                       |  |                                 |        |      |  |     
|                                       |  |                                
|                                       |  | (Dollars in thousands)         
|Tax at statutory rate                  |  | $                               | 35,403 |      |  | $    | 38,706 |   |  | $ | 29,734 |  
|State tax (net of federal tax benefit) |  |                                 | 3,701  |      |  |      | 5,985  |   |  |   | 5,938  |  
|Other                                  |  |                                 | 399    |      |  |      | (475   | ) |  |   | (92    | )
|                                       |  |                                 |        |      |  |      |        |   |  |   |        |  
|                                       |  | $                               | 39,503 |      |  | $    | 44,216 |   |  | $ | 35,580 |  
|                                       |  |                                 |        |      |  |      |        |   |  |   |        |  

Deferred taxes reflect the net tax effect of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Amounts previously reported as
current and deferred income tax expense have been reclassified.
Such changes to the components of the expense occur because all
tax alternatives available to us are not known for a number of
months subsequent to year end.

Significant components of our deferred tax
liabilities and assets were as follows:

|                                                          |                                       |                        |         |         |   |   |         |         |  
|--------------------------------------------------------- | ------------------------------------- | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                          |                                       |                       
|                                                          |                                       | December 31,          
|                                                          |                                       |                       
|                                                          |                                       | 2001                   |         | 2000   
|                                                          |                                       |                        |         |        
|                                                          |                                       |                       
|                                                          |                                       | (Dollars in thousands)
|Deferred tax assets:                                      |                                       |                        |         |         |   |   |         |        
|Reserves for credit losses                                |                                       | $                      | 45,548  |         |   | $ | 23,749  |        
|State tax deferred benefit                                |                                       |                        | 6,522   |         |   |   | 7,143   |        
|Other assets                                              |                                       |                        | 24,352  |         |   |   | 1,348   |        
|                                                          |                                       |                        |         |         |   |   |         |        
|                                                          | Total deferred tax assets             |                        |         | 76,422  |   |   |         | 32,240  |  
|                                                         
|Deferred tax liabilities:                                 |                                       |                        |         |         |   |   |         |        
|Accelerated depreciation for tax purposes                 |                                       |                        |         |         |   |   | (254    | )      
|Asset securitization income recognized for book
	purposes |                                       |                        | (10,896 | )       |   |   | (31,143 | )      
|Other liabilities                                         |                                       |                        | (13,559 | )       |   |   | (12,507 | )      
|                                                          |                                       |                        |         |         |   |   |         |        
|                                                          | Total deferred tax liabilities        |                        |         | (24,455 | ) |   |         | (43,904 | )
|                                                          |                                       |                        |         |         |   |   |         |        
|                                                          | Net deferred tax assets (liabilities) |                        | $       | 51,967  |   |   | $       | (11,664 | )
|                                                          |                                       |                        |         |         |   |   |         |        

F-20



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Note 16  Fair Value of Financial
Instruments

The estimated fair values of our financial
instruments were as follows:

|                                                                       |                               |                        |           |         |   |          |           |         |   |   |           |  |  |   |           |  | 
|---------------------------------------------------------------------- | ----------------------------- | ---------------------- | --------- | ------- | - | -------- | --------- | ------- | - | - | --------- |  |  | - | --------- |  | 
|                                                                       |                               |                       
|                                                                       |                               | December 31,          
|                                                                       |                               |                       
|                                                                       |                               |                        |           |        
|                                                                       |                               | 2001                   |           | 2000   
|                                                                       |                               |                        |           |        
|                                                                       |                               | Carrying               |           | Fair    |   | Carrying |           | Fair   
|                                                                       |                               | Amounts                |           | Value   |   | Amounts  |           | Value  
|                                                                       |                               |                        |           |         |   |          |           |        
|                                                                       |                               |                       
|                                                                       |                               | (Dollars in thousands)
|Financial assets:                                                      |                               |                        |           |         |   |          |           |         |   |   |           |  |  |   |           | 
|Short-term investments  parent                                        |                               | $                      | 30,100    |         |   | $        | 30,100    |         |   | $ | 25,296    |  |  | $ | 25,296    | 
|Investment securities available for sale                               |                               |                        | 4,668     |         |   |          | 4,668     |         |   |   | 6,517     |  |  |   | 6,517     | 
|Contracts receivable                                                   |                               |                        | 5,215,718 |         |   |          | 5,736,193 |         |   |   | 3,049,475 |  |  |   | 3,315,061 | 
|Retained interest in securitized assets                                |                               |                        | 37,392    |         |   |          | 37,392    |         |   |   | 111,558   |  |  |   | 111,558   | 
|Financial instrument agreements held for purposes
	other than trading: |                               |                        |           |         |   |          |           |         |   |   |           |  |  |   |           | 
|                                                                       | Euro-dollar swap agreements   |                        |           |         |   |          |           |         |   |   |           |  |  |   |           |  | 
|                                                                       | Interest rate swap agreements |                        |           | (31,751 | ) |          |           | (31,751 | ) |   |           |  |  |   |           |  | 
|                                                                      
|Financial liabilities:                                                 |                               |                        |           |         |   |          |           |         |   |   |           |  |  |   |           | 
|Notes payable  parent                                                 |                               |                        | 67,500    |         |   |          | 69,786    |         |   |   | 146,219   |  |  |   | 148,671   | 
|Notes payable on automobile secured financing                          |                               |                        | 4,005,925 |         |   |          | 4,084,091 |         |   |   | 2,249,363 |  |  |   | 2,312,693 | 
|Lines of credit  parent                                               |                               |                        | 421,175   |         |   |          | 421,294   |         |   |   | 235,984   |  |  |   | 236,797   | 
|Amounts held on behalf of trustee                                      |                               |                        | 476,910   |         |   |          | 476,910   |         |   |   | 590,715   |  |  |   | 590,715   | 

Note 17  Financial Instrument
Agreements

Our portfolio of such agreements consisted of the
following:

|                            |  |                        |           |          |  |  |  | 
|--------------------------- |  | ---------------------- | --------- | -------- |  |  |  | 
|                            |  |                       
|                            |  | December 31, 2001     
|                            |  |                       
|                            |  | Notional               |           | Credit  
|                            |  | Amount                 |           | Exposure
|                            |  |                        |           |         
|                            |  |                       
|                            |  | (Dollars in thousands)
|Interest rate swaps         |  | $                      | 999,000   |          |  |  |  | 
|Euro-dollar swap agreements |  |                        | 1,850,000 |          |  |  |  | 
|                            |  |                        |           |          |  |  |  | 
|                            |  | $                      | 2,849,000 |          |  |  |  | 
|                            |  |                        |           |          |  |  |  | 

|                            |  |                        |         |          |  |  |  | 
|--------------------------- |  | ---------------------- | ------- | -------- |  |  |  | 
|                            |  |                       
|                            |  | December 31, 2000     
|                            |  |                       
|                            |  | Notional               |         | Credit  
|                            |  | Amount                 |         | Exposure
|                            |  |                        |         |         
|                            |  |                       
|                            |  | (Dollars in thousands)
|Interest rate swaps         |  |                        |         |          |  |  |  | 
|Euro-dollar swap agreements |  |                        | 795,000 |          |  |  |  | 
|                            |  |                        |         |          |  |  |  | 
|                            |  | $                      | 795,000 |          |  |  |  | 
|                            |  |                        |         |          |  |  |  | 

Our interest rate swap agreements are with other
parties to exchange, at specified intervals, the difference
between fixed rate and floating rate interest amounts calculated
by reference to an agreed notional amount and a specified index.
We pay a fixed interest rate and receive a floating interest
rate on all of our interest rate swap agreements. At
December 31, 2001, the terms of our interest rate swap
agreements were to pay a weighted average fixed rate of 5.2%,
and to receive a weighted average variable rate of 2.4%, with
expiration dates ranging from 2004 to 2006 and collateral
requirements generally ranging from 3% to 4%. Variable interest
rates may change in the future.

F-21



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


Notional amounts do not represent amounts
exchanged with other parties and, thus are not a measure of our
exposure to loss through our use of these agreements. The
amounts exchanged are determined by reference to the notional
amounts and the other terms of the agreements.

The current credit exposure under these
agreements is limited to the fair value of the agreements with a
positive fair value at the reporting date. Master netting
agreements are arranged or collateral is obtained through
physical delivery of, or rights to, securities to minimize our
exposure to credit losses in the event of nonperformance by
counterparties to financial instruments. We use only highly
rated counterparties and further reduce our risk by avoiding any
material concentration with a single counterparty.

For the year ended December 31, 2001, the
unrealized losses on Euro-dollar swap agreements and interest
rate swaps agreements designated as cash flow hedges totaled
$42.2 million, net of taxes of $29.4 million. Of the
$42.2 million, $4.1 million relates to secured
financing transactions forecasted as of December 31, 2001.
We reclassified $8.4 million, net of tax, into earnings,
which is included in interest expense on the Consolidated
Statement of Income. The amount recognized in earnings due to
ineffectiveness was immaterial. Also, as a result of selling
contracts in a whole loan sale rather than securitizing them in
a secured financing transaction, we reclassified into earnings
approximately $4.0 million, net of tax, of deferred losses
from accumulated other comprehensive income (loss) related
to hedges of future interest payments on the forecasted secured
financing. The hedge loss was netted against the gain on sale on
the Consolidated Statements of Income. We estimate that we will
reclassify into earnings during the next twelve months
approximately $13 million to $19 million of the
unrealized losses on cash flow hedges that were recorded in
accumulated other comprehensive income (loss) as of
December 31, 2001.

Note 18  Earnings Per
Share

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

|                                          |  |                                                  |            |      |  |      |            |  |  |   |            | 
|----------------------------------------- |  | ------------------------------------------------ | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                          |  |                                                 
|                                          |  | For the Year Ended December 31,                 
|                                          |  |                                                 
|                                          |  | 2001                                             |            | 2000 |  | 1999
|                                          |  |                                                  |            |      |  |     
|                                          |  |                                                 
|                                          |  | (Dollars in thousands, except per share amounts)
|Basic:                                    |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 61,648     |      |  | $    | 66,372     |  |  | $ | 49,375     | 
|Average basic common shares outstanding   |  |                                                  | 32,308,649 |      |  |      | 28,178,151 |  |  |   | 25,732,089 | 
|Net income per common share  basic       |  | $                                                | 1.91       |      |  | $    | 2.36       |  |  | $ | 1.92       | 
|                                         
|Diluted:                                  |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 61,648     |      |  | $    | 66,372     |  |  | $ | 49,375     | 
|Average basic common shares outstanding   |  |                                                  | 32,308,649 |      |  |      | 28,178,151 |  |  |   | 25,732,089 | 
|Stock option adjustment                   |  |                                                  | 89,708     |      |  |      | 105,584    |  |  |   | 110,559    | 
|Average diluted common shares outstanding |  |                                                  | 32,398,357 |      |  |      | 28,283,735 |  |  |   | 25,842,648 | 
|Net income per common share  diluted     |  | $                                                | 1.90       |      |  | $    | 2.35       |  |  | $ | 1.91       | 

Options to purchase 6,600 shares of common stock
at a price of $18.00 per share were outstanding at
December 31, 1999, but were not included in the computation
of diluted earnings per share because the options exercise
price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.

Note 19  Subsequent
Event  (Unaudited)

On January 22, 2002, we filed a registration
statement with the Securities and Exchange Commission, also
known as the SEC, to provide our shareholders an exclusive
opportunity to purchase additional shares of stock through a
rights offering. The registration statement for this offering
has not yet become effective. The

F-22



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)


number of shares to be offered and the price per
share has not yet been determined. Our Board of Directors will
make this determination immediately prior to the time at which
the registration statement becomes effective. The Board of
Directors of the Bank has informed us that they intend to
exercise the Banks basic subscription right and expect to
exercise its oversubscription right as part of this offering. We
expect that this transaction will provide us with approximately
$110 million in new capital.

On January 31, 2002, we issued
$775 million of notes secured by automobile contracts
through a private placement. The private placement was through a
conduit facility established in January 2002.

Note 20  Quarterly Results of
Operations (Unaudited)

The following is a summary of unaudited quarterly
results of operations for the periods ended December 31,
2001 and 2000. Certain quarterly amounts have been adjusted to
conform with the year-end presentation.

|                                      |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|------------------------------------- |  | ------------------------------------------------ | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- |  |  | - | ------- | 
|                                      |  |                                                 
|                                      |  | For the Three Months Ended                      
|                                      |  |                                                 
|                                      |  | March 31                                         |         | June 30 |  | September 30 |         | December 31
|                                      |  |                                                  |         |         |  |              |         |            
|                                      |  |                                                 
|                                      |  | (Dollars in thousands, except per share amounts)
|2001                                  |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                       |  | $                                                | 122,329 |         |  | $            | 124,586 |             |  | $ | 139,731 |  |  | $ | 159,136 | 
|Interest expense                      |  |                                                  | 56,952  |         |  |              | 55,642  |             |  |   | 58,445  |  |  |   | 61,737  | 
|Net interest income                   |  |                                                  | 65,377  |         |  |              | 68,944  |             |  |   | 81,286  |  |  |   | 97,399  | 
|Provision for credit losses           |  |                                                  | 20,068  |         |  |              | 32,026  |             |  |   | 41,179  |  |  |   | 50,857  | 
|Income before income tax              |  |                                                  | 31,374  |         |  |              | 32,451  |             |  |   | 15,365  |  |  |   | 21,961  | 
|Income tax                            |  |                                                  | 12,606  |         |  |              | 12,908  |             |  |   | 6,024   |  |  |   | 7,965   | 
|Net income                            |  |                                                  | 18,768  |         |  |              | 19,543  |             |  |   | 9,341   |  |  |   | 13,996  | 
|Net income per common share  basic   |  |                                                  | 0.66    |         |  |              | 0.63    |             |  |   | 0.27    |  |  |   | 0.40    | 
|Net income per common share  diluted |  |                                                  | 0.66    |         |  |              | 0.63    |             |  |   | 0.27    |  |  |   | 0.40    | 
|                                     
|2000                                  |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                       |  | $                                                | 61,025  |         |  | $            | 76,289  |             |  | $ | 80,609  |  |  | $ | 96,197  | 
|Interest expense                      |  |                                                  | 23,712  |         |  |              | 31,301  |             |  |   | 33,938  |  |  |   | 41,627  | 
|Net interest income                   |  |                                                  | 37,313  |         |  |              | 44,988  |             |  |   | 46,671  |  |  |   | 54,570  | 
|Provision for credit losses           |  |                                                  | 11,677  |         |  |              | 14,857  |             |  |   | 21,359  |  |  |   | 21,069  | 
|Income before income tax              |  |                                                  | 25,350  |         |  |              | 26,906  |             |  |   | 29,488  |  |  |   | 28,844  | 
|Income tax                            |  |                                                  | 10,584  |         |  |              | 10,759  |             |  |   | 12,180  |  |  |   | 10,693  | 
|Net income                            |  |                                                  | 14,766  |         |  |              | 16,147  |             |  |   | 17,308  |  |  |   | 18,151  | 
|Net income per common share  basic   |  |                                                  | 0.54    |         |  |              | 0.57    |             |  |   | 0.61    |  |  |   | 0.64    | 
|Net income per common share  diluted |  |                                                  | 0.54    |         |  |              | 0.57    |             |  |   | 0.61    |  |  |   | 0.64    | 

F-23



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##### Table of Contents



EXHIBIT INDEX

|        |         |             |  |                                                                                                                                                  
|------- | ------- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 4       |             |  | Specimen WFS Financial Inc Common Stock
	Certificate(5)                                                                                          
|        | 10.1    |             |  | Westcorp Incentive Stock Option Plan(2)                                                                                                          
|        | 10.2    |             |  | Westcorp Employee Stock Ownership and Salary
	Savings Plan(3)                                                                                    
|        | 10.3    |             |  | Westcorp 1991 Stock Option Plan(4)                                                                                                               
|        | 10.3.1  |             |  | Westcorp 2001 Stock Option Plan                                                                                                                  
|        | 10.4    |             |  | 1985 Executive Deferral Plan(1)                                                                                                                  
|        | 10.5    |             |  | 2000 Executive Deferral Plan V                                                                                                                   
|        | 10.6    |             |  | Revolving Line of Credit Agreement between WFS
	Funding, Inc. and Western Financial Bank, dated
	November 30, 2001                               
|        | 10.6.1  |             |  | Revolving Line of Credit Agreement between WFS
	Financial Auto Loans, Inc. and Western Financial Bank, dated
	November 30, 2001                  
|        | 10.6.2  |             |  | Revolving Line of Credit Agreement between WFS
	Receivables Corporation and Western Financial Bank, dated
	November 30, 2001                     
|        | 10.7    |             |  | Transfer Agreement between WFS Financial Inc and
	Western Financial Bank, F.S.B., dated May 1, 1995(1)                                           
|        | 10.8    |             |  | Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank, F.S.B., dated May 1, 1995(1)                                           
|        | 10.9    |             |  | Revolving Line of Credit Agreement between WFS
	Financial Inc and Western Financial Bank, dated June 15,
	1999(11)                               
|        | 10.9.1  |             |  | Amendment No. 1, dated as of August 1,
	1999, to the Revolving Line of Credit Agreement between WFS
	Financial Inc and Western Financial Bank(11)
|        | 10.9.2  |             |  | Amendment No. 2, dated May 23, 2000, to
	the Revolving Line of Credit Agreement between WFS Financial Inc
	and Western Financial Bank            
|        | 10.9.3  |             |  | Amendment No. 3, dated January 1, 2002,
	to the Revolving Line of Credit Agreement between WFS Financial
	Inc and Western Financial Bank         
|        | 10.10   |             |  | Tax Sharing Agreement between WFS Financial Inc
	and Western Financial Bank, F.S.B., dated January 1, 1994(1)                                    
|        | 10.11   |             |  | Master Reinvestment Contract between WFS
	Financial Inc and Western Financial Bank, F.S.B., dated
	May 1, 1995(1)                                
|        | 10.12   |             |  | Amendment No. 1, dated as of June 1,
	1995, to the Restated Master Reinvestment Reimbursement
	Agreement(10)                                     
|        | 10.13   |             |  | Amended and Restated Master Collateral Assignment
	Agreement, dated as of March 1, 2000(11)                                                      
|        | 10.14   |             |  | Form of WFS Financial Inc Dealer Agreement(5)                                                                                                    
|        | 10.15   |             |  | Form of WFS Financial Inc Loan Application(5)                                                                                                    
|        | 10.16   |             |  | Westcorp Employee Stock Ownership and Salary
	Savings Plan(7)                                                                                    
|        | 10.16.1 |             |  | Amended and Restated Westcorp Employee Stock
	Ownership and Salary Savings Plan, dated January 1, 2001                                           
|        | 10.16.2 |             |  | Amendment No. 1, dated as of January 1,
	2001, to Amended and Restated Westcorp Employee Stock Ownership
	and Salary Savings Plan                
|        | 10.16.3 |             |  | Amendment No. 2, dated as of January 1,
	2001, to Amended and Restated Westcorp Employee Stock Ownership
	and Salary Savings Plan                
|        | 10.17   |             |  | Amended and Restated WFS 1996 Incentive Stock
	Option Plan(6)                                                                                    
|        | 10.18   |             |  | Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank, F.S.B., dated August 1, 1997(10)                                       
|        | 10.18.1 |             |  | Amendment No. 1, dated February 23,
	1999, to the Promissory Note of WFS Financial Inc in favor of
	Western Financial Bank(10)                   



---



##### Table of Contents



|        |         |             |  |                                                                                                                                         
|------- | ------- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |            
|Number  |         | Description
|        |         |            
|        | 10.18.2 |             |  | Amendment No. 2, dated July 30, 1999,
	to the Promissory Note of WFS Financial Inc in favor of Western
	Financial Bank(10)              
|        | 10.18.3 |             |  | Amendment No. 3, dated January 1, 2002,
	to the Promissory Note of WFS Financial Inc in favor of Western
	Financial Bank                
|        | 10.19   |             |  | Investment Agreement between WFS Financial Inc
	and Western Financial Bank, F.S.B., dated January 1,
	1996(10)                          
|        | 10.19.1 |             |  | Amendment No. 1, dated January 1, 2002,
	to the Investment Agreement between WFS Financial Inc and
	Western Financial Bank, F.S.B.      
|        | 10.20   |             |  | Allocation Agreement between WFS Financial Inc,
	Western Financial Bank, F.S.B., Westcorp, and their subsidiaries
	dated January 1, 2002
|        | 10.21   |             |  | Employment Agreement(8)(9)                                                                                                              
|        | 21.1    |             |  | Subsidiaries of WFS Financial Inc                                                                                                       
|        | 23.1    |             |  | Consent of Independent Auditors, Ernst &
	Young LLP                                                                                     




|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exhibits previously filed with WFS Financial Inc
	Registration Statement on Form S-1 (File
	No. 33-93068), filed August 8, 1995 incorporated
	herein by reference under Exhibit Number indicated.
|   
|(2) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-1 (File No. 33-4295),
	filed May 2, 1986 incorporated herein by reference under
	Exhibit Number indicated.             
|   
|(3) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-4 (File
	No. 33-34286), filed April 11, 1990 incorporated
	herein by reference under Exhibit Number indicated.         
|   
|(4) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-8 (File
	No. 33-43898), filed December 11, 1991 incorporated
	herein by reference under Exhibit Number indicated.      
|   
|(5) | Amendment No. 1, dated as of July 14,
	1995 to the WFS Financial Inc. Registration Statement on
	Form S-1 (File No. 33-93068) incorporated herein by
	reference under Exhibit Number indicated.  
|   
|(6) | Exhibit previously filed as Exhibit 4.1 to
	the WFS Registration Statement on Form S-8 (File No.
	333-40121), filed November 13, 1997, and incorporated
	herein by reference.                    
|   
|(7) | Exhibits previously filed with Westcorp
	Registration Statement on Form S-8 (File
	No. 333-11039), filed August 29, 1996 incorporated
	herein by reference under Exhibit Number indicated.       
|   
|(8) | Employment Agreement dated February 27, 1998
	between WFS Financial Inc, Westcorp and Lee A. Whatcott (will be
	provided to the SEC upon request).                                               
|   
|(9) | Employment Agreement, dated November 15,
	1998 between WFS Financial Inc, Westcorp and Mark Olson (will be
	provided to the SEC upon request).                                                   



|     |                                                                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Exhibits previously filed with Annual Report on
	Form 10-K of WFS Financial Inc for the year ended
	December 31, 1998 (File No. 33-93068) as filed on or
	about March 31, 1999.                                               
|    
|(11) | Exhibits previously filed with WFS Registration
	Statements on Form S-2 (File No. 333-91277) filed
	November 19, 1999 and subsequently amended on
	January 20, 2000 incorporated by reference under
	Exhibit Number indicated.