##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




---

Form 10-K



---

|                                                            |  |                                                                                             
|----------------------------------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                                                  |  |                                                                                             
|þ                                                           |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                           
|For the fiscal year ended December 31,
    2002            
|                                                           
|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                                                         |  | 33-0291646                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)
|                                                                  
|23 Pasteur, Irvine, California                                     |  | 92618-3816                              
|(Address of principal executive offices)                           |  | (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 þ          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. o

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of March 18,
2003:

Common Stock, No Par Value 
$127,311,527

The number of shares outstanding of the
issuers class of common stock as of March 18, 2003:

Common Stock, No Par Value 
41,022,603

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for
the Annual Meeting of Shareholders to be held April 29,
2003 are incorporated by reference into Part III.



---






---

TABLE OF CONTENTS



|                  |                                                                                               |  |  |  |  |  |  | 
|----------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS
|                  | Forward-Looking Statements                                                                   
|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                                      
|                  | Item 14. Controls and Procedures                                                             
|PART IV          
|                  | Item 15. Financial Statement Schedules, Exhibits and Reports on Form 8-K                     
|EXHIBIT INDEX    
|EXHIBIT 10.6.1   
|EXHIBIT 10.6.2   
|EXHIBIT 10.9.3   
|EXHIBIT 10.9.4   
|EXHIBIT 10.10.1  
|EXHIBIT 10.18.3  
|EXHIBIT 10.19.1  
|EXHIBIT 10.20    
|EXHIBIT 10.20.1  
|EXHIBIT 10.22.1  
|ESHIBIT 10.22.2  
|EXHIBIT 10.23.1  
|EXHIBIT 10.23.2  
|EXHIBIT 10.24    
|EXHINIT 10.24.1  
|EXHIBIT 10.25    
|EXHIBIT 10.26    
|EXHIBIT 10.26.1  
|EXHIBIT 10.27    
|EXHIBIT 10.28    
|EXHIBIT 10.29    
|EXHIBIT 10.30    
|EXHIBIT 10.31    
|EXHIBIT 10.32    
|EXHIBIT 10.33    
|EXHIBIT 10.34    
|EXHIBIT 10.35    
|EXHIBIT 10.35.1  
|EXHIBIT 10.36    
|EXHIBIT 21.1     
|EXHIBIT 23.1     
|EXHIBIT 99.1     



---



##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES






TABLE OF CONTENTS


|                                                         |  |                                                                                           |   |      |    | 
|-------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- | - | ---- | -- | 
|                                                         |  |                                                                                           |   | Page
|                                                         |  |                                                                                           |   |     
|Forward-Looking Statements and Available
    Information |  |                                                                                           | 1 |     
|PART I                                                  
|Item 1.                                                  |  | Business                                                                                  |   |      | 2  | 
|Item 2.                                                  |  | Properties                                                                                |   |      | 20 | 
|Item 3.                                                  |  | Legal Proceedings                                                                         |   |      | 20 | 
|Item 4.                                                  |  | Submission of Matters to a Vote of Security
    Holders                                   |   |      | 20 | 
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |   |      | 21 | 
|Item 6.                                                  |  | Selected Financial Data                                                                   |   |      | 22 | 
|Item 7.                                                  |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |   |      | 24 | 
|Item 7A.                                                 |  | Quantitative and Qualitative Disclosure About
    Market Risk                             |   |      | 46 | 
|Item 8.                                                  |  | Financial Statements and Supplementary Data                                               |   |      | 51 | 
|Item 9.                                                  |  | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure  |   |      | 51 | 
|PART III                                                
|Item 10.                                                 |  | Directors and Executive Officers of the Registrant                                        |   |      | 52 | 
|Item 11.                                                 |  | Executive Compensation                                                                    |   |      | 52 | 
|Item 12.                                                 |  | Security Ownership of Certain Beneficial Owners
    and Management                        |   |      | 52 | 
|Item 13.                                                 |  | Certain Relationships and Related Transactions                                            |   |      | 52 | 
|Item 14.                                                 |  | Controls and Procedures                                                                   |   |      | 52 | 
|PART IV                                                 
|Item 15.                                                 |  | Financial Statement Schedules, Exhibits and
    Reports on Form 8-K                       |   |      | 53 | 



---



##### Table of Contents






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 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.

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, including hedging
    activities;                        
|
| |  | 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.

Available Information

The company provides access to all filings with
the Securities and Exchange Commission on its Web site at
http:www.wfsfinancial.com free of charge on the same day as
these reports are electronically filed with the Commission. The
information contained in our Web site does not constitute part
of this filing.

1



---



##### Table of Contents






PART I




Item 1. Business

General

We are one of the nations largest
independent automobile finance companies with 30 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
$895 billion of loan and lease originations during 2002. We
originate new and pre-owned automobile installment contracts,
otherwise known as contracts, through our relationships with
over 7,800 franchised and independent automobile dealers
nationwide. We originated $5.4 billion of contracts during
2002 and managed a portfolio of $9.4 billion contracts at
December 31, 2002.

Approximately 29% of our contract originations
are for the purchase of new automobiles and approximately 71% of
our contract originations are for the purchase of pre-owned
automobiles. Approximately 80% of our contract originations are
with borrowers who have strong credit histories, otherwise
generally known as prime borrowers, and approximately 20% 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, 2002, the average net interest spread was
7.61% while net credit losses averaged 2.77% for the same period.

We structure our business to minimize operating
costs while providing high quality service to our dealers. Those
aspects of our business that require a local market presence are
performed on a decentralized basis in our 41 offices. All other
operations are centralized. We fund our purchases of contracts,
on an interim basis, with deposits raised by 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 $30 billion of contracts
in 58 public offerings of asset-backed securities, making us the
fourth largest issuer of such securities in the nation. Our
relationship with the Bank gives us a competitive advantage
relative to other independent automobile finance companies by
providing a significant and stable source of liquidity at a low
cost.

The following table presents a summary of our
contracts purchased:

|                    |              |                                 |           |           |  |      |           |           |  |   |           |           | 
|------------------- | ------------ | ------------------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                    |              |                                
|                    |              | For the Year Ended December 31,
|                    |              |                                
|                    |              | 2002                            |           | 2001      |  | 2000
|                    |              |                                 |           |           |  |     
|                    |              |                                
|                    |              | (Dollars in thousands)         
|New vehicles        |              | $                               | 1,548,372 |           |  | $    | 1,208,753 |           |  | $ | 1,028,394 |          
|Pre-owned vehicles  |              |                                 | 3,867,362 |           |  |      | 3,654,526 |           |  |   | 3,190,833 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 5,415,734 |  |      | $         | 4,863,279 |  |   | $         | 4,219,227 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|Prime contracts     |              | $                               | 4,346,212 |           |  | $    | 3,675,351 |           |  | $ | 2,900,960 |          
|Non-prime contracts |              |                                 | 1,069,522 |           |  |      | 1,187,928 |           |  |   | 1,318,267 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 5,415,734 |  |      | $         | 4,863,279 |  |   | $         | 4,219,227 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          

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 &

2



---



##### Table of Contents



Loan Association. Western Thrift Financial
Corporation later changed its name to Westcorp. In 1982,
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
securitization transactions. 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 by the Board of Governors of the Federal
Reserve System, also known as the FRS.

Market and Competition

The automobile finance industry is generally
segmented according to the type of vehicle 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 2002, prime, non-prime and sub-prime loan
originations in the United States were $600 billion,
$160 billion and $135 billion, respectively. The
United States captive automobile finance companies, General
Motors Acceptance Corporation, Ford Motor Credit Company and
Chrysler Credit Corporation account for approximately 39% 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. These relationships are 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 lower cost of funds. Many of our 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, these programs are not generally
offered on pre-owned vehicles and are limited to certain models
or loan terms that may not be attractive to many new automobile
purchasers.

3



---



##### Table of Contents



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
    strong 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 Strong Dealer Relationships

Over the past five years, we have experienced a
compounded annual growth rate in contract purchases of 19%. 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. On a limited
basis, we also originate loans directly from consumers and
purchase loans from other finance companies. Additionally, we
continue to explore other distribution channels, including the
Internet. In 2001, we acquired an interest in DealerTrack
Holdings, Inc., also known as DealerTrack, an Internet
business-to-business portal that brings together finance
companies and dealers. DealerTrack has signed up 30 finance
companies and more than 19,600 dealers. As of December 31,
2002, we owned approximately 8.5% of DealerTrack. Currently,
over half of our applications are received through 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 policies and the
judgment of our trained credit analysts to make risk-based
credit and pricing 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.

4



---



##### Table of Contents



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

|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|-------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                           |  |                                
|                           |  | For the Year Ended December 31,
|                           |  |                                
|                           |  | 2002                            |       | 2001 |  | 2000 |       | 1999 |  | 1998
|                           |  |                                 |       |      |  |      |       |      |  |     
|Weighted average coupon(1) |  |                                 | 11.35 | %    |  |      | 12.74 | %    |  |      | 13.95 | % |  |  | 13.57 | % |  |  | 13.44 | %
|Interest on borrowings(1)  |  |                                 | 3.74  |      |  |      | 5.37  |      |  |      | 6.74  |   |  |  | 6.08  |   |  |  | 5.89  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net interest margins       |  |                                 | 7.61  |      |  |      | 7.37  |      |  |      | 7.21  |   |  |  | 7.49  |   |  |  | 7.55  |  
|Credit losses(2)           |  |                                 | 2.77  |      |  |      | 2.27  |      |  |      | 1.91  |   |  |  | 2.13  |   |  |  | 3.42  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Risk-adjusted margins      |  |                                 | 4.84  | %    |  |      | 5.10  | %    |  |      | 5.30  | % |  |  | 5.36  | % |  |  | 4.13  | %
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  



---



|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(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 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 loan origination system that
    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 contracts from a high of
4.2% during the second quarter of 1998 to 2.2% for the fourth
quarter of 2002. We have substantially completed the
implementation of our loan systems and major changes to business
practices. We will, however, continue to evaluate new technology
and best practices to further improve our operating efficiencies.

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

The Bank provides us with over $2.5 billion
in financing to fund our operations through notes and lines of
credit. 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
flexibility as to when we 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, 2002, we generated $234 million in
positive cash flows from our operations.

5



---



##### Table of Contents



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 have 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. Components of this strategy
include accounting for our automobile securitizations as secured
financings, rather than sales, and maintaining appropriate
allowances for credit losses.

Since March 2000, we have structured our
automobile securitizations as secured financings. By accounting
for our automobile contract securitizations as secured
financings, the contracts and asset-backed notes issued remain
on our balance sheet with the earnings of the contracts in the
trust and the related financing costs reflected over the life of
the underlying pool of contracts as net interest income in our
Consolidated Statements of 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, 2002, the RISA created from asset-backed
securities issued prior to April 2000 had been fully amortized.
This compares with a high of $181 million or 58% of equity,
net of tax, in 1997.

Our allowance for credit losses increased
$88 million, or 67%, to $220 million at
December 31, 2002, compared with $132 million at
December 31, 2001. This increase is the result of the
increase in contracts held on the balance sheet as well as us
increasing the percentage of allowance for credit losses to
contracts to 2.8% at December 31, 2002, compared with 2.5%
at December 31, 2001.

Operations

Locations

We currently originate contracts nationwide
through our 41 offices. Each regional business center 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 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

Our business development representatives are
responsible for improving our relationship with existing dealers
and enrolling and educating new dealers to increase the number
of contracts originated. 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.

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. Before 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 agreement contains certain representations
regarding the contracts the dealer will sell to us. Due to the
non-exclusive nature of our relationship with dealers, the
dealers 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 helps to ensure
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.

6



---



##### Table of Contents



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
converted into contracts 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 our minimum conversion ratio,
lending volume standards or overall profitability, the dealer
may be precluded from sending us applications in the future.
During the year, our dealer base increased from approximately
7,500 to 7,800, primarily as a result of us expanding our
nationwide presence. Our increase in volume is the result of
funding more contracts from dealers that meet our standards and
increasing our dealer base.



| |                                             
| | --------------------------------------------
| | Underwriting and Purchasing of
    Contracts

The underwriting process begins when an
application is sent to us via the Internet or faxed to our data
entry service provider. During 2002, we outsourced our data
entry process to a third-party provider to maximize efficiencies
and reduce costs due to the decreased volume of applications
received via fax. Internet applications are automatically loaded
into our front-end underwriting computer system. Our data entry
service provider enters the applicant information from faxed
applications 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. This enables us to tailor contract
pricing and structure according to our 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 that have historically impacted the credit
worthiness of the borrower.

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 determine 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 response to the dealer
through the Internet or via fax with our credit decision,
specifying approval, denial or conditional approval. Conditional
approval is based upon modification to the structure, such as an
increase in the down payment, reduction of the 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 the applicants income,
employment, residence or credit history. 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 us. Our funding group audits such documents
for completeness and consistency with the application and
provides final approval and funding of the contract. A direct
deposit is made or a check is prepared and 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 our
records center for imaging.

Under the direction of the Credit and Pricing
Committee, the Chief Credit Officer oversees credit risk
management, sets underwriting policy, monitors contract pricing,
tracks compliance to underwriting policies

7



---



##### Table of Contents



and re-underwrites select contracts. If
re-underwriting statistics are unacceptable, a portion of
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.


8



---



##### Table of Contents



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, 2002
|               |       |                                 |           |                     
|State          |       | 2002                            |           | 2001                 |  | 2000 |           | Managed Portfolio |  | Number of Dealers
|               |       |                                 |           |                      |  |      |           |                   |  |                  
|               |       |                                
|               |       | (Dollars in thousands)         
|California     |       | $                               | 2,091,347 |                      |  | $    | 1,928,371 |                   |  | $                 | 1,680,814 |           |  | $ | 3,676,606 |           |  |  | 2,082 |      
|Washington     |       |                                 | 310,189   |                      |  |      | 216,003   |                   |  |                   | 186,078   |           |  |   | 449,715   |           |  |  | 336   |      
|Arizona        |       |                                 | 283,528   |                      |  |      | 324,299   |                   |  |                   | 277,217   |           |  |   | 541,202   |           |  |  | 284   |      
|Oregon         |       |                                 | 214,683   |                      |  |      | 196,292   |                   |  |                   | 158,944   |           |  |   | 334,899   |           |  |  | 326   |      
|Colorado       |       |                                 | 200,153   |                      |  |      | 123,788   |                   |  |                   | 130,247   |           |  |   | 286,962   |           |  |  | 200   |      
|Texas          |       |                                 | 171,761   |                      |  |      | 181,651   |                   |  |                   | 158,138   |           |  |   | 334,328   |           |  |  | 312   |      
|Ohio           |       |                                 | 171,109   |                      |  |      | 174,040   |                   |  |                   | 165,860   |           |  |   | 336,866   |           |  |  | 381   |      
|Florida        |       |                                 | 147,931   |                      |  |      | 184,289   |                   |  |                   | 175,341   |           |  |   | 320,007   |           |  |  | 345   |      
|South Carolina |       |                                 | 145,892   |                      |  |      | 129,963   |                   |  |                   | 91,246    |           |  |   | 250,624   |           |  |  | 192   |      
|North Carolina |       |                                 | 144,859   |                      |  |      | 138,956   |                   |  |                   | 106,664   |           |  |   | 265,334   |           |  |  | 309   |      
|Nevada         |       |                                 | 131,094   |                      |  |      | 105,747   |                   |  |                   | 101,311   |           |  |   | 223,270   |           |  |  | 111   |      
|Virginia       |       |                                 | 123,403   |                      |  |      | 99,056    |                   |  |                   | 97,997    |           |  |   | 218,004   |           |  |  | 236   |      
|Illinois       |       |                                 | 104,576   |                      |  |      | 93,709    |                   |  |                   | 76,020    |           |  |   | 178,787   |           |  |  | 196   |      
|Idaho          |       |                                 | 102,475   |                      |  |      | 77,184    |                   |  |                   | 48,639    |           |  |   | 152,719   |           |  |  | 114   |      
|Tennessee      |       |                                 | 86,228    |                      |  |      | 83,892    |                   |  |                   | 68,955    |           |  |   | 160,873   |           |  |  | 174   |      
|Utah           |       |                                 | 84,897    |                      |  |      | 77,321    |                   |  |                   | 63,531    |           |  |   | 133,939   |           |  |  | 156   |      
|Michigan       |       |                                 | 82,542    |                      |  |      | 67,905    |                   |  |                   | 52,489    |           |  |   | 133,648   |           |  |  | 163   |      
|Georgia        |       |                                 | 77,294    |                      |  |      | 82,352    |                   |  |                   | 71,341    |           |  |   | 156,433   |           |  |  | 219   |      
|Missouri       |       |                                 | 70,070    |                      |  |      | 57,883    |                   |  |                   | 64,372    |           |  |   | 123,493   |           |  |  | 145   |      
|New York       |       |                                 | 63,519    |                      |  |      | 29,801    |                   |  |                   | 5,097     |           |  |   | 77,488    |           |  |  | 184   |      
|Maryland       |       |                                 | 62,145    |                      |  |      | 41,286    |                   |  |                   | 36,431    |           |  |   | 102,513   |           |  |  | 127   |      
|Pennsylvania   |       |                                 | 50,699    |                      |  |      | 46,122    |                   |  |                   | 39,317    |           |  |   | 90,671    |           |  |  | 124   |      
|Wisconsin      |       |                                 | 44,318    |                      |  |      | 40,826    |                   |  |                   | 37,439    |           |  |   | 73,719    |           |  |  | 112   |      
|New Jersey     |       |                                 | 42,210    |                      |  |      | 28,280    |                   |  |                   | 26,552    |           |  |   | 69,975    |           |  |  | 99    |      
|Kentucky       |       |                                 | 41,754    |                      |  |      | 41,526    |                   |  |                   | 34,658    |           |  |   | 75,691    |           |  |  | 92    |      
|Massachusetts  |       |                                 | 39,086    |                      |  |      | 27,778    |                   |  |                   | 22,126    |           |  |   | 61,660    |           |  |  | 74    |      
|Indiana        |       |                                 | 37,904    |                      |  |      | 36,739    |                   |  |                   | 26,759    |           |  |   | 69,756    |           |  |  | 101   |      
|Alabama        |       |                                 | 36,570    |                      |  |      | 31,967    |                   |  |                   | 49,053    |           |  |   | 76,724    |           |  |  | 73    |      
|Minnesota      |       |                                 | 29,708    |                      |  |      | 18,240    |                   |  |                   | 11,156    |           |  |   | 38,537    |           |  |  | 60    |      
|Oklahoma       |       |                                 | 27,390    |                      |  |      | 25,065    |                   |  |                   | 16,318    |           |  |   | 44,192    |           |  |  | 35    |      
|Delaware       |       |                                 | 26,697    |                      |  |      | 26,173    |                   |  |                   | 23,709    |           |  |   | 52,401    |           |  |  | 43    |      
|New Hampshire  |       |                                 | 24,275    |                      |  |      | 10,563    |                   |  |                   | 7,157     |           |  |   | 30,275    |           |  |  | 54    |      
|New Mexico     |       |                                 | 23,930    |                      |  |      | 24,146    |                   |  |                   | 9,469     |           |  |   | 39,195    |           |  |  | 38    |      
|Connecticut    |       |                                 | 22,928    |                      |  |      | 11,508    |                   |  |                   | 13,638    |           |  |   | 35,872    |           |  |  | 52    |      
|Iowa           |       |                                 | 20,552    |                      |  |      | 9,228     |                   |  |                   | 13,027    |           |  |   | 28,532    |           |  |  | 38    |      
|Kansas         |       |                                 | 19,448    |                      |  |      | 21,533    |                   |  |                   | 22,683    |           |  |   | 39,398    |           |  |  | 67    |      
|Mississippi    |       |                                 | 18,051    |                      |  |      | 19,691    |                   |  |                   | 17,434    |           |  |   | 38,996    |           |  |  | 55    |      
|Wyoming        |       |                                 | 12,507    |                      |  |      | 6,918     |                   |  |                   | 5,114     |           |  |   | 16,228    |           |  |  | 15    |      
|Nebraska       |       |                                 | 9,824     |                      |  |      | 5,248     |                   |  |                   | 5,427     |           |  |   | 13,498    |           |  |  | 27    |      
|West Virginia  |       |                                 | 9,447     |                      |  |      | 11,930    |                   |  |                   | 16,763    |           |  |   | 22,868    |           |  |  | 26    |      
|Rhode Island   |       |                                 | 4,385     |                      |  |      | 2,947     |                   |  |                   | 2,642     |           |  |   | 7,213     |           |  |  | 15    |      
|South Dakota   |       |                                 | 3,843     |                      |  |      | 2,078     |                   |  |                   |           |           |  |   | 3,971     |           |  |  | 11    |      
|Maine          |       |                                 | 492       |                      |  |      | 985       |                   |  |                   | 2,054     |           |  |   | 1,859     |           |  |  | 3     |      
|Vermont        |       |                                 | 21        |                      |  |      |           |                   |  |                   |           |           |  |   | 10        |           |  |  | 1     |      
|Hawaii         |       |                                 |           |                      |  |      |           |                   |  |                   |           |           |  |   | 1,023     |           |  |  |       |      
|               |       |                                 |           |                      |  |      |           |                   |  |                   |           |           |  |   |           |           |  |  |       |      
|               | Total |                                 | $         | 5,415,734            |  |      | $         | 4,863,279         |  |                   | $         | 4,219,227 |  |   | $         | 9,389,974 |  |  |       | 7,807 | 
|               |       |                                 |           |                      |  |      |           |                   |  |                   |           |           |  |   |           |           |  |  |       |      

9



---



##### Table of Contents





| |                       
| | ----------------------
| | Servicing of Contracts

We service all of the contracts we purchase, both
those held by us and those sold in automobile securitizations or
whole loan sales. The servicing process includes collecting and
processing 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 that incorporates
behavioral scoring models. Additionally, in the second quarter
of 2001, we began purchasing credit bureau information on all
borrowers, which is updated each quarter. These three tools
allow 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 centralized remittance processing center. To
expedite the collection process, we accept payments from
borrowers through automated payment programs including Internet
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 forwarding it to a regional collections office, or
directly forwarding to a loan service counselor 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. If after
the redemption period the delinquency is not cured, we write
down the vehicle to fair value and reclassify the 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 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, we
charge off any remaining deficiency balances. At
December 31, 2002, repossessed automobiles managed by us
were $16.4 million or 0.18% of the total managed contract
portfolio compared with $7.6 million or 0.09% of the total
managed contract portfolio at December 31, 2001.

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 a contract is
charged off, all accrued interest is reversed. 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. For those accounts that are in Chapter 13
bankruptcy and contractually past due 120 days, we reverse
all accrued interest and recognize income on a cash basis.
Additionally, we mark down such contracts to fair value and
reclassify them as nonperforming accounts.

10



---



##### Table of Contents



Transactions with Related Parties

Relationship with the Bank and its
Controlling Parties

We believe that the transactions described below
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 Board of Directors and the
Boards of Directors of the Bank and Westcorp, including their
respective independent directors. See Supervision and
Regulation.

Intercompany Borrowings

We have various borrowing arrangements with the
Bank, including long-term, unsecured debt and lines of credit
designed to provide financing for us and our subsidiaries. These
borrowings are the only source of liquidity we utilize outside
of the asset-backed securities market. These borrowing
arrangements, on an unconsolidated basis, provide the Bank with
what it believes to be a market rate of return. Additionally,
the Bank believes that it is more profitable for it, on a
consolidated basis, to lend money to us rather than for us to
seek financing from an outside third party because its cost of
funds is lower than the rates on these borrowing arrangements.

We borrowed $125 million from the Bank under
the terms of a $125 million note executed in 1995. 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 payments on the $125 million note of
$11.2 million and $32.7 million for the years ended
December 31, 2001 and 2000, respectively, without
prepayment penalties. 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. There was no
outstanding balance on the $125 million note at
December 31, 2002 and 2001 compared with $11.2 million
outstanding at December 31, 2000. Interest expense on this
note totaled $0.5 million and $1.5 million for the
years ended December 31, 2001 and 2000, respectively.

We borrowed $135 million from the Bank under
the terms of a $135 million note. We initially borrowed
$50 million under this note in 1997. 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 note was amended to increase
the remaining principal amount from $67.5 million to
$150 million and to decrease the interest rate from 9.42%
to 8.875% per annum. All principal is 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. We
made principal payments on this note totaling $42.0 million
during 2002 in conjunction with the Banks purchase of
$42.0 million of its 8.875% subordinated debentures.
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 $1.8 billion line of credit discussed
below and (iii) indebtedness for similar types of warehouse
lines of credit. There was $108 million outstanding on this note
at December 31, 2002 compared with $67.5 million at
December 31, 2001. Interest expense on this note totaled
$12.4 million, $10.1 million and $12.7 million
for the years ended December 31, 2002, 2001 and 2000,
respectively.

Additionally, we borrowed $300 million from
the Bank under the terms of a $300 million note in May
2002. This note matures on May 15, 2012. Interest payments
on the $300 million note are due semi-annually, in arrears,
calculated at the rate of 10.25% per annum. Pursuant to the
terms of this note, we may not incur any other indebtedness that
is senior to the obligations evidenced by this note except for
(i) indebtedness under the $150 million note,
(ii) indebtedness collateralized or secured under the
$1.8 billion line of credit and (iii) indebtedness for
similar types of warehouse lines of credit. There was
$300 million outstanding on this note at December 31,
2002. Interest expense on this note totaled $20.3 million
for the year ended December 31, 2002.

11



---



##### Table of Contents



We have a 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 this
line of credit. The line of credit terminates on
December 31, 2004, although we may extend the term for
additional periods of up to 60 months. There was no amount
outstanding at December 31, 2002. There was
$374 million and $236 million outstanding on this line
of credit at December 31, 2001 and 2000, respectively. The
$1.8 billion line of credit carries an interest rate based
on the one-month London Interbank Offer Rate, also known as
LIBOR, and an interest spread of 125 basis points when unsecured
and 90 basis points when secured. The Bank has the right under
this line 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 the purchase of contracts or
other working capital requirements.

On November 30, 2001 and August 8,
2002, some of our subsidiaries entered into additional lines of
credit with the Bank. These lines permit our subsidiaries to
draw up to a total of $255 million to fund activities
related to our securitizations. Of the total $255 million,
$10 million terminates on December 1, 2006 and
$245 million terminates on January 1, 2010, although
the terms may be extended by these subsidiaries for additional
periods of up to 60 months. At December 31, 2002, the
amount outstanding on these lines of credit totaled
$62.0 million compared with $47.3 million outstanding
at December 31, 2001. The $255 million in lines of
credit held by our subsidiaries with the Bank carry an interest
rate based on one-month LIBOR and an interest spread of 112.5
basis points when unsecured and 62.5 basis points when secured.

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 for these lines of credit totaled $3.0 million,
$8.9 million and $37.9 million for the years ended
December 31, 2002, 2001 and 2000, respectively. The
weighted average interest rates for the lines of credit were
2.74%, 4.43% and 7.09% for the years ended December 31,
2002, 2001 and 2000, respectively. The weighted average interest
rates for the lines of credit were 2.55%, 3.08% and 7.44% at
December 31, 2002, 2001 and 2000, respectively.

Short-Term Investments 
Parent

We invest our excess cash at the Bank under an
investment agreement. Prior to January 1, 2002, the Bank
paid us an interest rate equal to the federal composite
commercial paper rate on this excess cash. On January 1,
2002, the agreement was amended to revise the interest rate to
the one-month LIBOR. The weighted average interest rate was
1.77%, 3.80% and 6.58% for the years ended December 31,
2002, 2001 and 2000, respectively. At December 31, 2002, we
held $688 million excess cash with the Bank under the
investment agreement. Interest income earned under this
agreement totaled $10.2 million, $4.9 million and $1.2
million for the years ended December 31, 2002, 2001 and
2000, respectively. The weighted average interest rate was 1.44%
at December 31, 2002, compared with 6.53% at
December 31, 2000. We had no excess cash invested at the
Bank at December 31, 2001.

Reinvestment Contracts

Pursuant to a series of agreements to which we,
the Bank and our subsidiary, WFAL2, among others, are parties,
we have access to the cash flows of certain outstanding
securitizations, including the cash held in the spread accounts
for these securitizations. We are permitted to use that cash as
we determine, including to originate contracts.

In certain securitizations, 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 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.

12



---



##### Table of Contents



In accordance with these agreements, the Bank and
WFAL2 pledge property owned by each of them 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 WFS Reinvestment Contract. We
paid the Bank $1.2 million, $1.1 million and
$0.7 million for the years ended December 31, 2002,
2001 and 2000, 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 $944 million, $942 million
and $832 million outstanding on the trust reinvestment
contracts at December 31, 2002, 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. We sold no contracts to Westcorp for the year
ended December 31, 2002.

Tax Sharing Agreement

We and our subsidiaries are parties to an amended
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 this 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 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 amended tax sharing
agreement commenced on the first day of the consolidated return
year beginning January 1, 2002 and continues in effect
until the parties to the tax sharing agreement agree in writing
to terminate it. See Consolidated Financial
Statements  Note 17  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 $6.4 million,
$5.9 million and $2.4 million for the years ended
December 31, 2002, 2001 and 2000, 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.

13



---



##### Table of Contents



Supervision and Regulation

General

Set forth below is a general discussion of laws
and regulations that have a material effect on our business. The
laws and regulations discussed are intended to protect
depositors, federal deposit insurance funds, and the banking
system as a whole; they are not intended to protect security
holders. To the extent that the following discussion describes
statutory or regulatory provisions, the exact language of the
statute or regulatory provision qualifies any such discussion.
Furthermore, such statutes and regulations are continually under
review by Congress and federal regulatory agencies. Any future
changes in laws, regulations or 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 future changes.

Regulations Applicable to Us

We purchase contracts in 44 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 subject to regulation and examination primarily by the
Office of Thrift Supervision, also known as the OTS, and
secondarily by the FDIC. 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. 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 contract. We must follow those laws carefully in order
to maximize the amount of money we can recover on a defaulted
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: (i) 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,
(ii) enjoy the same pre-emption from state law that is
granted to the Bank by OTS regulations and (iii) so that
the Bank could invest in our activities without regard to HOLA
limits on service corporations. 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 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.
Westcorp is registered with the OTS as a savings and loan
holding company. Therefore, it 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.

The OTS has oversight authority for all holding
company affiliates, not just the Bank. The OTS may, as
necessary, limit transactions between the Bank, Westcorp and the
subsidiaries or affiliates of Westcorp or the

14



---



##### Table of Contents



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.


Provisions of HOLA 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 an affiliate of that savings
association subsidiary. In addition, transactions between a
savings association subsidiary or its subsidiary and an
affiliate must be on terms that are at least as favorable to the
bank or its subsidiary as are the terms of the transactions with
unaffiliated companies.

Savings association subsidiaries of holding
companies must also comply with regulations regarding loans to
executive officers, directors and principal shareholders. Loans
secured by a first lien on an executive officers residence
may 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.

Regulations Applicable to the Bank Which
May Affect Us

The Home Owners Loan Act

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 HOLA regulations, which limit certain of
its activities to a percentage of its total consolidated assets.
The HOLA regulations allow the Bank to invest up to 35% of its
consolidated assets in consumer loans, commercial paper and
qualifying corporate 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 operating subsidiaries. Thus, not more than 30% of
the Banks consolidated assets may be invested in contracts
purchased from new and pre-owned automobile dealers or from
other lenders. For the year ended December 31, 2002, we
purchased contracts at an average rate of approximately
$450 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 $6.9 billion during 2002. Our securitization
activities are structured to enable the Bank to remove
securitized automobile contracts from its balance sheet for
regulatory purposes. As a result, securitized automobile
contracts are not included in the calculation of the percentage
of the Banks consolidated assets subject to either the 30%
or 35% limitation on consumer loans. We intend to regularly
securitize contracts to insure that the Bank will remain in
compliance with this regulatory limitation on its consolidated
activities. If we are unable to continue to securitize the
automobile contracts we purchase, this regulatory limitation may
force us to limit our acquisition of new automobile contracts,
thereby adversely affecting our ability to remain a preferred
source of financing for the dealers from whom we purchase
automobile contracts. Any such limitation may also have a
material adverse effect on our financial position, liquidity and
results of operations.



| |                                
| | -------------------------------
| | Regulatory Capital Requirements

HOLA mandates that the OTS promulgate capital
regulations that include capital standards no less stringent
than the capital standards applicable to national banks. Any
savings association that fails any of the capital requirements
is subject to possible enforcement actions by the OTS or the
FDIC. The Bank exceeded the current minimum requirements for
core capital, tangible capital, tier 1 risk-based capital
and total risk-based capital as of December 31, 2002 as
more fully described below.

HOLA and the OTS regulations require savings
associations to maintain core capital in an amount
not less than 3% of adjusted total assets. The Banks core
capital ratio at December 31, 2002 was 6.43%. As of
December 31, 2002, the Banks core capital was
$729 million, exceeding the Banks regulatory
requirement by $389 million.

A savings association must maintain
tangible capital in an amount not less than 1.5% of
adjusted total assets. The Banks tangible capital is the
same as its core capital as the Bank does not have intangible
assets or other such assets that must be deducted from core
capital to arrive at tangible capital. Therefore, at
December 31, 2002, the Banks tangible capital ratio
was also 6.43%. The Banks tangible capital at
December 31, 2002 was $729 million, exceeding the
applicable regulatory requirement by $559 million.

15



---



##### Table of Contents



In addition, the OTS has adopted a regulation
pertaining to the capital treatment of recourse, direct credit
substitutes and residual interests in asset securitizations. The
regulation modifies 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 regulation requires 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 risk-based capital be deducted from capital.

The regulation became effective on
January 1, 2002 for any transaction that closed on or after
that date. For transactions closed before that date, an
institution can elect to have the regulation apply to those
earlier transactions. The Bank elected to adopt the new
regulation as of September 30, 2002. The amount of capital
held against residual interests in asset securitizations and
other recourse obligations at December 31, 2002 was
$73.5 million.

Since March 2002, we have structured our
securitization transactions so that they are required to be
accounted for as secured financings rather than as sales under
Generally Accepted Accounting Principles, also known as GAAP. We
do not record any residual interests on these securitizations.
The new regulation applies only to residual interests arising
from the transfer of assets accounted for as sales. Therefore,
the new regulation will not cause any adverse capital effect on
the Bank related to these securitizations. In the future, we do
not anticipate that we will engage in any securitizations
accounted for as sales under GAAP.

The Banks total risk-weighted assets are
determined by taking the sum of the products obtained by
multiplying each of the Banks assets and certain off
balance sheet items by a designated risk-weight. Four
risk-weight categories (0%, 20%, 50% and 100%) exist for on
balance sheet assets. Before a risk-weight category can be
applied to a consolidated off balance sheet item, the item must
be converted into a credit-equivalent amount by multiplying its
face amount by one of four credit conversion factors (0%, 20%,
50% and 100%). As of December 31, 2002, the Banks
total risk-weighted assets equaled $8.5 billion.

Total risk-based capital, as defined by OTS
regulations, is core capital plus supplementary capital less
direct equity investments not permissible to national banks
(subject to a phase-in schedule), reciprocal holdings of
depository institution capital investments. Supplementary
capital is comprised of permanent capital instruments not
included in core capital, maturing capital instruments such as
subordinated debentures, and general valuation loan and lease
loss allowance. Supplementary capital is limited to 100% of core
capital.

The Bank is permitted to include subordinated
debentures in its supplementary capital. At December 31,
2002, there were two issuances remaining, one with an
outstanding balance excluding discounts and issuance costs of
$108 million and an interest rate of 8.875% due in 2007 and
a second with an outstanding balance excluding discounts and
issuance costs of $300 million and an interest rate of
9.625% due in 2012. The first issuance is redeemable at our
option, in whole or in part, on or after August 1, 2004, at
100% of the principal amount being redeemed plus accrued
interest as of the date of redemption, and the second is
redeemable on the same terms, on or after May 15, 2009. In
addition, the 9.625% debentures may be redeemed in part
prior to May 15, 2005, provided at least 65% of the
debentures remain outstanding, the redemption is with the
proceeds of and within 90 days of an equity issuance by the
Bank and the redemption price is not less than 109.625%.
Pursuant to the approval from the OTS to treat those debentures
as supplementary capital, the total amount of debentures issued
by the Bank that may be included as supplementary capital may
not exceed the total amount of the Banks core capital. The
amount of the 8.875% debentures that may be included as
supplementary capital began to decrease at the rate of 20% of
the amount originally outstanding per year, net of redemptions,
on August 1, 2002. The 9.625% debentures will not
begin to be phased out as supplementary capital until
May 15, 2007. The Banks total risk-based capital at
December 31, 2002 was $1.1 billion and its total
risk-based capital ratio was 13.38%.

16



---



##### Table of Contents



The Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act, or GLBA, permits
insurance, banking and securities firms to be owned by a single
owner. GLBA generally prohibits unitary savings and loan holding
companies, like Westcorp, from being acquired by commercial
companies. Westcorp is permitted under GLBA, however, to
continue to engage in any business opportunities in which we had
a right to engage prior to the enactment of GLBA. In short, GLBA
does not have an effect on our business, and we do not expect
that any of its provisions will have an adverse effect on our
operations or our financial condition.

GLBA also creates additional obligations on
financial institutions, such as the Bank and its subsidiaries,
regarding the safeguarding of nonpublic personal information of
their customers and creates affirmative duties to advise
customers as to what the financial institutions do with their
customers nonpublic personal information. The privacy
requirements of GLBA do not have a significant impact on the
Bank or any of its subsidiaries, because the Bank and its
subsidiaries have historically safeguarded the personal
confidential information of their customers as required by other
federal statutes.

Sarbanes-Oxley Act of 2002

On July 30, 2002, President Bush signed into
law corporate responsibility and accounting reform legislation
known as the Sarbanes-Oxley Act of 2002, also known as the
Sarbanes-Oxley Act. The Sarbanes-Oxley Act is primarily directed
at public companies and companies that have a pending
registration statement under the Securities Act of 1933. Under
applicable OTS regulations, as the Bank has debentures
outstanding registered with the OTS, the Sarbanes-Oxley Act is
applicable to the Bank as well as to Westcorp and us. Parts of
the Sarbanes-Oxley Act that are already effective include
provisions that (i) require that periodic reports
containing financial statements that are filed with the
Securities and Exchange Commission, also known as the SEC, be
accompanied by Chief Executive Officer and Chief Financial
Officer certifications as to their accuracy and compliance with
law; (ii) prohibit public companies, with certain limited
exceptions, from making personal loans to their directors or
executive officers; (iii) force company Chief Executive
Officers and Chief Financial Officers to forfeit bonuses and
profits if company financial statements are restated due to
misconduct; (iv) require audit committees to pre-approve
all audit and non-audit services provided by an issuers
outside auditors, except for de minimis non-audit services; (v)
protect employees of public companies who assist in
investigations relating to violations of the federal securities
laws from job discrimination; (vi) require companies to
disclose in plain English on a rapid and current
basis material changes to their financial condition or
operations; (vii) require a public companys
Section 16 insiders to make Form 4 filings with the
SEC within two business days following the day on which
purchases or sales of the companys equity securities were
made; and (viii) increase penalties for existing crimes and
create new criminal offenses. Compliance with other provisions
will be required after implementing rules and regulations are
adopted by the SEC and the newly created public company
accounting oversight board authorized by the Sarbanes-Oxley Act.
While we expect to incur additional expenses in complying with
the requirements of the Sarbanes-Oxley Act and the regulations
adopted by the SEC, we do not anticipate that those expenses
will have a material effect on our results of operations or
financial condition.

Interagency Guidance Statement Regarding
Asset-Backed Securitization

The OTS, in conjunction with other federal
banking regulatory agencies, 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. The guidance generally provides that institutions
engaged in asset securitization activities should ensure that
sufficient capital is held to support the risks associated with
those activities, that valuations are reasonable, conservative
and supported and that appropriate management oversight and
reporting is accomplished with respect to the institutions
asset securitization activities. We, as an operating subsidiary
of the Bank, believe that our securitization activities are in
compliance with the guidance provisions.

17



---



##### Table of Contents



Interagency Guidance Statement Regarding
Sub-prime Lending Programs

The OTS, along with other agencies, has adopted
guidance pertaining to sub-prime lending programs. Pursuant to
the guidance, lending programs that 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.

To the extent that the guidance, as implemented,
requires the Bank to raise and continue to maintain higher
levels of capital, our ability to originate, service and
securitize new and pre-owned 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 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.

Taxation

Federal 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 returns as a separate entity. Tax liabilities from the
consolidated returns are allocated in accordance with our tax
sharing agreement based on the relative taxable income or loss
of each entity on a stand-alone basis.

We, as part of Westcorps consolidated
federal tax return, are under examination by the Internal
Revenue Service for the tax years ended December 31, 1997
through 1999. We do not anticipate any significant changes based
upon these examinations.

California Franchise Tax and Other State
Provisions

At the end of 2002, we had a tax presence in
approximately 37 states. However, we expect that over 50% of the
activity of the group and the resulting income will be taxed as
California source income, with the remaining amounts apportioned
or allocated outside California.

The California franchise tax applicable to
financial corporations is higher than the rate of tax applicable
to non-financial corporations because it includes an amount
in lieu of local personal property and business
license taxes paid by non-financial corporations, but not
generally paid by financial institutions. For taxable years
ending on or after December 31, 1995, the tax rate for a
financial corporation is equal to the tax rate on a regular
corporation plus 2%. For income years beginning after
January 1, 1997, the California regular corporate tax rate
is 8.84% and the financial corporation tax rate is 10.84%.

Prior to 2002 under California law, a financial
corporation could determine its bad debt deduction using one of
two methods. The first method allowed a deduction for debts that
became wholly or partially worthless during the tax year, i.e.,
the specific chargeoff method. The second method allowed a
reasonable addition to a reserve to be deducted. During 2002,
California enacted legislation that eliminated the use of the
reserve method for financial corporations. As of the first tax
year beginning on or after January 1, 2002, only debts
which become worthless during the period may be deducted. In the
first year of the change in accounting method, 50% or
$57 million of the ending reserve prior to the change will
be included in California taxable income. The remaining 50% of
the reserve is not required to be recaptured into income and
represents a permanent difference between GAAP and California
tax accounting. The deferred tax liability related to this
permanent difference has been eliminated from the balance sheet
and the current year state tax expense reduced accordingly.

We compute our taxable income for California
purposes on a unitary basis, or as if we were one business unit,
and file one combined California franchise tax return with
Westcorp and its other subsidiaries. We, as

18



---



##### Table of Contents



part of that combined return, are under
examination by the California Franchise Tax Board and various
other state taxing authorities for tax years 1998 through 2001.
We do not anticipate any significant changes based upon these
examinations.


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. WFAL has not purchased any
automobile contracts since March 2000.

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.

WFS Investments, Inc., also known as 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.

WFS Funding, Inc., also known as WFSFI, is our
wholly owned, Nevada based, limited purpose service corporation
subsidiary. WFSFI was incorporated for the purpose of providing
conduit financings. WFSFI completed a $775 million and a
$650 million conduit financing transaction during January
2002 and December 2001, respectively. Both of these conduit
financing transactions were paid off as of December 31,
2002.

WFS Receivables Corporation

WFS Receivables Corporation, also known as 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. Securitizations
originated by WFSRC are guaranteed under a financial guaranty
insurance policy issued by an unaffiliated third-party company.
Securitization transactions in which contracts are sold through
WFSRC are treated as secured financings for accounting purpose.
At December 31, 2002, WFSRC had $6.3 billion in notes
payable on automobile secured financing outstanding.

WFS Receivables Corporation 3

WFS Receivables Corporation 3, also known as
WFSRC3, is our wholly owned, Nevada based, limited purpose
service corporation subsidiary. WFSRC3 was organized for the
purpose of purchasing contracts that we originate and
securitizing them in the asset-backed securities market.
Securitizations originated by WFSRC3 include senior notes which
are credit enhanced through the issuance of subordinated notes.
Securitization transactions in which contracts are sold through
WFSRC3 are treated as secured financings for accounting
purposes. At December 31, 2002, WFSRC3 had
$1.1 billion in notes payable on automobile secured
financing outstanding.

19



---



##### Table of Contents



WFS Web Investments

WFS Web Investments, also known as WFSWEB, is our
wholly owned, California based, 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 of being involved with a company that provides a
business-to-business Internet portal, specifically designed for
the indirect automobile lending market. Currently, over half of
our applications are received through DealerTrack.

Associates

At December 31, 2002, we had 2,100 full-time
and 67 part-time associates. None of our associates are
represented by a collective bargaining unit or union. We believe
that we have good relations with our associates.




Item 2. Properties

At December 31, 2002, we owned one property
in Texas. Additionally, we leased 40 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 automobile lending regional
business centers and other operating centers. At
December 31, 2002, the net book value of property and
leasehold improvements was approximately $16.7 million. We
leased space at one location during 2002 from a company
controlled by the Chairman of the Board of our company and
majority shareholder of Westcorp.




Item 3. Legal
Proceedings

We or our subsidiaries are involved as parties to
certain legal proceedings incidental to our businesses,
including Chiquita Lee, et al. v. WFS Financial Inc,
United States District Court, Middle District of Tennessee at
Nashville, No. 3-02-0570 filed June 17, 2002 (a
putative class action raising claims under the Equal Credit
Opportunity Act) and other consumer class action lawsuits. We
are vigorously defending these actions and do not believe that
the outcome of these proceedings will have a material effect
upon our financial condition, results of operations and cash
flows.




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

None.

20



---



##### Table of Contents






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 2002 and 2001 as reported by
Nasdaq, which prices are believed to represent actual
transactions:

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2002 |       | 2001
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 25.62 |      |  | $    | 18.36 |     |  | $ | 21.29 |  |  | $ | 17.06 | 
|Second Quarter |  |      | 31.77 |      |  |      | 23.95 |     |  |   | 30.14 |  |  |   | 15.55 | 
|Third Quarter  |  |      | 26.32 |      |  |      | 16.90 |     |  |   | 31.76 |  |  |   | 14.89 | 
|Fourth Quarter |  |      | 21.25 |      |  |      | 16.26 |     |  |   | 26.83 |  |  |   | 15.63 | 

We had 1,016 shareholders of our common
stock at March 11, 2003. 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.

21



---



##### Table of Contents








|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following table presents summary audited
financial data for the years ended December 31, 2002, 2001,
2000, 1999 and 1998. Since 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.

|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |           | 
|------------------------------------------------------------------- | ------------------------ | ------------------------------------------------ | --------- | --------- |  | ---- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                                    |                          |                                                 
|                                                                    |                          | At or For the Year Ended December 31,           
|                                                                    |                          |                                                 
|                                                                    |                          | 2002                                             |           | 2001      |  | 2000 |           | 1999      |  | 1998
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |     
|                                                                    |                          |                                                 
|                                                                    |                          | (Dollars in thousands, except per share amounts)
|Consolidated Statements of Operations
    Data:                     |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net interest income                                                 |                          | $                                                | 470,937   |           |  | $    | 313,006   |           |  | $    | 183,542   |           |  | $ | 99,229    |           |  | $ | 64,978    |          
|Servicing income                                                    |                          |                                                  | 119,302   |           |  |      | 130,826   |           |  |      | 170,919   |           |  |   | 140,780   |           |  |   | 76,110    |          
|Gain on sale of contracts                                           |                          |                                                  |           |           |  |      | 6,741     |           |  |      | 13,723    |           |  |   | 54,977    |           |  |   | 25,438    |          
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                    | Total revenues           |                                                  |           | 590,239   |  |      |           | 450,573   |  |      |           | 368,184   |  |   |           | 294,986   |  |   |           | 166,526   | 
|Provision for credit losses                                         |                          |                                                  | 249,093   |           |  |      | 144,130   |           |  |      | 68,962    |           |  |   | 36,578    |           |  |   | 15,146    |          
|Operating expenses                                                  |                          |                                                  | 212,904   |           |  |      | 205,292   |           |  |      | 188,634   |           |  |   | 173,453   |           |  |   | 165,042   |          
|Restructuring charge(1)                                             |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   | 15,000    |          
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                    | Total expenses           |                                                  |           | 461,997   |  |      |           | 349,422   |  |      |           | 257,596   |  |   |           | 210,031   |  |   |           | 195,188   | 
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Income (loss) before income tax (benefit)                           |                          |                                                  | 128,242   |           |  |      | 101,151   |           |  |      | 110,588   |           |  |   | 84,955    |           |  |   | (28,662   | )        
|Income tax (benefit)                                                |                          |                                                  | 46,152    |           |  |      | 39,503    |           |  |      | 44,216    |           |  |   | 35,580    |           |  |   | (12,095   | )        
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net income (loss)                                                   |                          | $                                                | 82,090    |           |  | $    | 61,648    |           |  | $    | 66,372    |           |  | $ | 49,375    |           |  | $ | (16,567   | )        
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Net income (loss) per common
    share  diluted                    |                          | $                                                | 2.05      |           |  | $    | 1.90      |           |  | $    | 2.35      |           |  | $ | 1.91      |           |  | $ | (0.64     | )        
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Consolidated Statements of Financial Condition
    Data:            |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Contracts receivable, net                                           |                          | $                                                | 7,729,913 |           |  | $    | 5,083,891 |           |  | $    | 2,978,167 |           |  | $ | 1,459,035 |           |  | $ | 884,825   |          
|Retained interest in securitized assets                             |                          |                                                  |           |           |  |      | 37,392    |           |  |      | 111,558   |           |  |   | 167,277   |           |  |   | 171,230   |          
|Total assets                                                        |                          |                                                  | 8,789,703 |           |  |      | 5,490,757 |           |  |      | 3,575,137 |           |  |   | 2,130,927 |           |  |   | 1,444,340 |          
|Lines of credit  parent                                            |                          |                                                  | 62,048    |           |  |      | 421,175   |           |  |      | 235,984   |           |  |   | 551,189   |           |  |   | 554,836   |          
|Notes payable  parent                                              |                          |                                                  | 408,010   |           |  |      | 67,500    |           |  |      | 146,219   |           |  |   | 178,908   |           |  |   | 160,000   |          
|Notes payable on automobile secured financing                       |                          |                                                  | 7,323,180 |           |  |      | 4,005,925 |           |  |      | 2,249,363 |           |  |   | 461,104   |           |  |   |           |          
|Total shareholders equity                                          |                          |                                                  | 634,532   |           |  |      | 465,293   |           |  |      | 317,205   |           |  |   | 212,188   |           |  |   | 164,341   |          
|Other Selected Financial Data:                                      |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Prime contract purchases                                            |                          | $                                                | 4,346,212 |           |  | $    | 3,675,351 |           |  | $    | 2,900,960 |           |  | $ | 2,313,573 |           |  | $ | 1,808,013 |          
|Non-prime contract purchases                                        |                          |                                                  | 1,069,522 |           |  |      | 1,187,928 |           |  |      | 1,318,267 |           |  |   | 1,026,573 |           |  |   | 862,683   |          
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|                                                                    | Total contract purchases |                                                  | $         | 5,415,734 |  |      | $         | 4,863,279 |  |      | $         | 4,219,227 |  |   | $         | 3,340,146 |  |   | $         | 2,670,696 | 
|                                                                    |                          |                                                  |           |           |  |      |           |           |  |      |           |           |  |   |           |           |  |   |           |          
|Contracts sold or securitized(2)                                    |                          | $                                                | 6,925,000 |           |  | $    | 4,220,000 |           |  | $    | 4,590,000 |           |  | $ | 3,000,000 |           |  | $ | 1,885,000 |          
|Operating cash flows(3)                                             |                          | $                                                | 233,635   |           |  | $    | 171,825   |           |  | $    | 145,913   |           |  | $ | 101,702   |           |  | $ | 16,521    |          
|Operating expenses as a percentage of average
    managed contracts |                          |                                                  | 2.4       | %         |  |      | 2.7       | %         |  |      | 3.1       | %         |  |   | 3.6       | %         |  |   | 4.1       | %        
|Number of states in which contracts were purchased                  |                          |                                                  | 44        |           |  |      | 43        |           |  |      | 43        |           |  |   | 43        |           |  |   | 42        |          
|Number of dealers from which contracts were
    purchased           |                          |                                                  | 7,807     |           |  |      | 7,598     |           |  |      | 8,545     |           |  |   | 8,722     |           |  |   | 11,323    |          

22



---



##### Table of Contents



|                                                                                                                   |  |                                                  |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|------------------------------------------------------------------------------------------------------------------ |  | ------------------------------------------------ | --------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                                                                                                   |  |                                                 
|                                                                                                                   |  | At or For the Year Ended December 31,           
|                                                                                                                   |  |                                                 
|                                                                                                                   |  | 2002                                             |           | 2001 |  | 2000 |           | 1999 |  | 1998
|                                                                                                                   |  |                                                  |           |      |  |      |           |      |  |     
|                                                                                                                   |  |                                                 
|                                                                                                                   |  | (Dollars in thousands, except per share amounts)
|Servicing Data:                                                                                                    |  |                                                  |           |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|Contracts managed at end of period                                                                                 |  | $                                                | 9,389,974 |      |  | $    | 8,152,882 |      |  | $    | 6,818,182 |   |  | $ | 5,354,385 |   |  | $ | 4,367,099 |  
|Average contracts managed during the period                                                                        |  | $                                                | 8,845,635 |      |  | $    | 7,576,681 |      |  | $    | 6,076,814 |   |  | $ | 4,840,363 |   |  | $ | 4,006,185 |  
|Contracts delinquent 30 days or greater as a
    percentage of amount of contracts outstanding at end of period(4) |  |                                                  | 3.50      | %    |  |      | 3.72      | %    |  |      | 3.18      | % |  |   | 2.84      | % |  |   | 3.64      | %
|Net chargeoffs as a percentage of the average
    amount of contracts outstanding during the period(4)             |  |                                                  | 2.77      | %    |  |      | 2.27      | %    |  |      | 1.91      | % |  |   | 2.13      | % |  |   | 3.42      | %



---



|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 2002, 2001 and 1999 includes
    $775 million, $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 contracts 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.

23



---



##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|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 late charges and
other collection related fee income on managed contracts,
retained interest income or expense, and contractual specified
servicing income on contracts in securitization transactions
treated as sales for accounting purposes and whole loan sales.
The primary components of operating expenses are salaries,
credit and collection expenses and data processing costs.

Critical Accounting Policies

Management believes critical accounting policies
are important to the portrayal of our financial condition and
results of operations. Critical accounting policies require
difficult and complex judgments because they rely on estimates
about the effect of matters that are inherently uncertain due to
the impact of changing market conditions. The following is a
summary of accounting policies we consider critical.

Retained Interest in Securitized
Assets

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.

In determining the fair value of our retained
interest in securitized assets, also known as RISA, we evaluated
the cost basis of 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 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.

24



---



##### Table of Contents



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

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

Management determines the amount of the allowance
for credit losses based on a review of various quantitative and
qualitative analyses. Quantitative analyses include the review
of chargeoff trends by contract program and contract type on an
owned and managed basis, analysis of cumulative losses on both a
managed and sold basis and 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
nonperformance 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 contract
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 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.

25



---



##### Table of Contents



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.

Derivatives and Hedging
Activities

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 may enter into various hedge agreements prior
to closing the transaction. The market value of these hedge
agreements is designed to respond 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), net of tax, on our Consolidated Statements of
Financial Condition. 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.

If we issue certain variable rate notes payable
in connection with our securitization activities, we may also
enter 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.

We also enter into interest rate swap agreements
or other derivatives that do not qualify for hedge accounting
under Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended, also known as SFAS No. 133, or that we choose not
to designate as hedges. These derivatives pertain to variable
rate notes issued in conjunction with the securitization of our
contracts. Any change in the market value of such derivatives is
recorded to noninterest income each month. Any income or expense
recognized on such derivatives is recognized as miscellaneous
noninterest income or expense.

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
$471 million, $313 million and $184 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. The increase in net interest income in 2002 is
primarily 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 approximately $6.2 billion and a conduit financing
totaling $775 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 a business philosophy that
focuses on presenting high quality, cash-based earnings and
maintaining a conservative, well-capitalized balance sheet. In
order to defeat sale treatment, some of our securitization
transactions include 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. Other securitization transactions allow the
trust to invest in other financial assets. We

26



---



##### Table of Contents



believe that a presentation in which assets and
liabilities remain on the balance sheet for securitization
transactions treated as secured financings 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.


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,
|                                             |                                               |                                
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | 2002                            |         | 2001      |  | 2000  
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | Average                         |         |           |  | Yield/ |         | Average                |  |          |      | Yield/ |   | Average |         |           |  | Yield/
|                                             |                                               | Balance                         |         | Interest  |  | Rate   |         | Balance                |  | Interest |      | Rate   |   | Balance |         | Interest  |  | Rate  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |       
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |        
|                                             |                                               |                                 |         |           |  |        |         | (Dollars in thousands) |  |          |      |        |   |        
|Interest earning assets:                     |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Contracts receivable                          |                                 | $       | 6,593,267 |  |        | $       | 809,663                |  |          |      | 12.28  | % |         | $       | 3,937,902 |  |        | $       | 539,118 |  |  |      | 13.69 | % |  | $       | 2,152,794 |  |   | $       | 308,722 |  |  |      | 14.34 | %
|                                             | Investment securities                         |                                 |         | 607,504   |  |        |         | 10,786                 |  |          |      | 1.78   |   |         |         | 163,646   |  |        |         | 6,664   |  |  |      | 4.07  |   |  |         | 94,582    |  |   |         | 5,398   |  |  |      | 5.71  |  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total interest earning assets                 |                                 |         | 7,200,771 |  |        |         | 820,449                |  |          |      | 11.39  | % |         |         | 4,101,548 |  |        |         | 545,782 |  |  |      | 13.31 | % |  |         | 2,247,376 |  |   |         | 314,120 |  |  |      | 13.98 | %
|Noninterest earning assets:                  |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Amounts due from trusts                       |                                 |         | 133,973   |  |        |         |                        |  |          |      |        |   |         |         | 217,974   |  |        |         |         |  |  |      |       |   |  |         | 346,009   |  |   |         |         |  |  |      |       |  
|                                             | Retained interest in securitized assets       |                                 |         | 15,888    |  |        |         |                        |  |          |      |        |   |         |         | 79,832    |  |        |         |         |  |  |      |       |   |  |         | 141,724   |  |   |         |         |  |  |      |       |  
|                                             | Premises and equipment, net                   |                                 |         | 32,273    |  |        |         |                        |  |          |      |        |   |         |         | 36,144    |  |        |         |         |  |  |      |       |   |  |         | 37,816    |  |   |         |         |  |  |      |       |  
|                                             | Other assets                                  |                                 |         | 271,761   |  |        |         |                        |  |          |      |        |   |         |         | 218,263   |  |        |         |         |  |  |      |       |   |  |         | 121,720   |  |   |         |         |  |  |      |       |  
|                                             | Less: allowance for credit losses             |                                 |         | 167,775   |  |        |         |                        |  |          |      |        |   |         |         | 87,672    |  |        |         |         |  |  |      |       |   |  |         | 48,525    |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total                                         |                                 | $       | 7,486,891 |  |        |         |                        |  |          |      |        |   |         | $       | 4,566,089 |  |        |         |         |  |  |      |       |   |  | $       | 2,846,120 |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Interest bearing liabilities:                |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Lines of credit  parent                      |                                 | $       | 111,382   |  |        |         | 3,049                  |  |          |      | 2.74   | % |         | $       | 201,744   |  |        |         | 8,930   |  |  |      | 4.43  | % |  | $       | 541,579   |  |   |         | 37,711  |  |  |      | 6.96  | %
|                                             | Notes payable  parent                        |                                 |         | 335,811   |  |        |         | 32,751                 |  |          |      | 9.75   |   |         |         | 112,854   |  |        |         | 10,529  |  |  |      | 9.33  |   |  |         | 155,888   |  |   |         | 14,238  |  |  |      | 9.13  |  
|                                             | Notes payable on automobile secured financing |                                 |         | 5,933,992 |  |        |         | 313,712                |  |          |      | 5.29   |   |         |         | 3,137,000 |  |        |         | 213,317 |  |  |      | 6.80  |   |  |         | 1,081,006 |  |   |         | 78,629  |  |  |      | 7.27  |  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total interest bearing liabilities            |                                 |         | 6,381,185 |  |        |         | 349,512                |  |          |      | 5.48   | % |         |         | 3,451,598 |  |        |         | 232,776 |  |  |      | 6.74  | % |  |         | 1,778,473 |  |   |         | 130,578 |  |  |      | 7.34  | %
|Noninterest bearing liabilities:             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Amounts held on behalf of trustee             |                                 |         | 444,616   |  |        |         |                        |  |          |      |        |   |         |         | 593,710   |  |        |         |         |  |  |      |       |   |  |         | 670,063   |  |   |         |         |  |  |      |       |  
|                                             | Other liabilities                             |                                 |         | 126,400   |  |        |         |                        |  |          |      |        |   |         |         | 85,139    |  |        |         |         |  |  |      |       |   |  |         | 117,480   |  |   |         |         |  |  |      |       |  
|Shareholders equity                         |                                               |                                 | 534,690 |           |  |        |         |                        |  |          |      |        |   |         | 435,642 |           |  |        |         |         |  |  |      |       |   |  | 280,104 |           |  |   |         |         |  |  |      |      
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total                                         |                                 | $       | 7,486,891 |  |        |         |                        |  |          |      |        |   |         | $       | 4,566,089 |  |        |         |         |  |  |      |       |   |  | $       | 2,846,120 |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Net interest income and interest rate spread |                                               |                                 |         |           |  | $      | 470,937 |                        |  |          | 5.91 | %      |   |         |         |           |  | $      | 313,006 |         |  |  | 6.57 | %     |   |  |         |           |  | $ | 183,542 |         |  |  | 6.64 | %    
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Net yield on average interest earning assets |                                               |                                 |         |           |  |        |         |                        |  |          | 6.54 | %      |   |         |         |           |  |        |         |         |  |  | 7.63 | %     |   |  |         |           |  |   |         |         |  |  | 8.17 | %    
|                                             |                                               |                                 |         |           |  |        |         |                        |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      

The total interest spread decreased 66 basis
points for 2002 compared with 2001 due to a decrease of
192 basis points in the yield on interest earning assets
and a decrease in the cost of funds of 126 basis points.
The total interest rate spread decreased 7 basis points in
2001 compared with 2000 due to a decrease in the yield on
interest earning assets of 67 basis points and a decrease
in the cost of funds of 60 basis points. The decrease in
the yield on interest earning assets is primarily due to our
shift to originating a higher percentage of prime credit quality
contracts originated and a lower interest rate environment. The
decrease in the cost of funds in 2002 and 2001 is primarily due
to a lower interest rate environment.

27



---



##### Table of Contents



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):

|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |         |         | 
|--------------------------------- | --------------------------------------------- | ---------------------------------- | - | ------------------------ | ------- | ----- | - | ------- | ------- | ---- | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | - | ------- | ------- | ------- | 
|                                  |                                               |                                    |   |                         
|                                  |                                               | 2002 Compared to 2001(1)           |   | 2001 Compared to 2000(1)
|                                  |                                               |                                    |   |                         
|                                  |                                               | Volume                             |   | Rate                     |         | Total |   | Volume  |         | Rate |         | Total  
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |        
|                                  |                                               |                                   
|                                  |                                               | (Dollars in thousands)            
|Interest income:                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  | Contracts receivable                          |                                    | $ | 331,031                  |         |       | $ | (60,486 | )       |      | $       | 270,545 |         |  | $ | 244,990 |         |  | $ | (14,594 | )       |   | $       | 230,396 |        
|                                  | Investment securities                         |                                    |   | 9,621                    |         |       |   | (5,499  | )       |      |         | 4,122   |         |  |   | 3,135   |         |  |   | (1,869  | )       |   |         | 1,266   |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  |                                               | Total interest earning assets      |   | $                        | 340,652 |       |   | $       | (65,985 | )    |         | $       | 274,667 |  |   | $       | 248,125 |  |   | $       | (16,463 | ) |         | $       | 231,662 | 
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Interest expense:                 |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  | Lines of credit  parent                      |                                    | $ | (3,176                   | )       |       | $ | (2,705  | )       |      | $       | (5,881  | )       |  | $ | (18,224 | )       |  | $ | (10,557 | )       |   | $       | (28,781 | )      
|                                  | Notes payable  parent                        |                                    |   | 21,727                   |         |       |   | 495     |         |      |         | 22,222  |         |  |   | (4,014  | )       |  |   | 305     |         |   |         | (3,709  | )      
|                                  | Notes payable on automobile secured financing |                                    |   | 156,225                  |         |       |   | (55,830 | )       |      |         | 100,395 |         |  |   | 140,088 |         |  |   | (5,400  | )       |   |         | 134,688 |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                  |                                               | Total interest bearing liabilities |   | $                        | 174,776 |       |   | $       | (58,040 | )    |         | $       | 116,736 |  |   | $       | 117,850 |  |   | $       | (15,652 | ) |         | $       | 102,198 | 
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Net change in net interest income |                                               |                                    |   |                          |         |       |   |         |         | $    | 157,931 |         |         |  |   |         |         |  |   |         |         | $ | 129,464 |        
|                                  |                                               |                                    |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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

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 prior to April 2000, 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 are recognized over the
life of the transactions as contractual servicing income and
retained interest income or expense.

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,
|                                                                 |                        |                                
|                                                                 |                        | 2002                            |         | 2001    |  | 2000
|                                                                 |                        |                                 |         |         |  |     
|                                                                 |                        |                                
|                                                                 |                        | (Dollars in thousands)         
|Fee income                                                       |                        | $                               | 87,277  |         |  | $    | 72,820  |         |  | $ | 61,772 |        
|Contractual servicing income                                     |                        |                                 | 61,830  |         |  |      | 85,845  |         |  |   | 57,718 |        
|Retained interest (expense) income, net of
    RISA amortization |                        |                                 | (29,805 | )       |  |      | (27,839 | )       |  |   | 51,429 |        
|                                                                 |                        |                                 |         |         |  |      |         |         |  |   |        |        
|                                                                 | Total servicing income |                                 | $       | 119,302 |  |      | $       | 130,826 |  |   | $      | 170,919 | 
|                                                                 |                        |                                 |         |         |  |      |         |         |  |   |        |        

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

28



---



##### Table of Contents



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 fee
income is due to the growth in our average managed portfolio to
$8.8 billion in 2002 from $7.6 billion in 2001 and
$6.1 billion in 2000.

Contractual servicing income earned by us from
Westcorp relating to the whole loan sales totaled approximately
$51.1 million, $62.8 million and $16.0 million for the
years ended December 31, 2002, 2001 and 2000, respectively.
According to the terms of each securitization, contractual
servicing income is generally earned at rates ranging from 1.0%
to 1.25% per annum on the outstanding balance of contracts
securitized. For accounting purposes, this income is only
recognized on contracts sold through securitizations treated as
sales. Contractual servicing income earned by us relating to
sales to securitization trusts totaled approximately
$10.7 million, $23.0 million and $41.7 million
for the years ended December 31, 2002, 2001 and 2000,
respectively. The decrease from 2001 to 2002 was a result of the
decrease in the average balance of the sold portfolio.

Retained interest expense totaled
$29.8 million for the year ended December 31, 2002,
compared with retained interest expense of $27.8 million
and retained interest income $51.4 million for each of the
years ended December 31, 2001 and 2000, respectively. For
accounting purposes, this income or expense is only recognized
on contracts sold through securitizations treated as sales.
Retained interest income or expense 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 2002 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 $30.4 million
in 2002 from $50.4 million in 2001 and $75.5 million
in 2000. The outstanding sold portfolio had a weighted average
gross interest rate spread of 6.71% in 2002 compared with 6.97%
and 7.38% in 2001 and 2000, 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
$840 million in 2002 compared with $1.8 billion in
2001 and $3.4 billion in 2000.

29



---



##### Table of Contents





| |                          
| | -------------------------
| | 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,                 
|                                                              |                                 |                                                 
|                                                              |                                 | 2002                                             |   | 2001      |           | 2000 |   | 1999      |           | 1998
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |     
|                                                              |                                 |                                                 
|                                                              |                                 | (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 |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              |                                 | Total sales                                      |   |           |           |      |   |           | 1,370,000 |      |   |           | 2,050,000 |  |   |           | 2,500,000 |  |   |           | 1,885,000 |  
|                                                              | Secured financings(2)           |                                                  | $ | 6,925,000 |           |      |   | 2,850,000 |           |      |   | 2,540,000 |           |  |   | 500,000   |           |  |   |           |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              |                                 | Total secured financings and sales               |   | $         | 6,925,000 |      |   | $         | 4,220,000 |      |   | $         | 4,590,000 |  |   | $         | 3,000,000 |  |   | $         | 1,885,000 |  
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|Gain on sale of contracts(3):                                 |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      | $ | 7,719     |           |  | $ | 54,977    |           |  | $ | 25,438    |          
|                                                              | Cash gain on sale               |                                                  |   |           |           |      | $ | 6,741     |           |      |   | 6,004     |           |  |   |           |           |  |   |           |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              |                                 | Total gain on sale                               |   |           |           |      |   | $         | 6,741     |      |   | $         | 13,723    |  |   | $         | 54,977    |  |   | $         | 25,438    |  
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|Hedge gain (loss) included in gain on sale of
    contracts:  |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      | $ | 5,300     |           |  | $ | 11,051    |           |  | $ | (8,580    | )        
|                                                              | Cash gain on sale               |                                                  |   |           |           |      | $ | (6,700    | )         |      |   | (5,000    | )         |  |   |           |           |  |   |           |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              |                                 | Total hedge gain (loss) included in gain on sale |   |           |           |      |   | $         | (6,700    | )    |   | $         | 300       |  |   | $         | 11,051    |  |   | $         | (8,580    | )
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|Gain on sale of contracts as a percent of total
    revenues: |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |  |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      |   | 2.10      | %         |  |   | 18.64     | %         |  |   | 15.28     | %        
|                                                              | Cash gain on sale               |                                                  |   |           |           |      |   | 1.50      | %         |      |   | 1.63      | %         |  |   |           |           |  |   |           |          



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amounts represent whole loan sales to Westcorp.
    Westcorp then securitized such contracts.                                                                                        
|   
|(2) | Information for 2002, 2001 and 1999 includes
    $775 million, $650 million, and $500 million,
    respectively, of contracts securitized in a privately placed
    conduit facility.
|   
|(3) | Net of the write-off of outstanding dealer
    participation balances and the effect of hedging activities.                                                                          

30



---



##### Table of Contents



The following table lists each of our public
securitizations. All securitizations prior to 1998-B 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, 2002 |  | Original Balance |            | Average APR |  | Securitization Rate |              | Spread(1)
|                       |           |            |  |          |                 |                   |  |                  |            |             |  |                     |              |          
|                      
|(Dollars in thousands)
|                       | 1985-A    |            |  |          | December, 1985  |                   |  | $                | 110,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 18.50 | % |  |  | 8.38  | % |  |  | 10.12 | %
|                       | 1986-A    |            |  |          | November, 1986  |                   |  |                  | 191,930    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.20 |   |  |  | 6.63  |   |  |  | 7.57  |  
|                       | 1987-A    |            |  |          | March, 1987     |                   |  |                  | 125,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 12.42 |   |  |  | 6.75  |   |  |  | 5.67  |  
|                       | 1987-B    |            |  |          | July, 1987      |                   |  |                  | 110,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 12.68 |   |  |  | 7.80  |   |  |  | 4.88  |  
|                       | 1988-A    |            |  |          | February, 1988  |                   |  |                  | 155,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 13.67 |   |  |  | 7.75  |   |  |  | 5.92  |  
|                       | 1988-B    |            |  |          | May, 1988       |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.01 |   |  |  | 8.50  |   |  |  | 5.51  |  
|                       | 1988-C    |            |  |          | July, 1988      |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.41 |   |  |  | 8.50  |   |  |  | 6.91  |  
|                       | 1988-D    |            |  |          | October, 1988   |                   |  |                  | 105,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.95 |   |  |  | 8.85  |   |  |  | 6.10  |  
|                       | 1989-A    |            |  |          | March, 1989     |                   |  |                  | 75,000     |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.88 |   |  |  | 10.45 |   |  |  | 5.43  |  
|                       | 1989-B    |            |  |          | June, 1989      |                   |  |                  | 100,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.96 |   |  |  | 9.15  |   |  |  | 6.81  |  
|                       | 1990-A    |            |  |          | August, 1990    |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 16.05 |   |  |  | 8.35  |   |  |  | 7.70  |  
|                       | 1990-1    |            |  |          | November, 1990  |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.56 |   |  |  | 8.50  |   |  |  | 7.06  |  
|                       | 1991-1    |            |  |          | April, 1991     |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 16.06 |   |  |  | 7.70  |   |  |  | 8.36  |  
|                       | 1991-2    |            |  |          | May, 1991       |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.75 |   |  |  | 7.30  |   |  |  | 8.45  |  
|                       | 1991-3    |            |  |          | August, 1991    |                   |  |                  | 175,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.69 |   |  |  | 6.75  |   |  |  | 8.94  |  
|                       | 1991-4    |            |  |          | December, 1991  |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.53 |   |  |  | 5.63  |   |  |  | 9.90  |  
|                       | 1992-1    |            |  |          | March, 1992     |                   |  |                  | 150,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.49 |   |  |  | 5.85  |   |  |  | 8.64  |  
|                       | 1992-2    |            |  |          | June, 1992      |                   |  |                  | 165,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.94 |   |  |  | 5.50  |   |  |  | 9.44  |  
|                       | 1992-3    |            |  |          | September, 1992 |                   |  |                  | 135,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.45 |   |  |  | 4.70  |   |  |  | 9.75  |  
|                       | 1993-1    |            |  |          | March, 1993     |                   |  |                  | 250,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 13.90 |   |  |  | 4.45  |   |  |  | 9.45  |  
|                       | 1993-2    |            |  |          | June, 1993      |                   |  |                  | 175,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 13.77 |   |  |  | 4.70  |   |  |  | 9.07  |  
|                       | 1993-3    |            |  |          | September, 1993 |                   |  |                  | 187,500    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 13.97 |   |  |  | 4.25  |   |  |  | 9.72  |  
|                       | 1993-4    |            |  |          | December, 1993  |                   |  |                  | 165,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 12.90 |   |  |  | 4.60  |   |  |  | 8.30  |  
|                       | 1994-1    |            |  |          | March, 1994     |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 13.67 |   |  |  | 5.10  |   |  |  | 8.57  |  
|                       | 1994-2    |            |  |          | May, 1994       |                   |  |                  | 230,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.04 |   |  |  | 6.38  |   |  |  | 7.66  |  
|                       | 1994-3    |            |  |          | August, 1994    |                   |  |                  | 200,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.59 |   |  |  | 6.65  |   |  |  | 7.94  |  
|                       | 1994-4    |            |  |          | October, 1994   |                   |  |                  | 212,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.58 |   |  |  | 7.10  |   |  |  | 8.48  |  
|                       | 1995-1    |            |  |          | January, 1995   |                   |  |                  | 190,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.71 |   |  |  | 8.05  |   |  |  | 7.66  |  
|                       | 1995-2    |            |  |          | March, 1995     |                   |  |                  | 190,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 16.36 |   |  |  | 7.10  |   |  |  | 9.26  |  
|                       | 1995-3    |            |  |          | June, 1995      |                   |  |                  | 300,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.05 |   |  |  | 6.05  |   |  |  | 9.00  |  
|                       | 1995-4    |            |  |          | September, 1995 |                   |  |                  | 375,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.04 |   |  |  | 6.20  |   |  |  | 8.84  |  
|                       | 1995-5    |            |  |          | December, 1995  |                   |  |                  | 425,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.35 |   |  |  | 5.88  |   |  |  | 9.47  |  
|                       | 1996-A    |            |  |          | March, 1996     |                   |  |                  | 485,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.46 |   |  |  | 6.13  |   |  |  | 9.33  |  
|                       | 1996-B    |            |  |          | June, 1996      |                   |  |                  | 525,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.74 |   |  |  | 6.75  |   |  |  | 8.99  |  
|                       | 1996-C    |            |  |          | September, 1996 |                   |  |                  | 535,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.83 |   |  |  | 6.60  |   |  |  | 9.23  |  
|                       | 1996-D    |            |  |          | December, 1996  |                   |  |                  | 545,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-A    |            |  |          | March, 1997     |                   |  |                  | 500,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.33 |   |  |  | 6.60  |   |  |  | 8.73  |  
|                       | 1997-B    |            |  |          | June, 1997      |                   |  |                  | 590,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.36 |   |  |  | 6.37  |   |  |  | 8.99  |  
|                       | 1997-C    |            |  |          | September, 1997 |                   |  |                  | 600,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.43 |   |  |  | 6.17  |   |  |  | 9.26  |  
|                       | 1997-D    |            |  |          | December, 1997  |                   |  |                  | 500,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 15.19 |   |  |  | 6.34  |   |  |  | 8.85  |  
|                       | 1998-A    |            |  |          | March, 1998     |                   |  |                  | 525,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.72 |   |  |  | 6.01  |   |  |  | 8.71  |  
|                       | 1998-B    |            |  |          | June, 1998      |                   |  |                  | 660,000    |             |  | $                   | 30,398       |           |  |  | 4.61   | % |  |  | 14.68 |   |  |  | 6.06  |   |  |  | 8.62  |  
|                       | 1998-C    |            |  |          | November, 1998  |                   |  |                  | 700,000    |             |  |                     | 50,381       |           |  |  | 7.20   |   |  |  | 14.42 |   |  |  | 5.81  |   |  |  | 8.61  |  
|                       | 1999-A    |            |  |          | January, 1999   |                   |  |                  | 1,000,000  |             |  |                     | 96,552       |           |  |  | 9.66   |   |  |  | 14.42 |   |  |  | 5.70  |   |  |  | 8.72  |  
|                       | 1999-B    |            |  |          | July, 1999      |                   |  |                  | 1,000,000  |             |  |                     | 162,087      |           |  |  | 16.21  |   |  |  | 14.62 |   |  |  | 6.36  |   |  |  | 8.26  |  
|                       | 1999-C    |            |  |          | November, 1999  |                   |  |                  | 500,000    |             |  |                     | 108,805      |           |  |  | 21.76  |   |  |  | 14.77 |   |  |  | 7.01  |   |  |  | 7.76  |  
|                       | 2000-A    |            |  |          | March, 2000     |                   |  |                  | 1,200,000  |             |  |                     | 294,664      |           |  |  | 24.56  |   |  |  | 14.66 |   |  |  | 7.28  |   |  |  | 7.38  |  
|                       | 2000-B    |            |  |          | May, 2000       |                   |  |                  | 1,000,000  |             |  |                     | 274,923      |           |  |  | 27.49  |   |  |  | 14.84 |   |  |  | 7.78  |   |  |  | 7.06  |  
|                       | 2000-C    |            |  |          | August, 2000    |                   |  |                  | 1,390,000  |             |  |                     | 473,976      |           |  |  | 34.10  |   |  |  | 15.04 |   |  |  | 7.32  |   |  |  | 7.72  |  
|                       | 2000-D    |            |  |          | November, 2000  |                   |  |                  | 1,000,000  |             |  |                     | 416,366      |           |  |  | 41.64  |   |  |  | 15.20 |   |  |  | 6.94  |   |  |  | 8.26  |  
|                       | 2001-A    |            |  |          | January, 2001   |                   |  |                  | 1,000,000  |             |  |                     | 458,549      |           |  |  | 45.85  |   |  |  | 14.87 |   |  |  | 5.77  |   |  |  | 9.10  |  
|                       | 2001-B    |            |  |          | May, 2001       |                   |  |                  | 1,370,000  |             |  |                     | 651,944      |           |  |  | 47.59  |   |  |  | 14.41 |   |  |  | 4.23  |   |  |  | 10.18 |  
|                       | 2001-C    |            |  |          | August, 2001    |                   |  |                  | 1,200,000  |             |  |                     | 697,633      |           |  |  | 58.14  |   |  |  | 13.90 |   |  |  | 4.50  |   |  |  | 9.40  |  
|                       | 2002-1    |            |  |          | March, 2002     |                   |  |                  | 1,800,000  |             |  |                     | 1,370,605    |           |  |  | 76.14  |   |  |  | 13.50 |   |  |  | 4.26  |   |  |  | 9.24  |  
|                       | 2002-2    |            |  |          | May, 2002       |                   |  |                  | 1,750,000  |             |  |                     | 1,506,738    |           |  |  | 86.10  |   |  |  | 12.51 |   |  |  | 3.89  |   |  |  | 8.62  |  
|                       | 2002-3    |            |  |          | August, 2002    |                   |  |                  | 1,250,000  |             |  |                     | 1,139,684    |           |  |  | 91.17  |   |  |  | 12.30 |   |  |  | 3.06  |   |  |  | 9.24  |  
|                       | 2002-4    |            |  |          | November, 2002  |                   |  |                  | 1,350,000  |             |  |                     | 1,350,000    |           |  |  | 100.00 |   |  |  | 12.18 |   |  |  | 2.66  |   |  |  | 9.52  |  
|                       | 2003-1(2) |            |  |          | February, 2003  |                   |  |                  | 1,343,250  |             |  |                     |              |           |  |  |        |   |  |  | 11.79 |   |  |  | 2.42  |   |  |  | 9.37  |  
|                       |           |            |  |          |                 |                   |  |                  |            |             |  |                     |              |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          | Total           |                   |  | $                | 30,064,680 |             |  | $                   | 9,083,305    |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          |                 |                   |  |                  |            |             |  |                     |              |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 2003-1 securitization closed on
    February 27, 2003.                                                                                                                                                              

31



---



##### 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 was
$249 million, $144 million and $69.0 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. Net chargeoffs were $158 million,
$79.0 million and $34.3 million for the same
respective periods. The increase in the 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.



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

Operating expenses totaled $213 million,
$205 million and $189 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Operating
expenses as a percentage of total revenues were 36% in 2002
compared with 46% in 2001 and 51% in 2000. Operating expenses as
a percentage of average managed contracts declined to 2.4% in
2002 compared with 2.7% in 2001 and 3.1% in 2000 as the result
of operating efficiencies achieved through the centralization
and automation of certain processes as well as the deployment of
new technologies.

The efficiencies realized include increasing the
conversion ratios on contracts purchased through dealer
education, automating the loan application and underwriting
system, increasing the percentage of applications received via
the Internet, outsourcing the data entry process, centralizing
the verification process, and implementing proprietary credit
scorecards and electronic funds transfers for our dealers.
Operating efficiencies also include implementing automated
dialers, centralizing and upgrading payment processing and asset
recovery processes, upgrading toll free lines for customer
service and interactive voice response technology, implementing
direct debit for our borrowers, imaging for record retention and
retrieval, and implementing 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. We file other state tax returns as a separate entity.
Tax 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 36% in 2002 compared with
39% in 2001 and 40% in 2000, respectively. The decrease in the
effective tax rate is a result of a one-time benefit of new
legislation enacted by the State of California which eliminated
the use of the reserve method of accounting for bad debts for
large banks and financial corporations for taxable income
purposes. In the first year of this change, 50% of the ending
reserve amount deducted from taxable income in prior periods
will be included in the current year California taxable income.
The remaining 50% of the reserve is not required to be
recaptured into income but rather represents a permanent
difference between GAAP and California tax accounting. The
deferred tax liability related to this permanent difference has
been eliminated from our balance sheet and the current year

32



---



##### Table of Contents



state income tax provision has been reduced
accordingly. 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 or expense is recognized.
Instead, the earnings of the contracts in the trust, including
servicing fees, 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.

Since 2000, our securitizations that were
recorded as sales have matured and an increasing percentage of
securitized contracts are represented by securitizations that
are accounted for as secured financings. During the transitory
period, we have presented 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 provided a method by which to gauge our year to year
performance while we made this transition. Effective the first
quarter of 2003, we will discontinue presenting portfolio basis
earnings since we have completed our transition to treating
securitization transactions as secured financings rather than
sales for accounting purposes and have fully amortized our
residual interest assets.

The growth in our portfolio basis earnings
reflects the growth in our managed contract portfolio to
$9.4 billion at December 31, 2002, compared with
$8.2 billion and $6.8 billion at December 31,
2001 and 2000, 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.

33



---



##### 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,
|                                                          |                                                           |                                
|                                                          |                                                           | 2002                            |           | 2001    |  | 2000
|                                                          |                                                           |                                 |           |         |  |     
|                                                          |                                                           |                                
|                                                          |                                                           | (Dollars in thousands,         
|                                                          |                                                           | except per share amounts)      
|Interest income                                           |                                                           | $                               | 1,107,607 |         |  | $    | 1,010,104 |         |  | $ | 817,072 |        
|Interest expense                                          |                                                           |                                 | 514,055   |         |  |      | 494,859   |         |  |   | 409,051 |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|                                                          | Net interest income                                       |                                 |           | 593,552 |  |      |           | 515,245 |  |   |         | 408,021 | 
|Net chargeoffs(1)                                         |                                                           |                                 | 244,789   |         |  |      | 172,208   |         |  |   | 116,224 |        
|Provision for growth(2)                                   |                                                           |                                 | 23,532    |         |  |      | 19,088    |         |  |   | 23,416  |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|                                                          | Provision for credit losses                               |                                 |           | 268,321 |  |      |           | 191,296 |  |   |         | 139,640 | 
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|                                                          | Net interest income after provision for credit
    losses |                                 |           | 325,231 |  |      |           | 323,949 |  |   |         | 268,381 | 
|Other income                                              |                                                           |                                 | 89,185    |         |  |      | 72,712    |         |  |   | 61,771  |        
|Operating expenses                                        |                                                           |                                 | 213,762   |         |  |      | 207,771   |         |  |   | 190,328 |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|Income before income tax                                  |                                                           |                                 | 200,654   |         |  |      | 188,890   |         |  |   | 139,824 |        
|Income tax(3)                                             |                                                           |                                 | 74,588    |         |  |      | 73,211    |         |  |   | 55,803  |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|Portfolio basis net income                                |                                                           | $                               | 126,066   |         |  | $    | 115,679   |         |  | $ | 84,021  |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        
|Portfolio basis net income per common
    share  diluted |                                                           | $                               | 3.15      |         |  | $    | 3.57      |         |  | $ | 2.97    |        
|                                                          |                                                           |                                 |           |         |  |      |           |         |  |   |         |        



---



|    |                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------
|(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
    contract portfolio.
|   
|(3) | Such tax effect is based upon our tax rate for
    the respective period.                                                              

34



---



##### Table of Contents



Portfolio Basis Yields

|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |     | 
|-------------------------- | --------------------------------------------------------- | ------------------------------- | --------- | ------- |  | ------- | --------- | --- |  | - | --------- | --- | 
|                           |                                                           |                                
|                           |                                                           | For the Year Ended December 31,
|                           |                                                           |                                
|                           |                                                           | 2002(1)                         |           | 2001(1) |  | 2000(1)
|                           |                                                           |                                 |           |         |  |        
|                           |                                                           |                                
|                           |                                                           | (Dollars in thousands)         
|Interest income            |                                                           |                                 | 12.5      | %       |  |         | 13.3      | %   |  |   | 13.5      | %  
|Interest expense           |                                                           |                                 | 5.8       |         |  |         | 6.5       |     |  |   | 6.7       |    
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Net interest income                                       |                                 |           | 6.7     |  |         |           | 6.8 |  |   |           | 6.8 | 
|Net chargeoffs             |                                                           |                                 | 2.8       |         |  |         | 2.3       |     |  |   | 1.9       |    
|Provision for growth       |                                                           |                                 | 0.2       |         |  |         | 0.2       |     |  |   | 0.4       |    
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Provision for credit losses                               |                                 |           | 3.0     |  |         |           | 2.5 |  |   |           | 2.3 | 
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|                           | Net interest income after provision for credit
    losses |                                 |           | 3.7     |  |         |           | 4.3 |  |   |           | 4.5 | 
|Other income               |                                                           |                                 | 1.0       |         |  |         | 1.0       |     |  |   | 1.0       |    
|Operating expenses         |                                                           |                                 | 2.4       |         |  |         | 2.8       |     |  |   | 3.2       |    
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|Income before income tax   |                                                           |                                 | 2.3       |         |  |         | 2.5       |     |  |   | 2.3       |    
|Income tax                 |                                                           |                                 | 0.9       |         |  |         | 1.0       |     |  |   | 0.9       |    
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|Portfolio basis net income |                                                           |                                 | 1.4       | %       |  |         | 1.5       | %   |  |   | 1.4       | %  
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    
|Average managed contracts  |                                                           | $                               | 8,845,635 |         |  | $       | 7,576,681 |     |  | $ | 6,076,814 |    
|                           |                                                           |                                 |           |         |  |         |           |     |  |   |           |    



---



|    |                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------
|(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,
|                                  |                                    |                                
|                                  |                                    | 2002                            |        | 2001    |         | 2000
|                                  |                                    |                                 |        |         |         |     
|                                  |                                    |                                
|                                  |                                    | (Dollars in thousands)         
|GAAP basis net income             |                                    | $                               | 82,090 |         |         | $    | 61,648 |         |         | $ | 66,372 |        
|Portfolio basis adjustments:      |                                    |                                 |        |         |         |      |        |         |         |   |        |        
|                                  | Gain on sale of contracts          |                                 |        |         |         |      |        | (6,741  | )       |   |        | (13,723 | )     
|                                  | Retained interest expense (income) |                                 |        | 29,805  |         |      |        | 27,839  |         |   |        | (51,429 | )     
|                                  | Contractual servicing income       |                                 |        | (61,830 | )       |      |        | (85,845 | )       |   |        | (57,718 | )     
|                                  | Net interest income                |                                 |        | 122,615 |         |      |        | 202,239 |         |   |        | 224,243 |       
|                                  | Provision for credit losses        |                                 |        | (19,228 | )       |      |        | (47,166 | )       |   |        | (70,677 | )     
|                                  | Operating expenses                 |                                 |        | 1,050   |         |      |        | (2,587  | )       |   |        | (1,460  | )     
|                                  |                                    |                                 |        |         |         |      |        |         |         |   |        |        
|Total portfolio basis adjustments |                                    |                                 | 72,412 |         |         |      | 87,739 |         |         |   | 29,236 |        
|Net tax effect(1)                 |                                    |                                 | 28,436 |         |         |      | 33,708 |         |         |   | 11,587 |        
|                                  |                                    |                                 |        |         |         |      |        |         |         |   |        |        
|                                  |                                    | Portfolio basis net income      |        | $       | 126,066 |      |        | $       | 115,679 |   |        | $       | 84,021 | 
|                                  |                                    |                                 |        |         |         |      |        |         |         |   |        |        



---



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

Financial Condition



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

We originated $5.4 billion and
$4.9 billion of contracts for the years ended
December 31, 2002 and 2001, respectively. As a result of
higher contract originations, our portfolio of managed contracts
reached $9.4 billion at December 31, 2002, up from
$8.2 billion at December 31, 2001.

35



---



##### Table of Contents





| |                        
| | -----------------------
| | 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, the Bank advances additional monies to our subsidiary
that originated the securitization trust to initially fund these
spread accounts. As these spread accounts reach the balances
required by the trust, excess amounts are released to us and are
used to pay down these amounts. The amounts due from trusts
represent initial advances made to spread accounts and excess
cash flows 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, 2002 was $101 million
compared with $185 million at December 31, 2001. The
decrease is the result of a reduction in the outstanding amount
of securitizations treated as sales for accounting purposes.
Amounts due from trusts is expected to continue to decline in
2003.



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

None of our securitization transactions in 2002
or 2001 were treated as sales. Therefore, we did not record any
retained interest in securitized assets.

The following table sets forth the components of
the RISA:

|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2002                            |         | 2001 |  | 2000
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               | 37,392  |      |  | $    | 111,558 |   |  | $ | 167,277 |  
|Additions                                 |  |                                 |         |      |  |      |         |   |  |   | 19,240  |  
|Amortization                              |  |                                 | (36,461 | )    |  |      | (75,546 | ) |  |   | (75,958 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 | (931    | )    |  |      | 1,380   |   |  |   | 999     |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  
|Balance at end of period(2)               |  | $                               | 0       |      |  | $    | 37,392  |   |  | $ | 111,558 |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 or expense.
|   
|(2) | There were no restrictions on the RISA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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,
|                                 |  |                                
|                                 |  | 2002                            |        | 2001 |  | 2000
|                                 |  |                                 |        |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  |                                 |        |      |  | $    | 1,370,000 |  |  | $ | 2,050,000 | 
|Excess cash flows from trust     |  | $                               | 6,656  |      |  |      | 47,357    |  |  |   | 127,294   | 
|Servicing fees received          |  |                                 | 61,830 |      |  |      | 85,845    |  |  |   | 57,718    | 
|Servicing advances               |  |                                 | 34,317 |      |  |      | 26,191    |  |  |   | 39,097    | 
|Repayments on servicing advances |  |                                 | 27,194 |      |  |      | 28,222    |  |  |   | 49,825    | 

The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$93.7 million and $144 million at December 31,
2002 and 2001, respectively. Net chargeoffs for these
securitization trusts totaled $87.0 million,
$93.2 million and $81.9 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

36



---



##### Table of Contents



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.
See Business  Operations.

At December 31, 2002, the percentage of
managed accounts delinquent 30 days or greater was 3.50%
compared with 3.72% at December 31, 2001 and 3.18% at
December 31, 2000. We calculate delinquency based on the
contractual due date. Net chargeoffs on average contracts
outstanding for the year ended December 31, 2002 were 2.77%
compared with 2.27% and 1.91% for the years ended
December 31, 2001 and 2000, 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,
|                                                                                      |                 |             
|                                                                                      |                 |              |           |            |  |                       
|                                                                                      |                 | 2002         |           | 2001       |  | 2000                  
|                                                                                      |                 |              |           |            |  |                       
|                                                                                      |                 | Amount       |           | Percentage |  | Amount                 |      | Percentage |   | Amount |           | Percentage
|                                                                                      |                 |              |           |            |  |                        |      |            |   |        |           |           
|                                                                                      |                 |              |           |            |  |                        |      |            |   |       
|                                                                                      |                 |              |           |            |  | (Dollars in thousands) |      |            |   |       
|Contracts managed                                                                     |                 | $            | 9,389,974 |            |  |                        |      |            |   | $      | 8,152,882 |            |  |  |      |      |   | $ | 6,818,182 |         |  |  |      |     
|                                                                                      |                 |              |           |            |  |                        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Period of delinquency:                                                                |                 |              |           |            |  |                        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|                                                                                      | 30  59 days    |              | $         | 238,204    |  |                        |      | 2.54       | % |        | $         | 217,873    |  |  |      | 2.67 | % |   | $         | 157,843 |  |  |      | 2.32 | %
|                                                                                      | 60 days or more |              |           | 90,291     |  |                        |      | 0.96       |   |        |           | 85,290     |  |  |      | 1.05 |   |   |           | 59,166  |  |  |      | 0.86 |  
|                                                                                      |                 |              |           |            |  |                        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Total contracts delinquent and delinquencies as a
    percentage of contracts managed |                 | $            | 328,495   |            |  |                        | 3.50 | %          |   | $      | 303,163   |            |  |  | 3.72 | %    |   | $ | 217,009   |         |  |  | 3.18 | %   
|                                                                                      |                 |              |           |            |  |                        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     

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

|                                                                                     |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ------ |  | --------- | --------- | ------ |  | --------- | ------- | ------ |  | - | --------- | - |  |  | ------- | - |  | - | --------- | -
|                                                                                     |  |                       
|                                                                                     |  | December 31,          
|                                                                                     |  |                       
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | 2002                   |         | 2001   |  | 2000     
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | Number of              |         |        |  | Number of |           |        |  | Number of |         |       
|                                                                                     |  | Contracts              |         | Amount |  | Contracts |           | Amount |  | Contracts |         | Amount
|                                                                                     |  |                        |         |        |  |           |           |        |  |           |         |       
|                                                                                     |  |                       
|                                                                                     |  | (Dollars in thousands)
|Contracts managed                                                                    |  |                        | 757,269 |        |  | $         | 9,389,974 |        |  |           | 690,401 |        |  | $ | 8,152,882 |   |  |  | 616,011 |   |  | $ | 6,818,182 |  
|                                                                                     |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed vehicles                                                                 |  |                        | 2,375   |        |  | $         | 16,433    |        |  |           | 1,168   |        |  | $ | 7,553     |   |  |  | 946     |   |  | $ | 6,199     |  
|                                                                                     |  |                        |         |        |  |           |           |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed assets as a percentage of number and
    amount of contracts outstanding |  |                        | 0.31    | %      |  |           | 0.18      | %      |  |           | 0.17    | %      |  |   | 0.09      | % |  |  | 0.15    | % |  |   | 0.09      | %

37



---



##### Table of Contents



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,
|                                                                              |  |                                
|                                                                              |  | 2002                            |           | 2001 |  | 2000
|                                                                              |  |                                 |           |      |  |     
|                                                                              |  |                                
|                                                                              |  | (Dollars in thousands)         
|Contracts managed at end of period                                            |  | $                               | 9,389,974 |      |  | $    | 8,152,882 |   |  | $ | 6,818,182 |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Average contracts managed during period                                       |  | $                               | 8,845,635 |      |  | $    | 7,576,681 |   |  | $ | 6,076,814 |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Gross chargeoffs                                                              |  | $                               | 327,161   |      |  | $    | 236,834   |   |  | $ | 165,937   |  
|Recoveries                                                                    |  |                                 | 82,372    |      |  |      | 64,626    |   |  |   | 49,697    |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs                                                                |  | $                               | 244,789   |      |  | $    | 172,208   |   |  | $ | 116,240   |  
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  
|Net chargeoffs as a percentage of average
    contracts managed during period |  |                                 | 2.77      | %    |  |      | 2.27      | % |  |   | 1.91      | %
|                                                                              |  |                                 |           |      |  |      |           |   |  |   |           |  

38



---



##### Table of Contents



Cumulative static pool losses are another means
of analyzing contract quality. The cumulative static pool loss
ratio 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 loss ratios by month for all outstanding securitized
pools:

Cumulative Static Pool Loss Curves

At December 31, 2002


|          |              |        |  |        |      |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|--------- | ------------ | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | --------- | ---- | ------ |  | ------ | ---- | --------- |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|         
|         
|Period(1) |              | 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 |      | 2002-1 |  | 2002-2 |      | 2002-3 |  | 2002-4
|         
|         
|          | 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 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.00 | %
|          | 2            |        |  |        | 0.02 |        |  |        | 0.04 |        |  |        | 0.04 |        |  |           | 0.04 |        |  |        | 0.02 |           |  |        | 0.03 |        |  |        | 0.02 |        |  |        | 0.04 |   |  |  | 0.04 |   |  |  | 0.03 |   |  |  | 0.03 |   |  |  | 0.04 |   |  |  | 0.01 |   |  |  | 0.00 |   |  |  | 0.02 |   |  |  | 0.02 |  
|          | 3            |        |  |        | 0.08 |        |  |        | 0.11 |        |  |        | 0.11 |        |  |           | 0.11 |        |  |        | 0.10 |           |  |        | 0.10 |        |  |        | 0.09 |        |  |        | 0.13 |   |  |  | 0.11 |   |  |  | 0.09 |   |  |  | 0.10 |   |  |  | 0.09 |   |  |  | 0.06 |   |  |  | 0.03 |   |  |  | 0.06 |   |  |  |      |  
|          | 4            |        |  |        | 0.18 |        |  |        | 0.23 |        |  |        | 0.20 |        |  |           | 0.26 |        |  |        | 0.25 |           |  |        | 0.20 |        |  |        | 0.24 |        |  |        | 0.27 |   |  |  | 0.24 |   |  |  | 0.20 |   |  |  | 0.21 |   |  |  | 0.20 |   |  |  | 0.15 |   |  |  | 0.10 |   |  |  | 0.14 |   |  |  |      |  
|          | 5            |        |  |        | 0.38 |        |  |        | 0.39 |        |  |        | 0.33 |        |  |           | 0.47 |        |  |        | 0.40 |           |  |        | 0.36 |        |  |        | 0.39 |        |  |        | 0.46 |   |  |  | 0.39 |   |  |  | 0.33 |   |  |  | 0.33 |   |  |  | 0.35 |   |  |  | 0.29 |   |  |  | 0.18 |   |  |  | 0.27 |   |  |  |      |  
|          | 6            |        |  |        | 0.59 |        |  |        | 0.50 |        |  |        | 0.46 |        |  |           | 0.66 |        |  |        | 0.56 |           |  |        | 0.55 |        |  |        | 0.59 |        |  |        | 0.65 |   |  |  | 0.54 |   |  |  | 0.50 |   |  |  | 0.50 |   |  |  | 0.49 |   |  |  | 0.43 |   |  |  | 0.32 |   |  |  |      |   |  |  |      |  
|          | 7            |        |  |        | 0.83 |        |  |        | 0.61 |        |  |        | 0.62 |        |  |           | 0.87 |        |  |        | 0.71 |           |  |        | 0.71 |        |  |        | 0.78 |        |  |        | 0.81 |   |  |  | 0.74 |   |  |  | 0.70 |   |  |  | 0.69 |   |  |  | 0.65 |   |  |  | 0.60 |   |  |  | 0.49 |   |  |  |      |   |  |  |      |  
|          | 8            |        |  |        | 1.03 |        |  |        | 0.75 |        |  |        | 0.76 |        |  |           | 1.00 |        |  |        | 0.86 |           |  |        | 0.91 |        |  |        | 0.99 |        |  |        | 0.93 |   |  |  | 0.93 |   |  |  | 0.84 |   |  |  | 0.87 |   |  |  | 0.81 |   |  |  | 0.84 |   |  |  | 0.66 |   |  |  |      |   |  |  |      |  
|          | 9            |        |  |        | 1.21 |        |  |        | 0.86 |        |  |        | 0.92 |        |  |           | 1.13 |        |  |        | 1.01 |           |  |        | 1.10 |        |  |        | 1.17 |        |  |        | 1.07 |   |  |  | 1.13 |   |  |  | 1.04 |   |  |  | 1.05 |   |  |  | 0.95 |   |  |  | 1.06 |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 10           |        |  |        | 1.40 |        |  |        | 1.00 |        |  |        | 1.11 |        |  |           | 1.24 |        |  |        | 1.14 |           |  |        | 1.27 |        |  |        | 1.33 |        |  |        | 1.24 |   |  |  | 1.34 |   |  |  | 1.24 |   |  |  | 1.22 |   |  |  | 1.07 |   |  |  | 1.28 |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 11           |        |  |        | 1.53 |        |  |        | 1.17 |        |  |        | 1.30 |        |  |           | 1.35 |        |  |        | 1.34 |           |  |        | 1.45 |        |  |        | 1.44 |        |  |        | 1.41 |   |  |  | 1.50 |   |  |  | 1.45 |   |  |  | 1.36 |   |  |  | 1.20 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 12           |        |  |        | 1.62 |        |  |        | 1.32 |        |  |        | 1.47 |        |  |           | 1.44 |        |  |        | 1.52 |           |  |        | 1.58 |        |  |        | 1.57 |        |  |        | 1.62 |   |  |  | 1.74 |   |  |  | 1.67 |   |  |  | 1.53 |   |  |  | 1.37 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 13           |        |  |        | 1.74 |        |  |        | 1.48 |        |  |        | 1.61 |        |  |           | 1.58 |        |  |        | 1.74 |           |  |        | 1.73 |        |  |        | 1.72 |        |  |        | 1.86 |   |  |  | 1.95 |   |  |  | 1.90 |   |  |  | 1.67 |   |  |  | 1.55 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 14           |        |  |        | 1.84 |        |  |        | 1.66 |        |  |        | 1.73 |        |  |           | 1.74 |        |  |        | 1.94 |           |  |        | 1.85 |        |  |        | 1.86 |        |  |        | 2.04 |   |  |  | 2.21 |   |  |  | 2.09 |   |  |  | 1.81 |   |  |  | 1.74 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 15           |        |  |        | 1.96 |        |  |        | 1.79 |        |  |        | 1.81 |        |  |           | 1.85 |        |  |        | 2.09 |           |  |        | 2.00 |        |  |        | 2.04 |        |  |        | 2.25 |   |  |  | 2.48 |   |  |  | 2.25 |   |  |  | 2.00 |   |  |  | 1.97 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 16           |        |  |        | 2.10 |        |  |        | 1.91 |        |  |        | 1.89 |        |  |           | 2.03 |        |  |        | 2.27 |           |  |        | 2.15 |        |  |        | 2.24 |        |  |        | 2.45 |   |  |  | 2.71 |   |  |  | 2.41 |   |  |  | 2.19 |   |  |  | 2.16 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 17           |        |  |        | 2.22 |        |  |        | 2.01 |        |  |        | 2.00 |        |  |           | 2.16 |        |  |        | 2.39 |           |  |        | 2.37 |        |  |        | 2.39 |        |  |        | 2.68 |   |  |  | 2.89 |   |  |  | 2.54 |   |  |  | 2.37 |   |  |  | 2.36 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 18           |        |  |        | 2.40 |        |  |        | 2.07 |        |  |        | 2.10 |        |  |           | 2.30 |        |  |        | 2.53 |           |  |        | 2.52 |        |  |        | 2.55 |        |  |        | 2.88 |   |  |  | 3.08 |   |  |  | 2.73 |   |  |  | 2.60 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 19           |        |  |        | 2.55 |        |  |        | 2.11 |        |  |        | 2.24 |        |  |           | 2.42 |        |  |        | 2.67 |           |  |        | 2.67 |        |  |        | 2.73 |        |  |        | 3.08 |   |  |  | 3.22 |   |  |  | 2.93 |   |  |  | 2.80 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 20           |        |  |        | 2.69 |        |  |        | 2.17 |        |  |        | 2.35 |        |  |           | 2.50 |        |  |        | 2.81 |           |  |        | 2.83 |        |  |        | 2.93 |        |  |        | 3.23 |   |  |  | 3.40 |   |  |  | 3.11 |   |  |  | 3.01 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 21           |        |  |        | 2.79 |        |  |        | 2.24 |        |  |        | 2.46 |        |  |           | 2.58 |        |  |        | 2.92 |           |  |        | 2.99 |        |  |        | 3.12 |        |  |        | 3.38 |   |  |  | 3.59 |   |  |  | 3.34 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 22           |        |  |        | 2.85 |        |  |        | 2.34 |        |  |        | 2.55 |        |  |           | 2.67 |        |  |        | 3.10 |           |  |        | 3.16 |        |  |        | 3.27 |        |  |        | 3.54 |   |  |  | 3.78 |   |  |  | 3.54 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 23           |        |  |        | 2.89 |        |  |        | 2.43 |        |  |        | 2.63 |        |  |           | 2.77 |        |  |        | 3.28 |           |  |        | 3.34 |        |  |        | 3.38 |        |  |        | 3.67 |   |  |  | 3.96 |   |  |  | 3.72 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 24           |        |  |        | 2.92 |        |  |        | 2.52 |        |  |        | 2.71 |        |  |           | 2.87 |        |  |        | 3.38 |           |  |        | 3.49 |        |  |        | 3.52 |        |  |        | 3.83 |   |  |  | 4.18 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 25           |        |  |        | 2.97 |        |  |        | 2.62 |        |  |        | 2.77 |        |  |           | 3.01 |        |  |        | 3.55 |           |  |        | 3.63 |        |  |        | 3.63 |        |  |        | 4.00 |   |  |  | 4.41 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 26           |        |  |        | 3.04 |        |  |        | 2.71 |        |  |        | 2.82 |        |  |           | 3.14 |        |  |        | 3.68 |           |  |        | 3.75 |        |  |        | 3.73 |        |  |        | 4.16 |   |  |  | 4.58 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 27           |        |  |        | 3.13 |        |  |        | 2.80 |        |  |        | 2.89 |        |  |           | 3.16 |        |  |        | 3.84 |           |  |        | 3.86 |        |  |        | 3.84 |        |  |        | 4.35 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 28           |        |  |        | 3.18 |        |  |        | 2.87 |        |  |        | 2.96 |        |  |           | 3.29 |        |  |        | 3.98 |           |  |        | 3.97 |        |  |        | 3.97 |        |  |        | 4.50 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 29           |        |  |        | 3.24 |        |  |        | 2.90 |        |  |        | 3.02 |        |  |           | 3.40 |        |  |        | 4.14 |           |  |        | 4.09 |        |  |        | 4.11 |        |  |        | 4.64 |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 30           |        |  |        | 3.32 |        |  |        | 2.95 |        |  |        | 3.09 |        |  |           | 3.50 |        |  |        | 4.19 |           |  |        | 4.21 |        |  |        | 4.26 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 31           |        |  |        | 3.38 |        |  |        | 3.00 |        |  |        | 3.17 |        |  |           | 3.61 |        |  |        | 4.30 |           |  |        | 4.33 |        |  |        | 4.40 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 32           |        |  |        | 3.43 |        |  |        | 3.02 |        |  |        | 3.20 |        |  |           | 3.68 |        |  |        | 4.38 |           |  |        | 4.47 |        |  |        | 4.50 |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 33           |        |  |        | 3.47 |        |  |        | 3.08 |        |  |        | 3.27 |        |  |           | 3.74 |        |  |        | 4.46 |           |  |        | 4.59 |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 34           |        |  |        | 3.48 |        |  |        | 3.14 |        |  |        | 3.35 |        |  |           | 3.81 |        |  |        | 4.57 |           |  |        | 4.68 |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 35           |        |  |        | 3.52 |        |  |        | 3.15 |        |  |        | 3.41 |        |  |           | 3.87 |        |  |        | 4.66 |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 36           |        |  |        | 3.54 |        |  |        | 3.21 |        |  |        | 3.47 |        |  |           | 3.91 |        |  |        | 4.76 |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 37           |        |  |        | 3.58 |        |  |        | 3.25 |        |  |        | 3.52 |        |  |           | 3.97 |        |  |        | 4.84 |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 38           |        |  |        | 3.63 |        |  |        | 3.30 |        |  |        | 3.55 |        |  |           | 4.03 |        |  |        | 4.96 |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 39           |        |  |        | 3.66 |        |  |        | 3.35 |        |  |        | 3.58 |        |  |           | 4.09 |        |  |        | 5.03 |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 40           |        |  |        | 3.65 |        |  |        | 3.39 |        |  |        | 3.61 |        |  |           | 4.13 |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 41           |        |  |        | 3.69 |        |  |        | 3.39 |        |  |        | 3.63 |        |  |           | 4.18 |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 42           |        |  |        | 3.73 |        |  |        | 3.42 |        |  |        | 3.66 |        |  |           | 4.23 |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 43           |        |  |        | 3.75 |        |  |        | 3.45 |        |  |        | 3.68 |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 44           |        |  |        | 3.79 |        |  |        | 3.47 |        |  |        | 3.72 |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 45           |        |  |        | 3.81 |        |  |        | 3.48 |        |  |        | 3.75 |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 46           |        |  |        | 3.81 |        |  |        | 3.50 |        |  |        | 3.79 |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 47           |        |  |        | 3.83 |        |  |        | 3.52 |        |  |        | 3.80 |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 48           |        |  |        | 3.84 |        |  |        | 3.56 |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 49           |        |  |        | 3.85 |        |  |        | 3.58 |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 50           |        |  |        | 3.86 |        |  |        | 3.60 |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 51           |        |  |        | 3.87 |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 52           |        |  |        | 3.88 |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 53           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 54           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 55           |        |  |        | 3.89 |        |  |        |      |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | Prime Mix(2) |        |  |        | 67   | %      |  |        | 70   | %      |  |        | 70   | %      |  |           | 70   | %      |  |        | 67   | %         |  |        | 68   | %      |  |        | 69   | %      |  |        | 68   | % |  |  | 68   | % |  |  | 71   | % |  |  | 71   | % |  |  | 76   | % |  |  | 70   | % |  |  | 87   | % |  |  | 85   | % |  |  | 80   | %



---



|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.

39



---



##### Table of Contents





| |                            
| | ---------------------------
| | Allowance for Credit Losses

Our allowance for credit losses was
$220 million at December 31, 2002 compared with
$132 million at December 31, 2001. We have increased
our percentage of allowance for credit losses from 2.5% at
December 31, 2001 to 2.8% at December 31, 2002 as we
have experienced higher losses in our owned portfolio due to a
slowing economy. Based on the analyses we performed related to
the allowance for credit losses as described under Critical
Accounting Polices, we believe that our allowance for credit
losses is currently adequate to cover probable losses in our
contract portfolio that can be reasonably estimated.

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

|                                                                                       |  |                                 |          |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|-------------------------------------------------------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                                                                       |  |                                
|                                                                                       |  | For the Year Ended December 31,
|                                                                                       |  |                                
|                                                                                       |  | 2002                            |          | 2001 |  | 2000 |          | 1999 |  | 1998
|                                                                                       |  |                                 |          |      |  |      |          |      |  |     
|                                                                                       |  |                                
|                                                                                       |  | (Dollars in thousands)         
|Balance at beginning of period                                                         |  | $                               | 131,827  |      |  | $    | 71,308   |      |  | $    | 36,682  |   |  | $ | 11,246  |   |  | $ | 6,787   |  
|Chargeoffs                                                                             |  |                                 | (207,713 | )    |  |      | (110,359 | )    |  |      | (47,929 | ) |  |   | (18,696 | ) |  |   | (14,832 | )
|Recoveries                                                                             |  |                                 | 49,883   |      |  |      | 31,331   |      |  |      | 13,593  |   |  |   | 7,554   |   |  |   | 4,145   |  
|                                                                                       |  |                                 |          |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Net chargeoffs                                                                         |  |                                 | (157,830 | )    |  |      | (79,028  | )    |  |      | (34,336 | ) |  |   | (11,142 | ) |  |   | (10,687 | )
|Write-down of nonperforming assets                                                     |  |                                 | (2,880   | )    |  |      | (4,583   | )    |  |      |         |   |  |   |         |   |  |   |         |  
|Provision for credit losses                                                            |  |                                 | 249,093  |      |  |      | 144,130  |      |  |      | 68,962  |   |  |   | 36,578  |   |  |   | 15,146  |  
|                                                                                       |  |                                 |          |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Balance at end of period                                                               |  | $                               | 220,210  |      |  | $    | 131,827  |      |  | $    | 71,308  |   |  | $ | 36,682  |   |  | $ | 11,246  |  
|                                                                                       |  |                                 |          |      |  |      |          |      |  |      |         |   |  |   |         |   |  |   |         |  
|Ratio of allowance for credit losses to loans at
    the end of the period             |  |                                 | 2.8      | %    |  |      | 2.5      | %    |  |      | 2.3     | % |  |   | 2.5     | % |  |   | 1.3     | %
|Ratio of net chargeoffs during the period to
    average loans owned during the period |  |                                 | 2.4      | %    |  |      | 2.0      | %    |  |      | 1.6     | % |  |   | 1.3     | % |  |   | 2.0     | %

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, our ability to manage risk-adjusted returns and our
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 securitization of contracts. The
following table shows our operating cash flows:

|                                         |  |                                 |         |      |  |      |         |  |  |   |         | 
|---------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                                         |  |                                
|                                         |  | For the Year Ended December 31,
|                                         |  |                                
|                                         |  | 2002                            |         | 2001 |  | 2000
|                                         |  |                                 |         |      |  |     
|                                         |  |                                
|                                         |  | (Dollars in thousands)         
|Cash flows from owned contracts          |  | $                               | 420,048 |      |  | $    | 285,139 |  |  | $ | 182,059 | 
|Cash flows from off balance sheet trusts |  |                                 | 6,656   |      |  |      | 47,357  |  |  |   | 127,294 | 
|Contractual servicing income             |  |                                 | 61,830  |      |  |      | 85,845  |  |  |   | 57,718  | 
|Cash gain on sale                        |  |                                 |         |      |  |      | 6,741   |  |  |   | 6,004   | 
|Fee income                               |  |                                 | 87,277  |      |  |      | 72,820  |  |  |   | 61,772  | 
|Less:                                    |  |                                 |         |      |  |      |         |  |  |   |         | 
|Dealer participation                     |  |                                 | 129,272 |      |  |      | 120,785 |  |  |   | 100,300 | 
|Operating costs                          |  |                                 | 212,904 |      |  |      | 205,292 |  |  |   | 188,634 | 
|                                         |  |                                 |         |      |  |      |         |  |  |   |         | 
|Operating cash flows                     |  | $                               | 233,635 |      |  | $    | 171,825 |  |  | $ | 145,913 | 
|                                         |  |                                 |         |      |  |      |         |  |  |   |         | 

Operating cash flows improved 36% for 2002
compared with 2001 and 18% for 2001 compared with 2000 as a
result of the growth in our managed portfolio as well as
improved operating efficiencies.

40



---



##### Table of Contents



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 most
securitizations, we receive access to the amounts deposited into
collection accounts and amounts held in the spread accounts. 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 attractive terms.
See Business  Transactions with Related
Parties  Reinvestment Contracts. If we were
unable to obtain additional financing, we may have to curtail
our 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
$5.9 billion, $4.9 billion and $3.8 billion for
the years ended December 31, 2002, 2001 and 2000,
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. Since 1985, we
have sold or securitized over $30 billion of automobile
receivables in 58 public offerings, making us the fourth largest
issuer by dollar amount of such securities in the nation.
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 contract
purchasing activities, which would have a material adverse
effect on our financial position, liquidity and results of
operations.



| |                       
| | ----------------------
| | 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. We are able to utilize these liquidity sources
through agreements we have entered into with our parent. 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

41



---



##### Table of Contents



securitizations. The availability of these
financing sources depends 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 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 years ended
December 31, 2002 and 2001, we issued $775 million and
$650 million of notes secured by contracts through conduit
facilities established in January 2002 and December 2001,
respectively. We terminated the December 2001 facility in March
2002 in conjunction with a $1.8 billion public automobile
contract asset-backed securitization. The January 2002 facility
was terminated in May 2002 in conjunction with a
$1.8 billion public automobile contract asset-backed
securitization.



| |                 
| | ----------------
| | Equity Offerings

We completed rights offerings in March 2002 and
May 2001 which raised $110 million and $116 million of
equity through the issuance of 6.1 million and
6.4 million additional common shares at a price of $18.00
and $18.25 per share, respectively. With the completion of the
March 2002 offering, the number of our common shares issued and
outstanding increased by 18% to 41.1 million shares,
compared with an increase of 22% to 35.0 million shares in
May 2001.

Of the 6.1 million and 6.4 million
additional common shares issued in 2002 and 2001, the Bank
purchased 5.2 million and 5.3 million shares in the
amount of $94.4 million and $96.5 million,
respectively. At December 31, 2002, the Bank owned 84% of
our common stock.



| |                     
| | --------------------
| | Operating Cash Flows

Cash flows from owned contracts, trusts,
servicing income, cash gain on sale and fee income less cash
paid for dealer participation and operating expenses represents
our operating cash flows. We are able to use our operating cash
flow as an additional source of cash. Operating cash flows were
$234 million, $172 million and $146 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. Operating cash flows for 2002 have increased 60%
since 2000 as a result of growth in our managed portfolio as
well as improved operating efficiencies.

Principal Uses of Cash



| |                      
| | ---------------------
| | Purchase of Contracts

Our most significant use of cash is for 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 $5.4 billion of contracts in 2002 compared with
$4.9 billion in 2001 and $4.2 billion in 2000.



| |                                                          
| | ---------------------------------------------------------
| | 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 $5.6 billion in 2002 compared with
$3.7 billion and $2.7 billion in 2001 and 2000,
respectively. Payments of principal and interest have increased
as a result of an increase in the amount of automobile
asset-backed securities outstanding.

42



---



##### Table of Contents





| |                        
| | -----------------------
| | Amounts Paid to Dealers

Consistent with industry practice, we generally
pay participation to the originating dealer for each contract
purchased. Participation paid to dealers during 2002 totaled
$129 million compared with $121 million and
$100 million in 2001 and 2000, 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. The amount of participation paid
to dealers increased primarily as a result of an increase in the
amount of contracts purchased.



| |                         
| | ------------------------
| | 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 a 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 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 2003 fiscal year. The adoption of
SFAS No. 143 will not 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 supersede 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 or 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,

43



---



##### Table of Contents



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.


In April 2002, the FASB issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, also known as
SFAS No. 145. SFAS No. 145 rescinds
Statements of Financial Accounting Standards No. 4 and 64
that required gains and losses from extinguishment of debt to be
classified as extraordinary items. SFAS No. 145 also
rescinds Statement of Financial Accounting Standards No. 44
that provided transition provisions related to the Motor Carrier
Act of 1980. SFAS No. 145 amended Statement of
Financial Accounting Standards No. 13 to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease
modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends
other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their
applicability under changed conditions. SFAS No. 145
is effective for financial statements issued on or after
May 15, 2002. We adopted SFAS No. 145 and it did
not have a material effect on our earnings or financial position.

In June 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, also known as
SFAS No. 146, in which liabilities for costs
associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liabilities are
incurred. SFAS No. 146 eliminated the recognition of
certain costs associated with exit or disposal activities that
were previously recognized as liabilities at a plan (commitment)
date under Emerging Issues Task Force Issue No. 94-3 that
did not meet the definition of a liability in FASB Concepts
Statement No. 6, Elements of Financial Statements.
SFAS No. 146 is effective for disposal activities
initiated after December 31, 2002. The adoption of
SFAS No. 146 will not have a material effect on our
earnings or financial position.

In October 2002, the FASB issued Statement of
Financial Accounting Standards No. 147, Acquisitions of
Certain Financial Institutions  an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation
No. 9, also known as SFAS No. 147, to remove
acquisitions of financial institutions from the scope of both
FASB Statement No. 72 and FASB Interpretation No. 9.
SFAS No. 147 now requires that acquisitions of
financial institutions be accounted for in accordance with
SFAS No. 141 and 142. SFAS No. 147 also
amends SFAS No. 144 to include in its scope long-term
customer-relationship intangible assets of financial
institutions. Consequently, customer-relationship intangible
assets are subject to the same undiscounted cash flow
recoverability test and impairment loss recognition and
measurement provisions that SFAS No. 144 requires for
other long-lived assets that are held and used.
SFAS No. 147 is effective for acquisitions made on or
after October 1, 2002 and is effective for measurement of
impairment of long-lived assets on October 1, 2002. We
adopted SFAS No. 147 on October 1, 2002 and it
did not have a material effect on our earnings or financial
position.

In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure  an amendment of FASB Statement
No. 123, also known as SFAS No. 148.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based employee compensation and requires prominent
disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee
compensation and the method used on reported results.
SFAS No. 148 provides two additional transition
methods for entities that adopt Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, also known as SFAS No. 123. Both of
these methods avoid the ramp-up effects arising from prospective
application of the fair value based method.
SFAS No. 148 does not permit the use of the original
SFAS No. 123 method of transition for changes to the
fair value based method made in fiscal years beginning after
December 15, 2003. This statement also requires disclosure
of comparable information for all companies regardless of which
method of accounting for stock-based employee compensation.
SFAS No. 148 improves the timeliness of disclosures by
requiring their inclusion in financial

44



---



##### Table of Contents



reports for interim periods.
SFAS  No. 148 is effective for fiscal years
ending after December 15, 2002. We adopted the disclosure
provisions of SFAS No. 148 on December 31, 2002,
and expect to adopt the prospective application method of
transition to the fair value based method of accounting for
stock options in the first quarter of 2003. Neither the adoption
of the disclosure provisions nor the adoption of the fair value
based method will have a material effect on our earnings or
financial position.


In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, also known as FIN No. 45.
FIN No. 45 will require that guarantees meeting the
characteristics described in FIN No. 45 be recognized and
initially measured at fair value. In addition, FIN No. 45
will require new disclosures by guarantors, even if the
likelihood of the guarantor making payments under the guarantee
is remote. The disclosure provisions of FIN No. 45 are
effective for fiscal years ending after December 15, 2002.
The initial recognition and initial measurement provisions of
FIN No. 45 are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. We
adopted FIN No. 45 on December 15, 2002 and it did not
have a material effect on our earnings or financial position.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, also
known as FIN No. 46. FIN No. 46 changes the
consolidation requirements by requiring a variable interest
entity to be consolidated by a company if that company is
subject to the majority of the risk of loss from the variable
interest entitys activities or entitled to receive a
majority of the entitys residual returns or both. In
addition, FIN No. 46 requires disclosures about variable
interest entities that the company is not required to
consolidate but in which it has a significant variable interest.
The consolidation requirements of FIN No. 46 apply to
variable interest entities created after January 31, 2003
and apply to existing variable interest entities in the first
fiscal year or interim period beginning after June 15,
2003. The adoption of FIN No. 46 will not have a material
effect on our earnings or financial position.

45



---



##### Table of Contents








|         |                                                              
|-------- | -------------------------------------------------------------
|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 future contracts 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.

As we issued certain variable rate notes payable
in 2002 and 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.

We also enter into interest rate swap agreements
or other derivatives that do not qualify for hedge accounting
under SFAS No. 133 or that we choose not to designate as
hedges. These derivatives pertain to variable rate notes issued
in conjunction with the securitization of our contracts. Any
change in the market value of such derivatives is recorded to
income each month. Any income or expense recognized on such
derivatives is recognized as miscellaneous income or expense.

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. 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.

46



---



##### Table of Contents



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.

|                                        |                       |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           |       |   |   |           |   | 
|--------------------------------------- | --------------------- | ---- | --------- | ----- | - | ---- | --------- | ---------------------- | - | ---- | ---------- | ---------- | - | ----- | --------- | ---------- | - | - | ------- | ----- | - | - | ------- | ----- | - | - | --------- | ----- | - | - | --------- | - | 
|                                        |                       | 2003 |           | 2004  |   | 2005 |           | 2006                   |   | 2007 |            | Thereafter |   | Total |           | Fair Value
|                                        |                       |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |           
|                                        |                       |      |           |       |   |      |           |                        |   |      |            |            |   |      
|                                        |                       |      |           |       |   |      |           | (Dollars in thousands) |   |      |            |            |   |      
|Rate sensitive assets:                  |                       |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           |       |   |   |           |  
|Fixed interest rate contracts           |                       | $    | 2,596,168 |       |   | $    | 2,183,846 |                        |   | $    | 1,607,004  |            |   | $     | 1,042,946 |            |   | $ | 470,663 |       |   | $ | 49,496  |       |   | $ | 7,950,123 |       |   | $ | 8,850,736 |  
|                                        | Average interest rate |      |           | 12.26 | % |      |           | 12.32                  | % |      |            | 12.29      | % |       |           | 12.04      | % |   |         | 11.37 | % |   |         | 10.11 | % |   |           | 12.19 | % |   |           |   | 
|Fixed interest rate securities          |                       | $    | 3,348     |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   | $ | 3,348     |       |   | $ | 3,348     |  
|                                        | Average interest rate |      |           | 5.50  | % |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           | 5.50  | % |   |           |   | 
|Rate sensitive liabilities:             |                       |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           |       |   |   |           |  
|Automobile secured financing  Fixed    |                       | $    | 2,213,970 |       |   | $    | 1,766,085 |                        |   | $    | 774,225    |            |   | $     | 618,815   |            |   |   |         |       |   |   |         |       |   | $ | 5,373,095 |       |   | $ | 5,617,527 |  
|                                        | Average interest rate |      |           | 3.58  | % |      |           | 4.43                   | % |      |            | 3.68       | % |       |           | 4.03       | % |   |         |       |   |   |         |       |   |   |           | 3.92  | % |   |           |   | 
|Automobile secured financing  Variable |                       | $    | 1,950,085 |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   | $ | 1,950,085 |       |   | $ | 1,950,085 |  
|                                        | Average interest rate |      |           | 1.85  | % |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           | 1.85  | % |   |           |   | 
|Notes payable  parent                  |                       |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |            |   | $ | 180,010 |       |   | $ | 300,000 |       |   | $ | 408,010   |       |   | $ | 426,738   |  
|                                        | Average interest rate |      |           |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         | 8.88  | % |   |         | 10.25 | % |   |           | 9.89  | % |   |           |   | 
|Lines of credit                         |                       | $    | 62,048    |       |   |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   | $ | 62,048    |       |   | $ | 62,111    |  
|                                        | Average interest rate |      |           | 2.54  | % |      |           |                        |   |      |            |            |   |       |           |            |   |   |         |       |   |   |         |       |   |   |           | 2.54  | % |   |           |   | 
|Interest rate swap agreements           |                       | $    | 2,928,084 |       |   | $    | (973,257  | )                      |   | $    | (1,527,475 | )          |   | $     | (427,352  | )          |   |   |         |       |   |   |         |       |   |   |           |       |   | $ | (59,244   | )
|                                        | Average pay rate      |      |           | 2.91  | % |      |           | 3.44                   | % |      |            | 2.70       | % |       |           | 2.49       | % |   |         |       |   |   |         |       |   |   |           | 2.91  | % |   |           |   | 
|                                        | Average receive rate  |      |           | 1.43  | % |      |           | 1.48                   | % |      |            | 1.40       | % |       |           | 1.39       | % |   |         |       |   |   |         |       |   |   |           | 1.43  | % |   |           |   | 

47



---



##### Table of Contents



Glossary

ALLOWANCE FOR CREDIT
LOSSES:     Funds in an account
established to cover probable credit losses. If we believe an
automobile contract is uncollectible, we set aside in the
allowance account a portion of earnings equal to the difference
between unpaid principal and the market value of the contract.
If the contract is charged off, we reduce the principal balance
and the allowance by equal amounts.

ASSET-BACKED
SECURITIES:     Securities that are
backed by financial assets such as automobile contracts.

AUTOMOBILE
CONTRACTS:     Closed-end loans secured
by a first lien on a vehicle.

BOOK VALUE PER COMMON
SHARE:     The value of a share of
common stock based on the values at which the assets are
recorded on the balance sheet determined by dividing
shareholders equity by the total number of common shares
outstanding.

CHARGEOFF:     A
contract written off as uncollectible.

CHARGEOFF RATE:     Net
annualized chargeoffs divided by average contracts outstanding
for the period.

CONDUIT FINANCING:     A
transaction involving the transfer of a pool of assets to a
trust, wherein securities representing undivided interests in,
or obligations of, the trust are purchased by an investor that
issues short-term notes. The transaction is treated as a secured
financing.

CORE CAPITAL:     A
capital measure applicable to savings institutions. The
Banks core capital is comprised of common
shareholders equity (excluding certain components of
accumulated other comprehensive income or loss), minority
interest in includable consolidated subsidiaries, less
investments in and advances to nonincludable subsidiaries.

CORE CAPITAL
RATIO:     A regulatory measure of
capital adequacy. The Banks core capital ratio is core
capital to total assets adjusted for assets in certain
subsidiaries that cannot be included and certain unrealized
gains or losses on certain securities and cash flow hedges.

DEALER
PARTICIPATION:     The amount paid to a
dealer for the purchase of an automobile contract in excess of
the principal amount financed.

DELINQUENCY:     A
method of determining aging of past due accounts based on the
status of payments under the loan.

DERIVATIVES:     Interest
rate swaps, futures, forwards, option contracts or other
off-balance sheet financial instruments used for asset and
liability management purposes. These instruments derive their
values or contractually determined cash flows from the price of
an underlying asset or liability, reference rate, index or other
security.

DEFERRED TAX
ASSET:     An asset attributable to
deductible temporary differences and carryforwards. A deferred
tax asset is measured using the applicable enacted tax rate and
provisions of the enacted tax law.

DEFERRED TAX
LIABILITY:     A liability attributable
to taxable temporary differences. A deferred tax liability is
measured using the applicable enacted tax rate and provisions of
the enacted law.

EARNING PER SHARE
(EPS):     The most common method of
expressing a companys profitability. Its purpose is to
indicate how effective an enterprise has been in using the
resources provided by common shareholders. EPS is usually
presented in two ways: basic EPS and diluted EPS. The
computation of basic EPS includes other instruments that are
equivalent to common stock. Diluted EPS includes all instruments
that have the potential of causing additional shares of common
stock to be issued, such as unexercised stock options.

EURO-DOLLAR FUTURES
CONTRACTS:     Futures contracts used
as a hedge to lock in a gross spread on a future securitization
transaction prior to closing the transaction.

FEE INCOME:     Income
from documentation fees, late charges, deferment fees,
transaction processing fees, and other fees.

48



---



##### Table of Contents



FHLB:     The Federal
Home Loan Bank, a network of twelve regional Federal Home Loan
Banks chartered by Congress in 1932 to ensure financial
institutions have access to money to lend to consumers for home
mortgages.

FORWARD
AGREEMENTS:     Contracts to exchange
payments on a specified future date, based on a market change in
interest rates from trade date to contract settlement date.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP):     Accounting rules and
conventions defining acceptable practices in preparing financial
statements in the United States of America. The Financial
Accounting Standards Board (FASB), an independent
self-regulatory organization, is the primary source of
accounting rules.

HEDGE:     A derivative
instrument designed to reduce or eliminate risk, such as
interest rate risk. To be treated as a hedge under GAAP, the
instrument must meet certain requirements as defined under
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.

HOLDING COMPANY:     A
corporation or other entity that owns a majority of stock or
securities of one or more other corporations, thus obtaining
control of the other corporations.

INTEREST BEARING
LIABILITIES:     The sum of deposits,
notes, subordinated debt and other borrowings on which interest
expense is incurred.

INTEREST EARNING
ASSETS:     The sum of loans and
investments on which interest income is earned.

INTEREST RATE
SPREAD:     The difference between the
yield on our interest earning assets and the rate paid on our
interest bearing liabilities.

INTEREST RATE
SWAP:     A contract between two
parties to exchange interest payments on a notional amount for a
specified period. Typically, one party makes fixed rate
payments, while the other party makes payments using a variable
rate. Such a transaction is commonly used to manage the asset or
liability sensitivity of a balance sheet by converting fixed
rate assets or liabilities to floating rates, or vice versa.

LIBOR:     London
Interbank Offered Rate, which is a widely quoted market rate
that is frequently the index used to determine the rate at which
our subsidiaries or we borrow funds.

LIQUIDITY:     A measure
of how quickly we can convert assets to cash or raise additional
cash by issuing debt.

MANAGED CONTRACTS or MANAGED
PORTFOLIO:     Automobile contracts on
the balance sheet plus contracts securitized in transactions
treated as sales under GAAP, which we continue to service.

NET CHARGEOFFS or NET CREDIT
LOSSES:     The amount of automobile
contracts written off as uncollectible, net of the recovery of
contracts previously written off as uncollectible.

NET INTEREST
INCOME:     Interest income and loan
fees on interest earning assets less the interest expense
incurred on all interest bearing liabilities.

NET INTEREST
MARGIN:     Interest income from
automobile contracts and other interest earning assets reduced
by interest expense as a percentage of the average balance of
such interest earning assets.

NET YIELD ON AVERAGE INTEREST EARNING
ASSETS:     The average interest rate
earned on interest earning assets less the average interest rate
paid on interest bearing liabilities.

NONACCRUAL
CONTRACTS:     Automobile contracts on
which we no longer accrue interest because ultimate collection
is unlikely.

NONINTEREST
EXPENSE:     All expenses other than
interest expense.

NONINTEREST
INCOME:     All income other than
interest income.

NONPERFORMING ASSETS
(NPAs):     Chapter 13 bankruptcy
accounts greater than 120 days delinquent.

NON-PRIME
BORROWERS:     Borrowers who have
overcome past credit difficulties.

49



---



##### Table of Contents



NOTIONAL AMOUNT:     The
principal amount of a financial instrument on which a derivative
transaction is based. In an interest rate swap, for example, the
notional amount is used to calculate the interest rate cash
flows to be exchanged. No exchange of principal occurs.

OWNED
CONTRACTS:     Contracts held on our
balance sheet.

PORTFOLIO
BASIS:     Method of reporting whereby
net interest margin, other revenues and credit losses on
securitized contracts and contracts sold in whole loan sales,
which we continue to service, are reported as if those
receivables were still held on our balance sheet.

PRIME
BORROWERS:     Borrowers who have
strong credit histories.

PROVISION FOR CREDIT
LOSSES:     A charge to earnings to
recognize that all contracts will not be fully paid. The amount
is determined based on such factors as our actual loss
experience, managements expectations of probable credit
losses, as well as current economic trends.

REINVESTMENT
CONTRACTS:     A series of agreements
between WFS, the Bank and WFAL2 through which WFS has access to
the cash flows of certain securitizations. Under such
agreements, collections of principal and interest on the
contracts in the securitization trust and funds in the spread
account are invested at either the Bank or WFAL2. Funds invested
at the Bank are collateralized by mortgage-backed securities and
made available to WFS through the WFS Reinvestment Contract.
Funds invested at WFAL2 are collateralized by automobile
contracts, which WFAL2 purchases from WFS.

RETAINED INTEREST IN SECURITIZED ASSETS
(RISA):     An asset that represents
our contractual right to receive interest and other cash flows
from our securitization trusts after the investors receive their
contractual return.

RETAINED INTEREST INCOME OR
EXPENSE:     The excess cash flows on
the contracts sold through securitizations treated as sales less
the amortization of the retained interest in securitized assets.
The excess cash flows represent all cash received on the
contracts securitized less payments to investors for principal
and interest.

RETURN ON AVERAGE
ASSETS:     A financial measurement of
the efficiency with which a business uses its assets. Return on
average assets is the ratio of net income divided by average
total assets.

RETURN ON AVERAGE SHAREHOLDERS
EQUITY:     A measure of how effective
a business has been in investing its net worth. Return on equity
is expressed as a ratio, calculated by dividing net income by
average equity excluding accumulated other comprehensive income
or loss.

RISK-ADJUSTED
MARGIN:     The net interest margin
less the chargeoff rate.

RISK-WEIGHTED ASSETS: An amount used in
determining risk-based capital ratios applicable to savings
institutions. The amount of risk-weighted assets is calculated
by taking the face amount of assets on and off the balance sheet
and applying a factor based on the inherent risk of such assets
as defined by regulation.

SECURED FINANCING:     A
transaction where interests in a pool of financial assets, such
as automobile contracts, are sold to investors. Typically, the
assets are transferred to a trust that issues interests that are
sold to investors. The contracts and related debt remain on our
balance sheet.

SECURITIZATION:     A
transaction involving the transfer of a pool of assets to a
trust, wherein securities representing undivided interests in,
or obligations of, the trust are purchased by investors. The
securities are repaid by the cash flows from the assets
transferred to the trust. The transaction is treated as either a
secured financing or a sale, depending on the terms of the
transaction.

SFAS:     Statement of
Financial Accounting Standards.

SHAREHOLDERS
EQUITY:     A balance sheet amount that
represents the total investment in the corporation by holders of
common stock.

SPREAD ACCOUNT:     An
account of a securitization trust into which excess cash flows
generated by the contracts securitized are deposited. The terms
of the account, which vary with each securitization, typically

50



---



##### Table of Contents



state a maximum balance, generally expressed as a
percentage of the current principal balance of the notes and
certificates. The initial deposit is generally funded by the
company securitizing the assets and is expressed as a percentage
of the original balance of the notes and certificates. Once the
required or maximum spread account balance is reached, the
excess is typically released to the certificate holder.


SUBORDINATED
DEBENTURES:     Borrowing in the form
of an unsecured note, debenture, or other debt instrument, which
in the event of the debtors bankruptcy, has a claim to the
assets of the debtor with a lower priority than other classes of
debt.

SUBSIDIARY:     An
organization controlled by another organization or company.

SUPPLEMENTARY
CAPITAL:     Instruments that qualify
as additional regulatory capital for total risk-based capital
measurement. The Banks supplementary capital includes
subordinated debentures and general valuation loan and lease
loss allowance limited to 1.25% of risk-weighted assets.
Supplementary capital is limited to 100% of core capital.

TANGIBLE CAPITAL:     A
capital measure applicable to savings institutions. The
Banks tangible capital is the same as its core capital
because the Bank does not have any intangible assets that would
be deducted from core capital to derive tangible capital.

TIER 1 RISK-BASED
CAPITAL:     A capital measure
applicable to savings institutions. The Banks tier 1
risk-based capital equals core capital less a dollar-for-dollar
reduction for its residual interests in securitized assets and
other recourse obligations. Prior to its adoption of new capital
regulations in September 2002 regarding the regulatory treatment
of these credit-enhancing assets, its tier 1 risk-based
capital equaled its core capital.

TIER 1 RISK-BASED CAPITAL
RATIO:     A regulatory measurement of
capital adequacy. The ratio of the Banks tier 1
risk-based capital to risk-weighted assets.

TOTAL RISK-BASED
CAPITAL:     A capital measure
applicable to savings institutions. The Banks total
risk-based capital equals its tier 1 risk-based capital
plus supplementary capital.

TOTAL RISK-BASED CAPITAL
RATIO:     A regulatory measurement of
capital adequacy. The ratio of total risk-based capital to
risk-weighted assets.

WFS REINVESTMENT
CONTRACT:     An agreement between the
Bank and us whereby the Bank allows us to utilize the funds
invested in the reinvestment contract at the Bank. In return for
the use of such funds, we pay the Bank a fee as consideration
for its pledge of collateral.




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.

51



---



##### 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 April 29,
2003, 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.




Item 14. Controls and
Procedures

Disclosure controls and procedures are designed
to ensure that the information required to be disclosed by us in
the reports that we file or submit under the Exchange Act are
recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by
us in the reports that we file under the Exchange Act is
accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosures.

Under the supervision and with the participation
of our management, including our Chief Executive Officer and
Chief Financial Officer, we have evaluated the effectiveness of
the design and operations of our disclosure controls and
procedures within 90 days of the filing date of this annual
report. Based on their evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that these controls
and procedures are effective. There has been no significant
change in our internal controls or in other factors that could
significantly affect the controls and procedures subsequent to
the date of their evaluation.

52



---



##### Table of Contents






PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Financial Statement Schedules, Exhibits and
    Reports on Form 8-K

(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, 2002 and 2001                                                                                          
|
| | Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                                                                                
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000                                                   
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                                                                            
|
| | 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(12)                                                                                                                     
|        | 10.6   |                        |  | Revolving Line of Credit Agreement between WFS
    Funding, Inc. and Western Financial Bank, dated
    November 30, 2001(12)                           
|        | 10.6.1 |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Funding, Inc. and Western Financial Bank, dated
    June 1, 2002                            
|        | 10.6.2 |                        |  | First Amendment dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Funding, Inc.
    and Western Financial Bank         
|        | 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         

53



---



##### Table of Contents



|        |         |                        |  |                                                                                                                                                                                                 
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.9.4  |                        |  | Amendment No. 4, dated October 15,
    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)                                                                                
|        | 10.10.1 |                        |  | Amended and restated tax sharing agreement
    between Westcorp and Subsidiaries, dated September 30, 2002                                                                                      
|        | 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(12)                                                                                   
|        | 10.16.2 |                        |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)                                                     
|        | 10.16.3 |                        |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)                                                     
|        | 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   |                        |  | Short-term 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 Short-term 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                                                  
|        | 10.20.1 |                        |  | First Amendment, dated August 1, 2002, to
    the 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)                                                                                                                                                                      
|        | 10.22   |                        |  | Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank, dated
    November 30, 2001(12)                                                       
|        | 10.22.1 |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western Financial
    Bank, dated June 1, 2002                                                        
|        | 10.22.2 |                        |  | First Amendment, dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Financial
    Auto Loans, Inc. and Western Financial Bank                                    
|        | 10.23   |                        |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank, dated
    November 30, 2001(12)                                                          

54



---



##### Table of Contents



|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.23.1 |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.23.2 |                        |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.24   |                        |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.24.1 |                        |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.25   |                        |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.26   |                        |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.26.1 |                        |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.27   |                        |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.28   |                        |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        | 10.29   |                        |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.30   |                        |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.31   |                        |  | Logo License Agreement between Western Financial
    Bank, Westcorp, WFS Financial Inc, Western Consumer Products,
    WFS Receivables Corporation, WFS Receivables Corporation 2,
    WFS Receivables Corporation 3, WFS Financial Auto Loans,
    Inc., The Hammond Company, The Mortgage Bankers, WFS Funding
    Inc., WFS Investments, Inc., Westran Services Corporation,
    WestFin Insurance Agency, Inc., Western Auto Investments, Inc.,
    Western Consumer Services, Inc., Westhrift Life Insurance
    Entity, Inc., Western Reconveyance Entity, Inc., and WFS Web
    Investments, Inc.
|        | 10.32   |                        |  | Travel Services Agreement between Westran
    Services Corp. and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.33   |                        |  | Secured Deposit Account Agreement between Western
    Financial Bank and WFS Receivables Corporation, dated
    October 17, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.34   |                        |  | Annuity Licensing Fee Agreement between Westfin
    Insurance Agency, Inc. and Western Financial Bank, dated
    September 9, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.35   |                        |  | Sublease Agreement between WFS Financial Inc, and
    WFS Receivable Corporation, WFS Receivables Corporation 2,
    WFS Financial Auto Loans, Inc., WFS Financial Auto Loans 2,
    Inc., Western Auto Investments, Inc., and WFS Funding, Inc.,
    dated March 21, 2002                                                                                                                                                                                                                                                                                                                              
|        | 10.35.1 |                        |  | First Amendment to Sublease Agreement between WFS
    Financial Inc, and WFS Receivables Corporation, WFS Receivables
    Corporation 2, WFS Financial Auto Loans, Inc., WFS
    Financial Auto Loans 2, Inc., Western Auto Investments,
    Inc., and WFS Funding, Inc. dated September 1, 2002                                                                                                                                                                                                                                                                                                        
|        | 10.36   |                        |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency and WFS Financial Inc, dated September
    2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 21.1    |                        |  | Subsidiaries of WFS Financial Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 23.1    |                        |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 99.1    |                        |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                          

55



---



##### Table of Contents





---



|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Financial Inc
    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.
|    
|(12) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 2001 as filed on or about
    March 29, 2002.                                                                                    



|    |                   
|--- | ------------------
|(b) | Report on Form 8-K

None.

56



---



##### 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.



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

|                      |  |                        |  | 
|--------------------- |  | ---------------------- |  | 
|Dated: March 18, 2003 |  | By:/s/ THOMAS A. WOLFE |  | 

| |                        
| | -----------------------
| |                        
| | Thomas A. Wolfe        
| | President 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 and Director                                                                                                                 |  | March 18, 2003
|                                        
|/s/ THOMAS A. WOLFEThomas A. Wolfe       |  | President, Chief Executive Officer
    and Director                                                                                                |  | March 18, 2003
|                                        
|/s/ JUDITH M. BARDWICKJudith M. Bardwick |  | Director                                                                                                                                           |  | March 18, 2003
|                                        
|/s/ JAMES R. DOWLANJames R. Dowlan       |  | Director                                                                                                                                           |  | March 18, 2003
|                                        
|/s/ DUANE A. NELLESDuane A. Nelles       |  | Director                                                                                                                                           |  | March 18, 2003
|                                        
|/s/ RONALD I. SIMONRonald I. Simon       |  | Director                                                                                                                                           |  | March 18, 2003
|                                        
|/s/ FREDRICKA TAUBITZFredricka Taubitz   |  | Director                                                                                                                                           |  | March 18, 2003
|                                        
|/s/ LEE A. WHATCOTTLee A. Whatcott       |  | Senior Executive Vice President,
    Chief Financial Officer,
    and Chief Operating Officer
    (Principal Financial and
    Accounting Officer) |  | March 18, 2003

57



---



##### Table of Contents



CERTIFICATIONS

I, Thomas A. Wolfe, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 10-K of WFS Financial Inc;                                                                                                                                                                                                                                                                   
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date March 18, 2003



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




Thomas A. Wolfe


President, Chief Executive Officer


and Director


58



---



##### Table of Contents



I, Lee A. Whatcott, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 10-K of WFS Financial Inc;                                                                                                                                                                                                                                                                   
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officers
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and we have:                                                                                                       



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | Designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | Evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | Presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | All significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | Any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officers
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date March 18, 2003



|   |                     
|-- | --------------------
|By | /S/  LEE A. WHATCOTT




Lee A. Whatcott


Senior Executive Vice President,


Chief Financial Officer and


Chief Operating Officer


(Principal Financial and Accounting Officer)


59



---



##### 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, 2002 and 2001                                        |  |      | F-3 | 
|Consolidated Statements of Income for the years
    ended December 31, 2002, 2001 and 2000                              |  |      | F-4 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2002, 2001 and 2000 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2002, 2001 and 2000                          |  |      | 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, 2002 and 2001, and the
related consolidated statements of income, shareholders
equity and cash flows for each of the three years in the period
ended December 31, 2002. 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, 2002 and 2001, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles
generally accepted in the United States.



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

Los Angeles, California

January 21, 2003


F-2



---



##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

|                                                                                                                                                  |                           |                                            |           |           |           |   |           |           |           | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                  |                           |                                           
|                                                                                                                                                  |                           | December 31,                              
|                                                                                                                                                  |                           |                                           
|                                                                                                                                                  |                           | 2002                                       |           | 2001     
|                                                                                                                                                  |                           |                                            |           |          
|                                                                                                                                                  |                           |                                           
|                                                                                                                                                  |                           | (Dollars in thousands)                    
|ASSETS                                                                                                                                            |                           |                                            |           |           |           |   |           |          
|Cash                                                                                                                                              |                           | $                                          | 28,079    |           |           | $ | 30,100    |          
|Other short-term investments  parent                                                                                                             |                           |                                            | 687,728   |           |           |   |           |          
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  | Cash and due from banks   |                                            |           | 715,807   |           |   |           | 30,100    |          
|Investment securities available for sale                                                                                                          |                           |                                            | 3,348     |           |           |   | 4,668     |          
|Contracts receivable                                                                                                                              |                           |                                            | 7,950,123 |           |           |   | 5,215,718 |          
|Allowance for credit losses                                                                                                                       |                           |                                            | (220,210  | )         |           |   | (131,827  | )        
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  | Contracts receivable, net |                                            |           | 7,729,913 |           |   |           | 5,083,891 |          
|Amounts due from trusts                                                                                                                           |                           |                                            | 101,473   |           |           |   | 184,952   |          
|Retained interest in securitized assets                                                                                                           |                           |                                            |           |           |           |   | 37,392    |          
|Premises and equipment, net                                                                                                                       |                           |                                            | 32,084    |           |           |   | 33,826    |          
|Accrued interest receivable                                                                                                                       |                           |                                            | 53,930    |           |           |   | 37,100    |          
|Other assets                                                                                                                                      |                           |                                            | 153,148   |           |           |   | 78,828    |          
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  |                           | TOTAL ASSETS                               |           | $         | 8,789,703 |   |           | $         | 5,490,757 | 
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|LIABILITIES                                                                                                                                       |                           |                                            |           |           |           |   |           |          
|Lines of credit  parent                                                                                                                          |                           | $                                          | 62,048    |           |           | $ | 421,175   |          
|Notes payable on automobile secured financing                                                                                                     |                           |                                            | 7,323,180 |           |           |   | 4,005,925 |          
|Notes payable  parent                                                                                                                            |                           |                                            | 408,010   |           |           |   | 67,500    |          
|Amounts held on behalf of trustee                                                                                                                 |                           |                                            | 298,863   |           |           |   | 476,910   |          
|Other liabilities                                                                                                                                 |                           |                                            | 63,070    |           |           |   | 53,954    |          
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  |                           | TOTAL LIABILITIES                          |           |           | 8,155,171 |   |           |           | 5,025,464 | 
|SHAREHOLDERS EQUITY                                                                                                                              |                           |                                            |           |           |           |   |           |          
|Common stock (no par value; authorized 60,000,000
    shares; issued and outstanding 41,020,033 shares in 2002 and
    34,820,178 shares in 2001) |                           |                                            | 338,186   |           |           |   | 227,568   |          
|Paid-in capital                                                                                                                                   |                           |                                            | 5,372     |           |           |   | 4,337     |          
|Retained earnings                                                                                                                                 |                           |                                            | 344,800   |           |           |   | 262,710   |          
|Accumulated other comprehensive loss, net of tax                                                                                                  |                           |                                            | (53,826   | )         |           |   | (29,322   | )        
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  |                           | TOTAL SHAREHOLDERS EQUITY                 |           |           | 634,532   |   |           |           | 465,293   | 
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                  |                           | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |           | $         | 8,789,703 |   |           | $         | 5,490,757 | 
|                                                                                                                                                  |                           |                                            |           |           |           |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |            |         |         | 
|--------------------------------------------------------- | --------------------------- | ------------------------------------------------ | ------------------------ | ---------- | ------- | ------- | ------- | ---------- | ------- | ------- | ------- | ---------- | ------- | ------- | 
|                                                          |                             |                                                 
|                                                          |                             | For the Year Ended December 31,                 
|                                                          |                             |                                                 
|                                                          |                             | 2002                                             |                          | 2001       |         | 2000   
|                                                          |                             |                                                  |                          |            |         |        
|                                                          |                             |                                                 
|                                                          |                             | (Dollars in thousands, except per share amounts)
|REVENUES:                                                 |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Interest income             |                                                  | $                        | 820,449    |         |         | $       | 545,782    |         |         | $       | 314,120    |        
|                                                          | Interest expense            |                                                  |                          | 349,512    |         |         |         | 232,776    |         |         |         | 130,578    |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          |                             | Net interest income                              |                          |            | 470,937 |         |         |            | 313,006 |         |         |            | 183,542 |        
|                                                          | Servicing income            |                                                  |                          | 119,302    |         |         |         | 130,826    |         |         |         | 170,919    |        
|                                                          | Gain on sale of contracts   |                                                  |                          |            |         |         |         | 6,741      |         |         |         | 13,723     |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          |                             |                                                  | TOTAL REVENUES           |            |         | 590,239 |         |            |         | 450,573 |         |            |         | 368,184 | 
|EXPENSES:                                                 |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Provision for credit losses |                                                  |                          | 249,093    |         |         |         | 144,130    |         |         |         | 68,962     |        
|                                                          | Operating expenses:         |                                                  |                          |            |         |         |         |            |         |         |         |            |        
|                                                          |                             | Salaries and associate benefits                  |                          |            | 123,821 |         |         |            | 126,748 |         |         |            | 116,753 |        
|                                                          |                             | Credit and collections                           |                          |            | 35,960  |         |         |            | 27,497  |         |         |            | 21,103  |        
|                                                          |                             | Data processing                                  |                          |            | 17,402  |         |         |            | 17,160  |         |         |            | 16,158  |        
|                                                          |                             | Occupancy                                        |                          |            | 12,995  |         |         |            | 12,591  |         |         |            | 10,592  |        
|                                                          |                             | Telephone                                        |                          |            | 5,113   |         |         |            | 5,803   |         |         |            | 5,504   |        
|                                                          |                             | Miscellaneous                                    |                          |            | 17,613  |         |         |            | 15,493  |         |         |            | 18,524  |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          |                             |                                                  | TOTAL OPERATING EXPENSES |            |         | 212,904 |         |            |         | 205,292 |         |            |         | 188,634 | 
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          |                             |                                                  | TOTAL EXPENSES           |            |         | 461,997 |         |            |         | 349,422 |         |            |         | 257,596 | 
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|INCOME BEFORE INCOME TAX                                  |                             |                                                  | 128,242                  |            |         |         | 101,151 |            |         |         | 110,588 |           
|                                                          | Income tax                  |                                                  |                          | 46,152     |         |         |         | 39,503     |         |         |         | 44,216     |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|NET INCOME                                                |                             | $                                                | 82,090                   |            |         | $       | 61,648  |            |         | $       | 66,372  |           
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|Earnings per common share:                                |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Basic                       |                                                  | $                        | 2.06       |         |         | $       | 1.91       |         |         | $       | 2.36       |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Diluted                     |                                                  | $                        | 2.05       |         |         | $       | 1.90       |         |         | $       | 2.35       |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|Weighted average number of common shares
    outstanding: |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Basic                       |                                                  |                          | 39,945,285 |         |         |         | 32,308,649 |         |         |         | 28,178,151 |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           
|                                                          | Diluted                     |                                                  |                          | 39,993,524 |         |         |         | 32,398,357 |         |         |         | 28,283,735 |        
|                                                          |                             |                                                  |                          |            |         |         |         |            |         |         |         |           

See accompanying notes to consolidated financial
statements.

F-4



---



##### 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, except share amounts) |  |        
|Balance at January 1, 2000   |                                                                                                      |        | 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 |        
|                             | Net income                                                                                           |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         | 82,090 |  |   |         |         |   |   |         | 82,090  |  
|                             | Unrealized losses on retained interest in
    securitized assets, net of tax(1)                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | (550    | ) |   |         | (550    | )
|                             | Unrealized losses on cash flow hedges, net of
    tax(2)                                             |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | (59,248 | ) |   |         | (59,248 | )
|                             | Reclassification adjustment for losses on cash
    flow hedges included in net income, net of tax(3) |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         | 35,294  |   |   |         | 35,294  |  
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|                             | Comprehensive income                                                                                 |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         | 57,586  |  
|                             | Issuance of common stock                                                                             |        |            | 6,199,855                                    |  |         |         | 110,618  |  |                |       | 1,035 |  |   |         |        |  |   |         |         |   |   |         | 111,653 |  
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        
|Balance at December 31, 2002 |                                                                                                      |        | 41,020,033 |                                              |  | $       | 338,186 |          |  | $              | 5,372 |       |  | $ | 344,800 |        |  | $ | (53,826 | )       |   | $ | 634,532 |        
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |        |  |   |         |         |   |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pre-tax amount of unrealized gains and losses
    on retained interest in securitized assets was $0.9 million
    for the year ended December 31, 2002 compared with
    $1.4 million for the year ended December 31, 2001 and
    $1.0 million for the year ended December 31, 2000,
    respectively.                                                                                          
|   
|(2) | The pre-tax amount of unrealized losses on cash
    flow hedges was $100 million for the year ended
    December 31, 2002 compared with $71.6 million for the
    year ended December 31, 2001.                                                                                                                                                                                                      
|   
|(3) | The pre-tax amount of unrealized losses on cash
    flow hedges reclassified into earnings was $59.8 million
    for the year ended December 31, 2002 compared with
    $21.0 million for the year ended December 31, 2001.
    The amount reclassified into earnings in 2001 includes
    $1.8 million of the $4.8 million cumulative effect
    adjustment related to the adoption of SFAS No. 133.

See accompanying notes to consolidated financial
statements.

F-5



---



##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |            |  
|------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------- | ---------- | ---------- | - | ---- | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | For the Year Ended December 31,
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | 2002                            |            | 2001       |   | 2000
|                                                                                      |                                                             |                                 |            |            |   |     
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | (Dollars in thousands)         
|OPERATING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Net income                                                                            |                                                             | $                               | 82,090     |            |   | $    | 61,648     |            |   | $ | 66,372     |           
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Provision for credit losses                                 |                                 |            | 249,093    |   |      |            | 144,130    |   |   |            | 68,962     |  
|                                                                                      | Amortization of participation paid to dealers               |                                 |            | 73,945     |   |      |            | 40,644     |   |   |            | 18,691     |  
|                                                                                      | Amortization of retained interest in securitized
    assets |                                 |            | 36,461     |   |      |            | 75,545     |   |   |            | 75,958     |  
|                                                                                      | Amortization of losses on cash flow hedges                  |                                 |            | 17,090     |   |      |            | 5,226      |   |   |            |            |  
|                                                                                      | Depreciation and amortization                               |                                 |            | 10,881     |   |      |            | 10,892     |   |   |            | 9,854      |  
|Contracts held for sale:                                                              |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Proceeds from contract sales                                |                                 |            |            |   |      |            | 1,414,303  |   |   |            | 2,091,231  |  
|Increase in other assets                                                              |                                                             |                                 | (72,770    | )          |   |      | (42,745    | )          |   |   | (37,295    | )         
|Increase (decrease) in other liabilities                                              |                                                             |                                 | 9,117      |            |   |      | 18,303     |            |   |   | (4,613     | )         
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |                                                             |                                 | 405,907    |            |   |      | 1,727,946  |            |   |   | 2,289,160  |           
|INVESTING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Contracts receivable:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchase of contracts                                       |                                 |            | (5,415,734 | ) |      |            | (4,863,279 | ) |   |            | (4,219,227 | )
|                                                                                      | Participation paid to dealers                               |                                 |            | (129,272   | ) |      |            | (120,786   | ) |   |            | (100,300   | )
|                                                                                      | Contract payments and payoffs                               |                                 |            | 2,575,701  |   |      |            | 1,279,277  |   |   |            | 621,584    |  
|Increase in retained interest in securitized
    assets                               |                                                             |                                 |            |            |   |      |            |            |   |   | (19,240    | )         
|Decrease in amounts due from trust                                                    |                                                             |                                 | 83,479     |            |   |      | 181,173    |            |   |   | 72,897     |           
|Purchase of premises and equipment                                                    |                                                             |                                 | (8,925     | )          |   |      | (8,398     | )          |   |   | (8,574     | )         
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                             |                                 | (2,894,751 | )          |   |      | (3,532,013 | )          |   |   | (3,652,860 | )         
|FINANCING ACTIVITIES                                                                  |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Proceeds from (payments on) lines of credit, net                                      |                                                             |                                 | 340,510    |            |   |      | 185,191    |            |   |   | (315,205   | )         
|Proceeds from notes payable on automobile secured
    financing                       |                                                             |                                 | 6,912,058  |            |   |      | 2,845,655  |            |   |   | 2,480,032  |           
|Payments on notes payable on automobile secured
    financing                         |                                                             |                                 | (3,621,709 | )          |   |      | (1,120,844 | )          |   |   | (691,773   | )         
|Payments on notes payable  parent, net                                               |                                                             |                                 | (359,128   | )          |   |      | (78,719    | )          |   |   | (32,689    | )         
|Decrease in amounts held on behalf of trustee                                         |                                                             |                                 | (178,047   | )          |   |      | (113,805   | )          |   |   | (96,559    | )         
|Proceeds from issuance of common stock                                                |                                                             |                                 | 111,653    |            |   |      | 115,498    |            |   |   | 38,070     |           
|Payments on cash flow hedges                                                          |                                                             |                                 | (30,786    | )          |   |      | (24,105    | )          |   |   |            |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                             |                                 | 3,174,551  |            |   |      | 1,808,871  |            |   |   | 1,381,876  |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|INCREASE IN CASH AND DUE FROM BANKS                                                   |                                                             |                                 | 685,707    |            |   |      | 4,804      |            |   |   | 18,176     |           
|Cash and due from banks at beginning of year                                          |                                                             |                                 | 30,100     |            |   |      | 25,296     |            |   |   | 7,120      |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|CASH AND DUE FROM BANKS AT END OF YEAR                                                |                                                             | $                               | 715,807    |            |   | $    | 30,100     |            |   | $ | 25,296     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Cash paid for:                                                                        |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Interest                                                    |                                 | $          | 335,231    |   |      | $          | 220,099    |   |   | $          | 112,071    |  
|                                                                                      | Income taxes                                                |                                 |            | 82,635     |   |      |            | 67,540     |   |   |            | 63,410     |  

See accompanying notes to consolidated financial
statements.

F-6



---



##### 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 automobile dealers on a nonrecourse basis and originate
loans directly with consumers. We only have one reportable
segment.

Cash and Due From Banks

Cash and due from banks include cash and
short-term investments, which have no material restrictions as
to withdrawal or usage.

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



---



##### Table of Contents



In determining the fair value of our retained
interest in securitized assets, also known as RISA, we evaluated
the cost basis of 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 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 was marked to market
each quarter. Market value changes were calculated by
discounting estimated future cash flows using the current market
discount rate. Any changes in the market value of the RISA were
reported as accumulated other comprehensive income (loss), net
of tax, on our Consolidated Statements of Financial Condition.
On a quarterly basis, we evaluated the carrying value of the
RISA in light of the actual performance of the underlying
contracts and made 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.

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. For the years ended
December 31, 2002 and 2001, 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 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. Useful lives for
premises and equipment are 5 to 39 years for buildings and
improvements, 5 to 7 years for furniture and equipment, 3
to 5 years for computers and software, and 5 to
15 years for all other premises and equipment.

F-8



---



##### Table of Contents





| |                   
| | ------------------
| | 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
are 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
are 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 accrued
interest receivable 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 premiums paid to dealers. The net amount
is amortized as an adjustment to the related contracts
yield over their contractual life. Fees for other services are
recorded as income when earned.



| |                 
| | ----------------
| | Interest Expense

Interest expense is recognized when incurred. Our
level yield calculation for notes payable on automobile secured
financings includes the interest on the notes, underwriting
discounts, hedge gains or losses and swap payments.



| |             
| | ------------
| | 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 rates 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
instruments. Fair values for certain financial instruments and
all non-financial instruments are not required to be disclosed.
Accordingly, the aggregate fair value amounts presented do not
represent our underlying value.

We use the following methods and assumptions in
estimating our fair value disclosures for financial instruments:



| |                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and due from
    banks:The carrying amounts reported
    in the Consolidated Statements of Financial Condition for cash
    and short-term instruments approximate those assets fair
    values.                                                                
|
| | Investment securities available for
    sale:Fair values for investment
    securities are based on quoted market prices, where available.
    If quoted market prices are not available, fair values are based
    on quoted market prices of comparable instruments.

F-9



---



##### Table of Contents





| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Contracts
    receivable:The fair values for
    contracts are estimated using discounted cash flow analysis,
    using interest rates currently being offered for contracts with
    similar terms to borrowers of similar credit quality.                                            
|
| | Retained interest in securitized
    assets:RISA is carried at fair value.
    The fair value is determined by discounting estimated cash flows
    using a current market discount rate.                                                                                              
|
| | Interest rate swaps, forward agreements and
    Euro-dollar futures contracts:The
    fair value is estimated by obtaining market quotes from brokers
    or internally valuing when market quotes are not readily
    available.                                                      
|
| | Lines of credit  parent, notes
    payable on automobile secured financing and notes
    payable  parent:The fair
    value is estimated by using discounted cash flow analyses based
    on our current incremental borrowing rates for similar types of
    borrowing arrangements.
|
| | Amounts held on behalf of
    trustee:The carrying amounts reported
    in the Consolidated Statements of Financial Condition
    approximate their fair value.                                                                                                                        

Derivative Financial Instruments

Effective January 1, 2001, we adopted
SFAS No. 133, which requires all derivatives to be
recorded on the balance sheet at fair value. Changes in the fair
value of derivatives designated as hedges are 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 derivative instruments that are
designated as hedges are treated 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 futures contracts and forward agreements in
order to hedge our future interest payments on our notes payable
on automobile secured financing. The market value of these
hedges 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), net of tax.
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 2002 and 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.

We also enter into interest rate swap agreements
or other derivatives that do not qualify for hedge accounting
under SFAS No. 133 or that we choose not to designate
as hedges. These derivatives pertain to

F-10



---



##### Table of Contents



variable rate notes issued in conjunction with
the securitization of our contracts. Any change in the market
value of such derivatives is recorded to income each month. Any
income or expense recognized on such derivatives is recognized
as miscellaneous income or expense.


As part of the adoption of SFAS No. 133
in 2001, 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.

Stock-based Compensation

As discussed below, Statement of Financial
Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure 
an amendment of FASB Statement No. 123, also known as
SFAS No. 148 requires expanded disclosure of the
effects of a companys accounting policy for stock-based
employee compensation. We use the intrinsic value method to
account for stock-based employee compensation. See Note
15  Stock Options for further disclosure.

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 2003 fiscal year. The adoption
of SFAS No. 143 will not 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 supersede 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 or
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.

F-11



---



##### Table of Contents



In April 2002, the FASB issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, also known as SFAS
No. 145. SFAS No. 145 rescinds Statements of Financial
Accounting Standards No. 4 and 64 that required gains and
losses from extinguishment of debt be classified as
extraordinary items. SFAS No. 145 also rescinds Statement
of Financial Accounting Standards No. 44 that provided
transition provisions related to the Motor Carrier Act of 1980.
SFAS No. 145 amended Statement of Financial Accounting
Standards No. 13 to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have
economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical
corrections, clarify meanings, or describe their applicability
under changed conditions. SFAS No. 145 is effective for
financial statements issued on or after May 15, 2002. We
adopted SFAS No. 145 and it did not have a material effect
on our earnings or financial position.

In June 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities, also known as
SFAS No. 146, in which liabilities for costs associated
with an exit or disposal activity be recognized and measured
initially at fair value only when the liabilities are incurred.
SFAS No. 146 eliminated the recognition of certain costs
associated with exit or disposal activities that were previously
recognized as liabilities at a plan (commitment) date under
Emerging Issues Task Force Issue No. 94-3 that did not meet
the definition of a liability in FASB Concepts Statement
No. 6, Elements of Financial Statements. SFAS No. 146
is effective for disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146 will
not have a material effect on our earnings or financial position.

In October 2002, the FASB issued Statement of
Financial Accounting Standards No. 147, Acquisitions of
Certain Financial Institutions  an amendment of FASB
Statements No. 72 and 144 and FASB Interpretation
No. 9, also known as SFAS No. 147, to remove
acquisitions of financial institutions from the scope of both
FASB Statement No. 72 and FASB Interpretation No. 9.
SFAS No. 147 now requires that acquisitions of financial
institutions be accounted for in accordance with SFAS
No. 141 and 142. SFAS No. 147 also amends SFAS No. 144
to include in its scope long-term customer-relationship
intangible assets of financial institutions. Consequently,
customer-relationship intangible assets are subject to the same
undiscounted cash flow recoverability test and impairment loss
recognition and measurement provisions that SFAS No. 144
requires for other long-lived assets that are held and used.
SFAS No. 147 is effective for acquisitions made on or after
October 1, 2002 and is effective for measurement of
impairment of long-lived assets on October 1, 2002. We
adopted SFAS No. 147 on October 1, 2002 and it did not
have a material effect on our earnings or financial position.

In December 2002, the FASB issued SFAS
No. 148. SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation and requires
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the method used on reported results.
SFAS No. 148 provides two additional transition methods for
entities that adopt Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, also know
as SFAS No. 123. Both of these methods avoid the ramp-up
effects arising from prospective application of the fair value
based method. SFAS No. 148 does not permit the use of the
original SFAS No. 123 method of transition for changes to
the fair value based method made in fiscal years beginning after
December 15, 2003. This statement also requires disclosure
of comparable information for all companies regardless of which
method of accounting for stock-based employee compensation. SFAS
No. 148 improves the timeliness of disclosures by requiring
their inclusion in financial reports for interim periods. SFAS
No. 148 is effective for fiscal years ending after
December 15, 2002. We adopted the disclosure provisions of
SFAS No. 148 on December 31, 2002, and expect to adopt
the prospective application method of transition to the fair
value based method of accounting for stock options in the first
quarter of 2003. Neither the disclosure adoption nor the
accounting adoption will have a material effect on our earnings
or financial position.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, also known as FIN

F-12



---



##### Table of Contents



No. 45. FIN No. 45 will require that
guarantees meeting the characteristics described in FIN
No. 45 be recognized and initially measured at fair value.
In addition, FIN No. 45 will require new disclosures by
guarantors, even if the likelihood of the guarantor making
payments under the guarantee is remote. The disclosure
provisions of FIN No. 45 are effective for fiscal years
ending after December 15, 2002. The initial recognition and
initial measurement provisions of FIN No. 45 are applicable
on a prospective basis to guarantees issued or modified after
December 31, 2002. We adopted FIN No. 45 on
December 15, 2002 and it did not have a material effect on
our earnings or financial position.


In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities, also
known as FIN No. 46. FIN No. 46 changes the
consolidation requirements by requiring a variable interest
entity to be consolidated by a company if that company is
subject to the majority of the risk of loss from the variable
interest entitys activities or entitled to receive a
majority of the entitys residual returns or both. In
addition, FIN No. 46 requires disclosures about variable
interest entities that the company is not required to
consolidate but in which it has a significant variable interest.
The consolidation requirements of FIN No. 46 apply to
variable interest entities created after January 31, 2003
and apply to existing variable interest entities in the first
fiscal year or interim period beginning after June 15,
2003. The adoption of FIN No. 46 will not have a material
effect on our earnings or financial position.

Note 2  Investment Securities
Available for Sale

Investment securities available for sale is
comprised of owner trust certificates retained on securitization
transactions treated as sales. The balances of these investment
securities were $3.3 million and $4.7 million at
December 31, 2002 and 2001, respectively. The book value of
these investment securities approximates fair value. As of
December 31, 2002, $3.3 million had stated maturity
dates of one to five years.

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,          
|                                                        |                          |                       
|                                                        |                          | 2002                   |           | 2001     
|                                                        |                          |                        |           |          
|                                                        |                          |                       
|                                                        |                          | (Dollars in thousands)
|Contracts                                               |                          | $                      | 7,890,389 |           |  | $ | 5,200,244 |          
|Unearned discounts                                      |                          |                        | (81,838   | )         |  |   | (81,615   | )        
|                                                        |                          |                        |           |           |  |   |           |          
|                                                        | Net contracts            |                        |           | 7,808,551 |  |   |           | 5,118,629 | 
|Allowance for credit losses                             |                          |                        | (220,210  | )         |  |   | (131,827  | )        
|Dealer participation, net of deferred contract
    fees |                          |                        | 141,572   |           |  |   | 97,089    |          
|                                                        |                          |                        |           |           |  |   |           |          
|                                                        | Net contracts receivable |                        | $         | 7,729,913 |  |   | $         | 5,083,891 | 
|                                                        |                          |                        |           |           |  |   |           |          

Contracts managed by us totaled $9.4 billion
and $8.2 billion at December 31, 2002 and 2001,
respectively. Of the $9.4 billion contracts managed at
December 31, 2002, $7.8 billion were owned by us,
$1.1 billion were owned by Westcorp, our ultimate parent,
and $525 million were owned by securitization trusts. 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, and $1.2 billion were owned by
securitization trusts.

F-13



---



##### Table of Contents



Note 4  Allowance for Credit
Losses

Changes in the allowance for credit losses were
as follows:

|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  
|------------------------------------- |  | ------------------------------- | -------- | ---- |  | ---- | -------- | - |  | - | ------- | -
|                                      |  |                                
|                                      |  | For the Year Ended December 31,
|                                      |  |                                
|                                      |  | 2002                            |          | 2001 |  | 2000
|                                      |  |                                 |          |      |  |     
|                                      |  |                                
|                                      |  | (Dollars in thousands)         
|Balance at beginning of period        |  | $                               | 131,827  |      |  | $    | 71,308   |   |  | $ | 36,682  |  
|Provision for credit losses           |  |                                 | 249,093  |      |  |      | 144,130  |   |  |   | 68,962  |  
|Chargeoffs                            |  |                                 | (207,713 | )    |  |      | (110,359 | ) |  |   | (47,929 | )
|Write-down of nonperforming assets(1) |  |                                 | (2,880   | )    |  |      | (4,583   | ) |  |   |         |  
|Recoveries                            |  |                                 | 49,883   |      |  |      | 31,331   |   |  |   | 13,593  |  
|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  
|Balance at end of period              |  | $                               | 220,210  |      |  | $    | 131,827  |   |  | $ | 71,308  |  
|                                      |  |                                 |          |      |  |      |          |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The write-down of nonperforming assets represents
    specific reserves established on accounts that file for
    Chapter 13 Bankruptcy and are greater than 120 days
    delinquent. To the extent that these accounts do not perform
    under the court ordered plan, these specific reserves are
    reversed and the account is charged off.

Note 5  Retained Interest in
Securitized Assets

None of our securitization transactions in 2002
or 2001 were treated as sales. Therefore, we did not record any
retained interest in securitized assets.

The following table presents the activity of the
RISA:

|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  
|----------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                          |  |                                
|                                          |  | For the Year Ended December 31,
|                                          |  |                                
|                                          |  | 2002                            |         | 2001 |  | 2000
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               | 37,392  |      |  | $    | 111,558 |   |  | $ | 167,277 |  
|Additions                                 |  |                                 |         |      |  |      |         |   |  |   | 19,240  |  
|Amortization                              |  |                                 | (36,461 | )    |  |      | (75,546 | ) |  |   | (75,958 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 | (931    | )    |  |      | 1,380   |   |  |   | 999     |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  
|Balance at end of period(2)               |  | $                               | 0       |      |  | $    | 37,392  |   |  | $ | 111,558 |  
|                                          |  |                                 |         |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 were no restrictions on the RISA.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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,
|                                 |  |                                
|                                 |  | 2002                            |        | 2001 |  | 2000
|                                 |  |                                 |        |      |  |     
|                                 |  |                                
|                                 |  | (Dollars in thousands)         
|Proceeds                         |  |                                 |        |      |  | $    | 1,370,000 |  |  | $ | 2,050,000 | 
|Excess cash flows from trust     |  | $                               | 6,656  |      |  |      | 47,357    |  |  |   | 127,294   | 
|Servicing fees received          |  |                                 | 61,830 |      |  |      | 85,845    |  |  |   | 57,718    | 
|Servicing advances               |  |                                 | 34,317 |      |  |      | 26,191    |  |  |   | 39,097    | 
|Repayments on servicing advances |  |                                 | 27,194 |      |  |      | 28,222    |  |  |   | 49,825    | 

F-14



---



##### Table of Contents



The balance of contracts 30 days or more
delinquent included in such securitization trusts totaled
$93.7 million and $144 million at December 31,
2002 and 2001, respectively. Net chargeoffs for these
securitization trusts totaled $87.0 million,
$93.2 million and $81.9 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

Note 6  Premises and
Equipment

Premises and equipment consisted of the following:

|                               |  |                        |        |      |  |   |        | 
|------------------------------ |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                               |  |                       
|                               |  | December 31,          
|                               |  |                       
|                               |  | 2002                   |        | 2001
|                               |  |                        |        |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Land                           |  | $                      | 2,017  |      |  | $ | 2,017  | 
|Buildings and improvements     |  |                        | 13,733 |      |  |   | 13,727 | 
|Computers and software         |  |                        | 51,455 |      |  |   | 44,008 | 
|Furniture and equipment        |  |                        | 12,066 |      |  |   | 10,657 | 
|Other                          |  |                        | 292    |      |  |   | 306    | 
|                               |  |                        |        |      |  |   |        | 
|                               |  |                        | 79,563 |      |  |   | 70,715 | 
|Less: accumulated depreciation |  |                        | 47,479 |      |  |   | 36,889 | 
|                               |  |                        |        |      |  |   |        | 
|                               |  | $                      | 32,084 |      |  | $ | 33,826 | 
|                               |  |                        |        |      |  |   |        | 

Note 7  Intercompany
Agreements

We borrowed $150 million from the Bank under
the terms of a $150 million note at a rate of 8.875% per
annum with a maturity date in August 2007. We had amounts
outstanding on this note of $108 million and
$67.5 million as of December 31, 2002 and 2001,
respectively. Interest payments on this note are due quarterly,
in arrears. Interest expense on the note totaled
$12.4 million, $10.1 million, and $12.7 million
for the years ended December 31, 2002, 2001 and 2000,
respectively.

During 2001, we made a final paydown of
$11.2 million on a 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 was
$0.5 million and $1.5 million for the years ended
December 31, 2001 and 2000, respectively.

We borrowed $300 million under the terms of
a $300 million note in May 2002. This note matures on
May 15, 2012. Interest payments on the $300 million
note are due semi-annually, in arrears, calculated at the rate
of 10.25% per annum. Pursuant to the terms of this note, WFS may
not incur any other indebtedness which is senior to the
obligations evidenced by this note except for
(i) indebtedness under the $150 million note
(ii) indebtedness collateralized or secured under the
$1.8 billion line of credit and (iii) indebtedness for
similar types of warehouse lines of credit. There was $300
million outstanding on this note at December 31, 2002.
Interest expense on this note totaled $20.3 million for the
year ended December 31, 2002.

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 of up to 60 months. There was no
amount outstanding on this line of credit at December 31,
2002 compared to amounts outstanding of $374 million and
$236 million at December 31, 2001 and 2000,
respectively. On November 30, 2001 and August 8, 2002,
our subsidiaries entered into lines of credit with the Bank.
These lines permit us to draw up to a total of $255 million to
fund our initial deposits to spread accounts on securitization
transactions. Of the total $255 million, $10 million
terminates on December 1, 2006 and $245 million
terminates on January 1, 2010, although the terms may be
extended by us for additional periods of up to 60 months.
At December 31, 2002, the amount outstanding on these lines
of credit totaled $62.0 million compared with
$47.3 million outstanding at December 31 2001.

F-15



---



##### Table of Contents



The $1.8 billion line of credit carries an
interest rate based on the one-month LIBOR and an interest
spread of 125 basis points when unsecured and 90 basis points
when secured. The Bank has the right under this line 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 the purchase of contracts or other working
capital requirements. The $255 million in lines of credit
held by our subsidiaries with the Bank carry an interest rate
based on one-month LIBOR and an interest spread of 112.5 basis
points when unsecured and 62.5 basis points when secured.
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
$3.0 million, $8.9 million and $37.9 million for
the years ended December 31, 2002, 2001 and 2000,
respectively. The weighted average interest rates for the lines
of credit were 2.74%, 4.43% and 7.09% for the years ended
December 31, 2002, 2001 and 2000, respectively. The
weighted average interest rates for the lines of credit were
2.55%, 3.08% and 7.44% at December 31, 2002, 2001 and 2000,
respectively.

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 1.77%, 3.8% and
6.58% for the years ended December 31, 2002, 2001 and 2000,
respectively. The weighted average interest rates were 1.44% at
December 31, 2002, compared to 6.53% at December 31,
2000. We held no excess cash at the Bank at December 31,
2001. Interest income earned under this agreement totaled
$10.2 million, $4.9 million and $1.2 million for
the years ended December 31, 2002, 2001 and 2000,
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. 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 $6.4 million, $5.9 million and
$2.4 million for the years ended December 31, 2002,
2001 and 2000, 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
$1.2 million, $1.1 million, and $0.7 million for
the years ended December 31, 2002, 2001 and 2000,
respectively, pursuant to these agreements.

Note 8  Notes Payable on Automobile
Secured Financing

For the years ended December 31, 2002 and
2001, we issued $6.9 billion and $4.2 billion of notes
secured by contracts, of which $6.2 billion and $3.6
billion was through public transactions and $775 million
and $650 million, respectively, was through a conduit
facility. We had no amount outstanding on the conduit facility
at December 31, 2002 compared with $650 million at
December 31, 2001. We terminated our $650 million and
$775 million conduit facilities in March 2002 and May 2002,
respectively.

Interest payments on the public transactions
based on the respective notes interest rate are due either
monthly or quarterly, in arrears. Interest payments on the
conduit facilities were 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
$313 million for the year ended December 31, 2002,
compared with $216 million and $87.0 million for the
years ended December 31, 2001 and 2000, respectively.

F-16



---



##### Table of Contents



At December 31, 2002, 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
|           |  |             |           |              
|2003       |  | $           | 440,595   |               |  |  | 1.74 | %
|2004       |  |             | 67,719    |               |  |  | 7.69 |  
|2005       |  |             | 1,761,946 |               |  |  | 3.24 |  
|2006       |  |             | 1,183,716 |               |  |  | 4.86 |  
|2007       |  |             | 1,518,269 |               |  |  | 3.40 |  
|Thereafter |  |             | 2,350,935 |               |  |  | 4.91 |  
|           |  |             |           |               |  |  |      |  
|           |  | $           | 7,323,180 |               |  |  | 3.98 | %
|           |  |             |           |               |  |  |      |  

Note 9  Whole Loan Sales

We sold $1.4 billion of contracts to
Westcorp in whole loan sales for 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 related to the contracts
sold in 2001 and 2000, 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, 2002     
|           |  |                       
|           |  | (Dollars in thousands)
|2003       |  | $                      | 5,427  | 
|2004       |  |                        | 5,151  | 
|2005       |  |                        | 4,233  | 
|2006       |  |                        | 2,244  | 
|2007       |  |                        | 1,470  | 
|Thereafter |  |                        | 1,720  | 
|           |  |                        |        | 
|           |  | $                      | 20,245 | 
|           |  |                        |        | 

In certain cases, these agreements include
various renewal options and contingent rental agreements. Rental
expense for premises and equipment totaled $5.6 million,
$5.4 million and $4.8 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

We have pledged certain contracts in amounts
totaling $474 million and $441 million as of
December 31, 2002 and 2001, respectively, relative to
amounts held on behalf of trustee including amounts related to
securitization transactions treated as secured financings.

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.

F-17



---



##### Table of Contents



Note 11  Accumulated Other
Comprehensive Loss, Net of Tax

The following table summarizes the components of
accumulated other comprehensive loss, net of tax:

|                                             |  |                        |         |      |  |   |         |  
|-------------------------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | -
|                                             |  |                       
|                                             |  | December 31,          
|                                             |  |                       
|                                             |  | 2002                   |         | 2001
|                                             |  |                        |         |     
|                                             |  |                       
|                                             |  | (Dollars in thousands)
|Unrealized gain on RISA                      |  |                        |         |      |  | $ | 549     |  
|Unrealized loss on interest rate swaps(1)    |  | $                      | (34,607 | )    |  |   | (18,733 | )
|Realized loss on settled cash flow hedges(1) |  |                        | (19,219 | )    |  |   | (11,138 | )
|                                             |  |                        |         |      |  |   |         |  
|Total accumulated other comprehensive loss   |  | $                      | (53,826 | )    |  | $ | (29,322 | )
|                                             |  |                        |         |      |  |   |         |  



---



|    |                                                                                         
|--- | ----------------------------------------------------------------------------------------
|(1) | All cash flow hedges are structured to hedge
    future interest payments on borrowings.

Note 12  Equity Offerings

We completed rights offerings in March 2002 and
May 2001 which raised $110 million and $116 million of
equity through the issuance of 6.1 million and
6.4 million additional common shares at a price of $18.00
and $18.25 per share, respectively. With the completion of the
March 2002 offering, the number of our common shares issued and
outstanding increased by 18% to 41.1 million shares,
compared with an increase of 22% to 35.0 million shares in
May 2001.

Of the 6.1 million and 6.4 million
additional common shares issued in 2002 and 2001, the Bank
purchased 5.2 million and 5.3 million shares in the
amount of $94.4 million and $96.5 million,
respectively. At December 31, 2002, the Bank owned 84% of
our common stock.

Note 13  Servicing Income

Servicing income consisted of the following
components:

|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 
|---------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | 
|                                                                 |  |                                
|                                                                 |  | For the Year Ended December 31,
|                                                                 |  |                                
|                                                                 |  | 2002                            |         | 2001 |  | 2000
|                                                                 |  |                                 |         |      |  |     
|                                                                 |  |                                
|                                                                 |  | (Dollars in thousands)         
|Fee income                                                       |  | $                               | 87,277  |      |  | $    | 72,820  |   |  | $ | 61,772  | 
|Contractual servicing income                                     |  |                                 | 61,830  |      |  |      | 85,845  |   |  |   | 57,718  | 
|Retained interest (expense) income, net of
    RISA amortization |  |                                 | (29,805 | )    |  |      | (27,839 | ) |  |   | 51,429  | 
|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 
|Total servicing income                                           |  | $                               | 119,302 |      |  | $    | 130,826 |   |  | $ | 170,919 | 
|                                                                 |  |                                 |         |      |  |      |         |   |  |   |         | 

Fee income consists primarily of documentation
fees, late charges, deferment fees and other servicing fees.
Additional servicing fees received by us from Westcorp relating
to the whole loan sales totaled approximately $51.1 million
and $62.8 million for the years ended December 31,
2002 and 2001, respectively, and are included in contractual
servicing income. Contractual servicing income received by us
relating to sales to securitization trusts totaled approximately
$10.7 million and $23.0 million for the years ended
December 31, 2002 and 2001, respectively. According to the
terms of each securitization transaction, contractual servicing
income is earned at rates ranging from 1.0% to 1.25% per annum
on the outstanding balance of contracts securitized.

Note 14  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 who have
completed six months of service, excluding contract or temporary
employees.

F-18



---



##### Table of Contents



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. The Salary Savings Plan, also known as
the 401(k) Plan, covers essentially all associates who have
completed three months of service, excluding contract or
temporary employees. 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 $2.8 million,
$8.4 million and $8.0 million in 2002, 2001 and 2000,
respectively. Compensation expense related to the ESOP and
401(k) Plan totaled $1.4 million, $4.8 million and
$7.3 million in 2002, 2001 and 2000, respectively. As of
December 31, 2002, the ESOP and 401(k) plan held a total of
1,927,643 shares of Westcorps common stock.


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, 2002, expense
related to the EDP for Westcorp and its subsidiaries totaled
$0.7 million compared with $0.3 million and
$0.5 million for the years ended December 31, 2001 and
2000, 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
$0.8 million and $0.9 million in 2002 and 2001,
respectively, related to the LTIP.

Note 15  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 807,212 shares available for future
grants at December 31, 2002. The weighted average life of
the options outstanding at December 31, 2002 was
2.7 years and the exercise prices were either $6.94 or
$13.00 per share. No options have been issued under this plan
since 1998.

Options outstanding and exercisable at
December 31, 2002 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         |                     |  |                     | 67,812 |          |  |             | 2.71 |          |  | $ | 6.94  |  |  |  | 67,812 |  |  | $ | 6.94  | 
|                | 13.00        |                     |  |                     | 2,875  |          |  |             | 1.83 |          |  |   | 13.00 |  |  |  | 2,875  |  |  |   | 13.00 | 
|                |              |                     |  |                     |        |          |  |             |      |          |  |   |       |  |  |  |        |  |  |   |       | 
|                | 6.94  13.00 |                     |  |                     | 70,687 |          |  |             | 2.68 |          |  | $ | 7.18  |  |  |  | 70,687 |  |  | $ | 7.18  | 
|                |              |                     |  |                     |        |          |  |             |      |          |  |   |       |  |  |  |        |  |  |   |       | 

F-19



---



##### Table of Contents



Stock option activity is summarized as follows:

|                                 |           |        |         |                  |   |   |      |       | 
|-------------------------------- | --------- | ------ | ------- | ---------------- | - | - | ---- | ----- | 
|                                 |           |        |         | Weighted Average
|                                 |           | Shares |         | Exercise Price  
|                                 |           |        |         |                 
|Outstanding at January 1, 2000.  |           |        | 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 |      
|                                 | Granted   |        |         |                  |   |   |      |       | 
|                                 | Exercised |        |         | (61,929          | ) |   |      | 7.04  | 
|                                 | Canceled  |        |         | (424             | ) |   |      | 6.94  | 
|                                 |           |        |         |                  |   |   |      |      
|Outstanding at December 31, 2002 |           |        | 70,687  |                  |   | $ | 7.18 |      
|                                 |           |        |         |                  |   |   |      |      

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.
Nonetheless, the fair value of options outstanding was estimated
at the date of grant using the Black-Scholes option pricing
model.

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 SFAS No. 123 as amended
by SFAS No. 148, 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,
|                                                |  |                                
|                                                |  | 2002                            |        | 2001 |  | 2000
|                                                |  |                                 |        |      |  |     
|                                                |  |                                
|                                                |  | (Dollars in thousands,         
|                                                |  | except per share amounts)      
|Net income                                      |  | $                               | 82,090 |      |  | $    | 61,648 |  |  | $ | 66,372 | 
|                                                |  |                                 |        |      |  |      |        |  |  |   |        | 
|Stock based compensation included above         |  |                                 |        |      |  |      |        |  |  |   |        | 
|Stock based compensation that would be included |  |                                 | 62     |      |  |      | 81     |  |  |   | 99     | 
|                                                |  |                                 |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                            |  | $                               | 82,028 |      |  | $    | 61,567 |  |  | $ | 66,273 | 
|                                                |  |                                 |        |      |  |      |        |  |  |   |        | 
|Earnings per share  basic                      |  | $                               | 2.06   |      |  | $    | 1.91   |  |  | $ | 2.36   | 
|Earnings per share  diluted                    |  |                                 | 2.05   |      |  |      | 1.90   |  |  |   | 2.35   | 
|Pro forma earnings per share  basic            |  |                                 | 2.05   |      |  |      | 1.91   |  |  |   | 2.35   | 
|Pro forma earnings per share  diluted          |  |                                 | 2.05   |      |  |      | 1.91   |  |  |   | 2.35   | 

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

F-20



---



##### Table of Contents



Note 16  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.

Note 17  Income Taxes

Income tax expense consisted of the following:

|          |         |                                 |         |         |   |      |         |         |   |   |        |        |  
|--------- | ------- | ------------------------------- | ------- | ------- | - | ---- | ------- | ------- | - | - | ------ | ------ | -
|          |         |                                
|          |         | For the Year Ended December 31,
|          |         |                                
|          |         | 2002                            |         | 2001    |   | 2000
|          |         |                                 |         |         |   |     
|          |         |                                
|          |         | (Dollars in thousands)         
|Current:  |         |                                 |         |         |   |      |         |         |   |   |        |       
|          | Federal |                                 | $       | 78,502  |   |      | $       | 68,625  |   |   | $      | 39,404 |  
|          | State   |                                 |         | 15,274  |   |      |         | 10,007  |   |   |        | 8,227  |  
|          |         |                                 |         |         |   |      |         |         |   |   |        |       
|          |         |                                 | 93,776  |         |   |      | 78,632  |         |   |   | 47,631 |       
|         
|Deferred: |         |                                 |         |         |   |      |         |         |   |   |        |       
|          | Federal |                                 |         | (37,165 | ) |      |         | (34,817 | ) |   |        | (4,396 | )
|          | State   |                                 |         | (10,459 | ) |      |         | (4,312  | ) |   |        | 981    |  
|          |         |                                 |         |         |   |      |         |         |   |   |        |       
|          |         |                                 | (47,624 | )       |   |      | (39,129 | )       |   |   | (3,415 | )     
|          |         |                                 |         |         |   |      |         |         |   |   |        |       
|          |         | $                               | 46,152  |         |   | $    | 39,503  |         |   | $ | 44,216 |       
|          |         |                                 |         |         |   |      |         |         |   |   |        |       

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,
|                                       |  |                                
|                                       |  | 2002                            |        | 2001 |  | 2000
|                                       |  |                                 |        |      |  |     
|                                       |  |                                
|                                       |  | (Dollars in thousands)         
|Tax at statutory rate                  |  | $                               | 44,885 |      |  | $    | 35,403 |  |  | $ | 38,706 |  
|State tax (net of federal tax benefit) |  |                                 | 3,130  |      |  |      | 3,701  |  |  |   | 5,985  |  
|Other                                  |  |                                 | (1,863 | )    |  |      | 399    |  |  |   | (475   | )
|                                       |  |                                 |        |      |  |      |        |  |  |   |        |  
|                                       |  | $                               | 46,152 |      |  | $    | 39,503 |  |  | $ | 44,216 |  
|                                       |  |                                 |        |      |  |      |        |  |  |   |        |  

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.

F-21



---



##### Table of Contents



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

|                                                             |                                |                        |         |         |   |   |         |         |  
|------------------------------------------------------------ | ------------------------------ | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                                             |                                |                       
|                                                             |                                | December 31,          
|                                                             |                                |                       
|                                                             |                                | 2002                   |         | 2001   
|                                                             |                                |                        |         |        
|                                                             |                                |                       
|                                                             |                                | (Dollars in thousands)
|Deferred tax assets:                                         |                                |                        |         |         |   |   |         |        
|Reserves for credit losses                                   |                                | $                      | 80,673  |         |   | $ | 45,760  |        
|State tax deferred benefit                                   |                                |                        | 4,464   |         |   |   | 6,412   |        
|Deferred compensation accrual                                |                                |                        | 1,505   |         |   |   | 1,834   |        
|Tax basis difference  derivatives                           |                                |                        | 37,404  |         |   |   | 20,758  |        
|Other assets                                                 |                                |                        | 7,412   |         |   |   | 1,418   |        
|                                                             |                                |                        |         |         |   |   |         |        
|                                                             | Total deferred tax assets      |                        |         | 131,458 |   |   |         | 76,182  |  
|Deferred tax liabilities:                                    |                                |                        |         |         |   |   |         |        
|Accelerated depreciation for tax purposes                    |                                |                        | (700    | )       |   |   | (945    | )      
|Asset securitization income recognized for book
    purposes |                                |                        |         |         |   |   | (12,176 | )      
|Tax basis difference  marketable
    securities             |                                |                        |         |         |   |   | (382    | )      
|Other liabilities                                            |                                |                        | (18,448 | )       |   |   | (15,021 | )      
|                                                             |                                |                        |         |         |   |   |         |        
|                                                             | Total deferred tax liabilities |                        |         | (19,148 | ) |   |         | (28,524 | )
|                                                             |                                |                        |         |         |   |   |         |        
|                                                             | Net deferred tax assets        |                        | $       | 112,310 |   |   | $       | 47,658  |  
|                                                             |                                |                        |         |         |   |   |         |        

Note 18  Fair Value of Financial
Instruments

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

|                                                                          |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |         |  
|------------------------------------------------------------------------- | ----------------------------- | ------------ | --------- | ---------------------- | - | -------- | --------- | ---------- | - | - | --------- | ------- | - | - | --------- | ------- | -
|                                                                          |                               |             
|                                                                          |                               | December 31,
|                                                                          |                               |             
|                                                                          |                               |              |           |                       
|                                                                          |                               | 2002         |           | 2001                  
|                                                                          |                               |              |           |                       
|                                                                          |                               | Carrying     |           |                        |   | Carrying |           |           
|                                                                          |                               | Amounts      |           | Fair Value             |   | Amounts  |           | Fair Value
|                                                                          |                               |              |           |                        |   |          |           |           
|                                                                          |                               |              |           |                        |   |         
|                                                                          |                               |              |           | (Dollars in thousands) |   |         
|Financial assets:                                                         |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|Cash and due from banks                                                   |                               | $            | 715,807   |                        |   | $        | 715,807   |            |   | $ | 30,100    |         |   | $ | 30,100    |        
|Investment securities available for sale                                  |                               |              | 3,348     |                        |   |          | 3,348     |            |   |   | 4,668     |         |   |   | 4,668     |        
|Contracts receivable                                                      |                               |              | 7,950,123 |                        |   |          | 8,850,736 |            |   |   | 5,215,718 |         |   |   | 5,736,193 |        
|Retained interest in securitized assets                                   |                               |              |           |                        |   |          |           |            |   |   | 37,392    |         |   |   | 37,392    |        
|Financial instrument agreements held for purposes
    other than trading: |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|                                                                          | Interest rate swap agreements |              |           | (59,244                | ) |          |           | (59,244    | ) |   |           | (31,751 | ) |   |           | (31,751 | )
|Financial liabilities:                                                    |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|Lines of credit  parent                                                  |                               |              | 62,048    |                        |   |          | 62,111    |            |   |   | 67,500    |         |   |   | 69,786    |        
|Notes payable on automobile secured financing                             |                               |              | 7,323,180 |                        |   |          | 7,567,612 |            |   |   | 4,005,925 |         |   |   | 4,084,091 |        
|Notes payable  parent                                                    |                               |              | 408,010   |                        |   |          | 426,738   |            |   |   | 421,175   |         |   |   | 421,294   |        
|Amounts held on behalf of trustee                                         |                               |              | 298,863   |                        |   |          | 298,863   |            |   |   | 476,910   |         |   |   | 476,910   |        

Note 19  Financial Instrument
Agreements

Our interest rate swap agreements are with
counterparties 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, 2002 the terms of our interest
rate swap agreements were to pay a weighted average fixed rate
of 3.6%, and to receive a weighted average variable rate of
1.6%, with

F-22



---



##### Table of Contents



expiration dates ranging from 2005 to 2010 and
collateral requirements generally ranging from 3% to 4%. 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.


Notional amounts do not represent amounts
exchanged with counterparties 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, 2002, the
unrealized loss on cash flow hedges was $59.2 million, net
of taxes of $41.2 million, compared to $42.2 million,
net of taxes of $29.4 million, for the year ended
December 31, 2001. We reclassified $35.3 million and
$8.4 million, net of tax, into earnings which is included
in interest expense on the Consolidated Statements of Income for
the years ended December 31, 2002 and 2001, respectively.
The amount recognized in earnings due to ineffectiveness was
immaterial. In 2001, 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 $7 million to $10 million of the
unrealized loss on these instruments that was recorded in
accumulated other comprehensive loss as of December 31,
2002.

Note 20  Earnings Per
Share

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

|                                          |  |                                                  |            |      |  |      |            |  |  |   |            | 
|----------------------------------------- |  | ------------------------------------------------ | ---------- | ---- |  | ---- | ---------- |  |  | - | ---------- | 
|                                          |  |                                                 
|                                          |  | For the Year Ended December 31,                 
|                                          |  |                                                 
|                                          |  | 2002                                             |            | 2001 |  | 2000
|                                          |  |                                                  |            |      |  |     
|                                          |  |                                                 
|                                          |  | (Dollars in thousands, except per share amounts)
|Basic:                                    |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 82,090     |      |  | $    | 61,648     |  |  | $ | 66,372     | 
|Average basic common shares outstanding   |  |                                                  | 39,945,285 |      |  |      | 32,308,649 |  |  |   | 28,178,151 | 
|Net income per common share  basic       |  | $                                                | 2.06       |      |  | $    | 1.91       |  |  | $ | 2.36       | 
|Diluted:                                  |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 82,090     |      |  | $    | 61,648     |  |  | $ | 66,372     | 
|Average basic common shares outstanding   |  |                                                  | 39,945,285 |      |  |      | 32,308,649 |  |  |   | 28,178,151 | 
|Stock option adjustment                   |  |                                                  | 49,239     |      |  |      | 89,708     |  |  |   | 105,584    | 
|Average diluted common shares outstanding |  |                                                  | 39,993,524 |      |  |      | 32,398,357 |  |  |   | 28,283,735 | 
|Net income per common share  diluted     |  | $                                                | 2.05       |      |  | $    | 1.90       |  |  | $ | 2.35       | 

Note 21  Subsequent Events
(Unaudited)

On February 27, 2003, we completed the
issuance of $1.3 billion of notes secured by contracts
through a securitization transaction accounted for as a secured
financing. The senior notes issued are credit enhanced through
the issuance of subordinated notes.

Effective January 1, 2003, we regained
control over assets of the trusts for all of our outstanding
securitization transactions treated as sales for accounting
purposes, excluding loans sold in whole loan sales.

F-23



---



##### Table of Contents



We regained control of these assets when each
trust was given the ability to invest in financial assets not
related to the securitization of contracts. In accordance with
Emerging Issues Task Force 02-9, Accounting for Changes
that Result in a Transferor Regaining Control of Financial
Assets Sold, we recorded $525 million of automobile
contracts and the related notes payable on automobile secured
financings on our Consolidated Statements of Financial Condition
and have eliminated all remaining amounts due from trusts and
amounts held on behalf of trustee for these transactions. We
will no longer recognize retained interest income or expense or
contractual servicing income for these securitization
transactions on our Consolidated Statements of Income. Rather,
we will recognize interest income on automobile contracts held
in these trusts and record interest expense on notes payable on
automobile secured financings.


Note 22  Quarterly Results of
Operations (Unaudited)

The following is a summary of unaudited quarterly
results of operations for the periods ended December 31,
2002 and 2001. 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)
|2002                                |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                     |  | $                                                | 171,432 |         |  | $            | 197,867 |             |  | $ | 220,285 |  |  | $ | 230,865 | 
|Interest expense                    |  |                                                  | 68,554  |         |  |              | 86,980  |             |  |   | 95,849  |  |  |   | 98,129  | 
|Net interest income                 |  |                                                  | 102,878 |         |  |              | 110,887 |             |  |   | 124,436 |  |  |   | 132,736 | 
|Provision for credit losses         |  |                                                  | 49,708  |         |  |              | 50,680  |             |  |   | 63,098  |  |  |   | 85,607  | 
|Income before income tax            |  |                                                  | 30,211  |         |  |              | 35,965  |             |  |   | 38,846  |  |  |   | 23,220  | 
|Income tax                          |  |                                                  | 11,997  |         |  |              | 13,461  |             |  |   | 15,505  |  |  |   | 5,189   | 
|Net income                          |  |                                                  | 18,214  |         |  |              | 22,504  |             |  |   | 23,341  |  |  |   | 18,031  | 
|Earnings per common share  basic   |  |                                                  | 0.50    |         |  |              | 0.55    |             |  |   | 0.57    |  |  |   | 0.44    | 
|Earnings per common share  diluted |  |                                                  | 0.50    |         |  |              | 0.55    |             |  |   | 0.57    |  |  |   | 0.44    | 
|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  | 
|Earnings per common share  basic   |  |                                                  | 0.66    |         |  |              | 0.63    |             |  |   | 0.27    |  |  |   | 0.40    | 
|Earnings per common share  diluted |  |                                                  | 0.66    |         |  |              | 0.63    |             |  |   | 0.27    |  |  |   | 0.40    | 

F-24



---



##### Table of Contents






EXHIBIT INDEX

|        |         |                        |  |                                                                                                                                                        
|------- | ------- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|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(12)                                                                                                                     
|        | 10.6    |                        |  | Revolving Line of Credit Agreement between WFS
    Funding, Inc. and Western Financial Bank, dated
    November 30, 2001(12)                           
|        | 10.6.1  |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Funding, Inc. and Western Financial Bank, dated
    June 1, 2002                            
|        | 10.6.2  |                        |  | First Amendment dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Funding, Inc.
    and Western Financial Bank         
|        | 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(15)        
|        | 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         
|        | 10.9.4  |                        |  | Amendment No. 4, dated October 15,
    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)                                       
|        | 10.10.1 |                        |  | Amended and restated tax sharing agreement
    between Westcorp and Subsidiaries, dated September 30, 2002                                             
|        | 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(12)                                          
|        | 10.16.2 |                        |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)            
|        | 10.16.3 |                        |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)            
|        | 10.17   |                        |  | Amended and Restated WFS 1996 Incentive Stock
    Option Plan(6)                                                                                       



---



##### Table of Contents



|        |         |                        |  |                                                                                                                                                                                                 
|------- | ------- | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 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   |                        |  | Short-term 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 Short-term 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                                                  
|        | 10.20.1 |                        |  | First Amendment, dated August 1, 2002, to
    the 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)                                                                                                                                                                      
|        | 10.22   |                        |  | Revolving Line of Credit Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank, dated
    November 30, 2001(12)                                                       
|        | 10.22.1 |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western Financial
    Bank, dated June 1, 2002                                                        
|        | 10.22.2 |                        |  | First Amendment, dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Financial
    Auto Loans, Inc. and Western Financial Bank                                    
|        | 10.23   |                        |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank, dated
    November 30, 2001(12)                                                          
|        | 10.23.1 |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002                                                           
|        | 10.23.2 |                        |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank                                       
|        | 10.24   |                        |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002                                                               
|        | 10.24.1 |                        |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                     
|        | 10.25   |                        |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002                                                                                          
|        | 10.26   |                        |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998                                                             
|        | 10.26.1 |                        |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency                               
|        | 10.27   |                        |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002                                        
|        | 10.28   |                        |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002                                                            
|        | 10.29   |                        |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002                                                             
|        | 10.30   |                        |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002                                      



---



##### Table of Contents



|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.31   |                        |  | Logo License Agreement between Western Financial
    Bank, Westcorp, WFS Financial Inc, Western Consumer Products,
    WFS Receivables Corporation, WFS Receivables Corporation 2,
    WFS Receivables Corporation 3, WFS Financial Auto Loans,
    Inc., The Hammond Company, The Mortgage Bankers, WFS Funding
    Inc., WFS Investments, Inc., Westran Services Corporation,
    WestFin Insurance Agency, Inc., Western Auto Investments, Inc.,
    Western Consumer Services, Inc., Westhrift Life Insurance
    Entity, Inc., Western Reconveyance Entity, Inc., and WFS Web
    Investments, Inc.
|        | 10.32   |                        |  | Travel Services Agreement between Westran
    Services Corp. and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002                                                                                                                                                                                                                                                                                                                                                                                                                 
|        | 10.33   |                        |  | Secured Deposit Account Agreement between Western
    Financial Bank and WFS Receivables Corporation, dated
    October 17, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.34   |                        |  | Annuity Licensing Fee Agreement between Westfin
    Insurance Agency, Inc. and Western Financial Bank, dated
    September 9, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.35   |                        |  | Sublease Agreement between WFS Financial Inc, and
    WFS Receivable Corporation, WFS Receivables Corporation 2,
    WFS Financial Auto Loans, Inc., WFS Financial Auto Loans 2,
    Inc., Western Auto Investments, Inc., and WFS Funding, Inc.,
    dated March 21, 2002                                                                                                                                                                                                                                                                                                                              
|        | 10.35.1 |                        |  | First Amendment to Sublease Agreement between WFS
    Financial Inc, and WFS Receivables Corporation, WFS Receivables
    Corporation 2, WFS Financial Auto Loans, Inc., WFS
    Financial Auto Loans 2, Inc., Western Auto Investments,
    Inc., and WFS Funding, Inc. dated September 1, 2002                                                                                                                                                                                                                                                                                                        
|        | 10.36   |                        |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency and WFS Financial Inc, dated September
    2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 21.1    |                        |  | Subsidiaries of WFS Financial Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        | 23.1    |                        |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 99.1    |                        |  | Certification of the Chief Executive Officer and
    Chief Financial Officer pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                          



---



|    |                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Financial Inc
    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.



---



##### Table of Contents





|     |                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(12) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 2001 as filed on or about
    March 29, 2002.