##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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Form 10-K



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|                                                           |  |                                                                                             
|---------------------------------------------------------- |  | --------------------------------------------------------------------------------------------
|(Mark One)                                                 |  |                                                                                             
|þ                                                          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|                                                          
|For the fiscal year ended December 31,
    2003           
|                                                          
|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

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Securities Exchange Act of
1934).     Yes þ          No o

The aggregate market value of the voting stock
held by non-affiliates of the registrant as of June 30,
2003:

Common Stock, No Par Value 
$216,116,571

The number of shares outstanding of the
issuers class of common stock as of February 27, 2004:

Common Stock, No Par Value 
41,033,901

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for
the Annual Meeting of Shareholders to be held April 26,
2004 are incorporated by reference into Part III.



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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                                                                                |   |      | 18 | 
|Item 3.                                                  |  | Legal Proceedings                                                                         |   |      | 18 | 
|Item 4.                                                  |  | Submission of Matters to a
    Vote of Security Holders                                   |   |      | 18 | 
|PART II                                                 
|Item 5.                                                  |  | Market for Registrants
    Common Equity and Related Stockholder Matters                 |   |      | 19 | 
|Item 6.                                                  |  | Selected Financial Data                                                                   |   |      | 20 | 
|Item 7.                                                  |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations |   |      | 21 | 
|Item 7A.                                                 |  | Quantitative and Qualitative
    Disclosure About Market Risk                             |   |      | 41 | 
|Item 8.                                                  |  | Financial Statements and
    Supplementary Data                                           |   |      | 47 | 
|Item 9.                                                  |  | Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure  |   |      | 47 | 
|Item 9A.                                                 |  | Controls and Procedures                                                                   |   |      | 47 | 
|PART III                                                
|Item 10.                                                 |  | Directors and Executive
    Officers of the Registrant                                    |   |      | 48 | 
|Item 11.                                                 |  | Executive Compensation                                                                    |   |      | 48 | 
|Item 12.                                                 |  | Security Ownership of
    Certain Beneficial Owners and Management                        |   |      | 48 | 
|Item 13.                                                 |  | Certain Relationships and
    Related Transactions                                        |   |      | 48 | 
|Item 14.                                                 |  | Principal Accounting Fees
    and Services                                                |   |      | 48 | 
|PART IV                                                 
|Item 15.                                                 |  | Financial Statement
    Schedules, Exhibits and Reports on Form 8-K                       |   |      | 49 | 
|EXHIBIT 3.1                                             
|EXHIBIT 10.4                                            
|EXHIBIT 10.4.1                                          
|EXHIBIT 10.7                                            
|EXHIBIT 10.8                                            
|EXHIBIT 10.8.1                                          
|EXHIBIT 10.16.6                                         
|EXHIBIT 10.16.7                                         
|EXHIBIT 10.22                                           
|EXHIBIT 10.22.1                                         
|EXHIBIT 10.24                                           
|EXHIBIT 10.24.1                                         
|EXHIBIT 10.25.2                                         
|EXHIBIT 10.31.1                                         
|EXHIBIT 10.35                                           
|EXHIBIT 10.36.2                                         
|EXHIBIT 10.39                                           
|EXHIBIT 10.39.1                                         
|EXHIBIT 10.49                                           
|EXHIBIT 21.1                                            
|EXHIBIT 23.1                                            
|EXHIBIT 31.1                                            
|EXHIBIT 31.2                                            
|EXHIBIT 32.1                                            
|EXHIBIT 32.2                                            





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##### Table of Contents






Forward-Looking Statements

This Form 10-K includes and incorporates by
reference forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act, as amended.
Forward-looking statements relate to analyses and other
information that are based on forecasts of future results and
estimates of amounts not yet determinable. These statements also
relate to our future prospects, developments and business
strategies. These statements are subject to uncertainties and
factors relating to our operations and business environment, all
of which are difficult to predict and many of which are beyond
our control, that could cause actual results to differ
materially from those expressed in or implied by these
forward-looking statements.

These forward-looking statements are identified
by their use of terms and phrases such as
anticipate, believe, could,
estimate, expect, intend,
may, plan, predict,
project, will, and similar terms and
phrases, including references to assumptions. These statements
are contained in sections entitled Business,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and other sections of
this Form 10-K and in the documents incorporated by
reference.

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, interpretation or application of new
    or existing 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 to reflect future events or circumstances.

INDUSTRY DATA

In this Form 10-K, we rely on and refer to
information regarding the automobile lending industry from
market research reports, analyst reports and other publicly
available information. Although we believe that this information
is reliable, we cannot guarantee the accuracy and completeness
of this information, and we have not independently verified any
of it.

Available Information

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

1



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##### Table of Contents






PART I





|        |         
|------- | --------
|Item 1. | Business

General

We are one of the nations largest
independent automobile finance companies with 31 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
$684 billion of loan originations during 2003. We originate
new and pre-owned automobile installment contracts, otherwise
known as contracts, through our relationships with approximately
8,000 franchised and independent automobile dealers nationwide.
We originated $6.0 billion of contracts during 2003 and
managed a portfolio of $10.6 billion contracts at
December 31, 2003.

For the year ended December 31, 2003,
approximately 32% of our contract originations were for the
purchase of new automobiles and approximately 68% of our
contract originations were for the purchase of pre-owned
automobiles. Approximately 83% of our contract originations were
what we refer to as prime contracts, and approximately 17% of
our contract originations were what we refer to as non-prime
contracts. Our determination of whether a contract is
categorized as prime, non-prime or other is based on a number of
factors including the borrowers credit history and our
expectation of credit loss. All references made throughout this
document regarding prime, non-prime or subprime automobile
contracts are based on our determination.

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. We believe that 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, 2003, the average net interest
spread on our automobile contract originations was 7.63% and the
net interest spread on our managed automobile portfolio was
7.10% while net credit losses averaged 2.60% 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 39 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. These funds are made available
to us through a series of intercompany agreements that are made
under terms, rates and conditions that we believe to approximate
arrangements we could enter into with outside third party
relationships. For long-term financing, we issue automobile
contract asset-backed securities. Since 1985, we have sold or
securitized over $36.0 billion of contracts in 62 public
offerings of asset-backed securities, making us the fourth
largest issuer of such securities in the nation. We have
employed a range of securitization structures and our most
recent $1.5 billion issuance of asset-backed securities was
structured as a senior/subordinated transaction with a weighted
average interest rate of 2.36%. Our relationship with the Bank
gives us a competitive advantage relative to other independent
automobile finance companies by providing an additional
liquidity source.

2



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The following table presents a summary of our
contracts purchased:

|                    |              |                                 |           |           |  |      |           |           |  |   |           |           | 
|------------------- | ------------ | ------------------------------- | --------- | --------- |  | ---- | --------- | --------- |  | - | --------- | --------- | 
|                    |              |                                
|                    |              | For the Year Ended December 31,
|                    |              |                                
|                    |              | 2003                            |           | 2002      |  | 2001
|                    |              |                                 |           |           |  |     
|                    |              |                                
|                    |              | (Dollars in thousands)         
|New vehicles        |              | $                               | 1,928,268 |           |  | $    | 1,548,372 |           |  | $ | 1,208,753 |          
|Pre-owned vehicles  |              |                                 | 4,050,308 |           |  |      | 3,867,362 |           |  |   | 3,654,526 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 5,978,576 |  |      | $         | 5,415,734 |  |   | $         | 4,863,279 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|Prime contracts     |              | $                               | 4,942,654 |           |  | $    | 4,346,212 |           |  | $ | 3,675,351 |          
|Non-prime contracts |              |                                 | 1,035,922 |           |  |      | 1,069,522 |           |  |   | 1,187,928 |          
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          
|                    | Total volume |                                 | $         | 5,978,576 |  |      | $         | 5,415,734 |  |   | $         | 4,863,279 | 
|                    |              |                                 |           |           |  |      |           |           |  |   |           |          

The History of WFS

Western Thrift & Loan Association,
a California-licensed thrift and loan association, was founded
in 1972. In 1973, Western Thrift Financial Corporation was
formed as the holding company for Western Thrift &
Loan Association. It later changed its name to Westcorp. In
1982, Westcorp acquired Evergreen Savings and
Loan Association, a California-licensed savings and loan
association, which became its wholly owned subsidiary. The
activities of Western Thrift & Loan Association
were merged into Evergreen Savings and Loan Association in
1982. Evergreen Savings and Loan Associations name
was changed ultimately to Western Financial Bank and the Bank
ultimately became chartered as a federal savings institution.

Western Thrift & Loan Association
was involved in automobile finance activities from its
incorporation until its merger with Evergreen Savings and
Loan Association. Since 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. At
December 31, 2003, the Bank owned 84% of our common stock.

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 subprime). Based upon industry data, we
believe that during 2003, prime, non-prime and subprime loan
originations in the United States were $470 billion,
$135 billion and $79 billion, respectively. The United
States captive automobile finance companies, General Motors
Acceptance Corporation, Ford Motor Credit Company and Chrysler
Credit Corporation account for approximately 32% 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 5% 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 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.

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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 ordinarily one
of the dealers primary sources of financing for automobile
sales. We do not currently provide financing on dealers
inventories. We also must 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 first time automobile
purchasers.

Our Business Strategy

Our business objective is to maximize long-term
profitability by efficiently purchasing and servicing prime and
non-prime 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 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 our funding
    sources, including positive operating cash flows; and       
|
| |  | record high quality earnings and maintain a
    conservative, well-capitalized balance sheet.                   

Produce Consistent Growth Through Our
Strong Dealer Relationships

Over the past five years, we have experienced a
compounded annual growth rate in contract purchases of 17%. We
believe we provide a high degree of personalized service to our
dealer 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.

|                                 |  |                                       |            |      |  |      |           |      |  |      |           |   |  |   |           |   |  |   |           |  
|-------------------------------- |  | ------------------------------------- | ---------- | ---- |  | ---- | --------- | ---- |  | ---- | --------- | - |  | - | --------- | - |  | - | --------- | -
|                                 |  |                                      
|                                 |  | At or For the Year Ended December 31,
|                                 |  |                                      
|                                 |  | 2003                                  |            | 2002 |  | 2001 |           | 2000 |  | 1999
|                                 |  |                                       |            |      |  |      |           |      |  |     
|                                 |  |                                      
|                                 |  | (Dollars in thousands)               
|Total contract portfolio managed |  | $                                     | 10,596,665 |      |  | $    | 9,389,974 |      |  | $    | 8,152,882 |   |  | $ | 6,818,182 |   |  | $ | 5,354,385 |  
|Percentage growth                |  |                                       | 12.9       | %    |  |      | 15.2      | %    |  |      | 19.6      | % |  |   | 27.3      | % |  |   | 22.6      | %
|Total contract originations      |  | $                                     | 5,978,576  |      |  | $    | 5,415,734 |      |  | $    | 4,863,279 |   |  | $ | 4,219,227 |   |  | $ | 3,340,146 |  
|Percentage growth                |  |                                       | 10.4       | %    |  |      | 11.4      | %    |  |      | 15.3      | % |  |   | 26.3      | % |  |   | 25.1      | %

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

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originations and improving efficiencies. On a
limited basis, we also originate loans directly from consumers
and purchase loans from other automobile finance companies.
Additionally, we continue to explore other distribution
channels, including the Internet. In December 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 40 finance companies and 23,800 dealers. As of
December 31, 2003, we owned approximately 6.4% of
DealerTrack. Currently, approximately 70% of our applications
are processed through DealerTrack.


We are the largest originator of pre-owned
automobile contracts in California by a two to one margin to our
nearest competitor. Our leading market share in California
provides us with economies of scale, thereby enabling us to earn
a higher risk adjusted margin in this market. We are seeking to
expand our market share in other states to achieve similar
economies of scale.

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 incentives to our
associates based on credit performance and profitability
measurements on both an individual and company level.

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

|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|-------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | - |  |  | ----- | -
|                           |  |                                
|                           |  | For the Year Ended December 31,
|                           |  |                                
|                           |  | 2003                            |       | 2002 |  | 2001 |       | 2000 |  | 1999
|                           |  |                                 |       |      |  |      |       |      |  |     
|Weighted average coupon(1) |  |                                 | 10.03 | %    |  |      | 11.35 | %    |  |      | 12.74 | % |  |  | 13.95 | % |  |  | 13.57 | %
|Interest on borrowings(1)  |  |                                 | 2.70  |      |  |      | 3.74  |      |  |      | 5.37  |   |  |  | 6.74  |   |  |  | 6.08  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Net interest margins       |  |                                 | 7.33  |      |  |      | 7.61  |      |  |      | 7.37  |   |  |  | 7.21  |   |  |  | 7.49  |  
|Credit losses(2)           |  |                                 | 2.60  |      |  |      | 2.77  |      |  |      | 2.27  |   |  |  | 1.91  |   |  |  | 2.13  |  
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  
|Risk-adjusted margins      |  |                                 | 4.73  | %    |  |      | 4.84  | %    |  |      | 5.10  | % |  |  | 5.30  | % |  |  | 5.36  | %
|                           |  |                                 |       |      |  |      |       |      |  |      |       |   |  |  |       |   |  |  |       |  



---



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

We evaluate 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;                                                                                                                                                                                                                

5



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| |   |                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | behavioral delinquency management system, which
    improves our ability to queue accounts according to the level of
    risk, monitor collector performance and track delinquent
    automobile 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 to 2.4% for
2003 from a high of 4.5% during the first quarter of 1999. We
will continue to evaluate new technology and best practices to
further improve our operating efficiencies.

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

Cash flows from our operations provide a
significant source of liquidity for us. In addition, we are able
to raise additional liquidity through the asset-backed
securities market. Over the last year we held an average of
approximately $572 million of unencumbered automobile
contracts on our balance sheet, which provides another source of
liquidity.

Record High Quality Earnings and Maintain a
Conservative, Well-Capitalized Balance Sheet

Presenting high quality earnings and maintaining
a conservative, well-capitalized balance sheet have been our
focus since our founding in 1972. We believe 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, maintaining appropriate allowances
for credit losses and holding a strong equity position.

Since March 2000, we have structured our
automobile contract securitizations as secured financings. By
accounting for these 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 on 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 was
$240 million at December 31, 2003 compared with
$228 million at December 31, 2002. The increase in the
allowance for credit losses was the result of a higher level of
automobile contracts held on balance sheet. The allowance for
credit losses as a percentage of owned contracts outstanding was
2.8% at December 31, 2003 compared with 2.9% at
December 31, 2002. Based on the analysis we performed
related to the allowance for credit losses as described under
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Critical
Accounting Policies, we believe that our allowance for
credit losses is currently adequate to cover probable losses in
our contract portfolio that can be reasonably estimated.

Total shareholders equity, excluding
accumulated other comprehensive loss, was $852 million or
8.7% of total assets at December 31, 2003. This compares
with total shareholders equity of $688 million or
7.8% of total assets at December 31, 2002.

6



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##### Table of Contents



Operations

Locations

We currently originate contracts nationwide
through our 39 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, automated
dialers and asset recovery. We also maintain three regional
bankruptcy and remarketing centers. 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. We believe this education process helps
to minimize the number of applications we receive that are
outside of our underwriting guidelines, thereby increasing our
efficiency and lowering our overall cost to originate contracts.

After the dealer 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 monitoring the number of approved
applications received from each dealer that are converted into
contracts, verifying that the contracts meet our underwriting
standards, monitoring the risk-based pricing of contracts
acquired and reviewing the actual performance of the contracts
purchased. To the extent that a dealer does not meet minimum
conversion ratios, lending volume standards or overall
profitability targets, the dealer may be precluded from sending
us applications in the future. During the year our dealer base
increased from approximately 7,800 to 8,000, primarily as a
result of us expanding our nationwide presence. Our increase in
volume is the result of this increase in our dealer base, in
addition to funding more contracts from our existing dealers.

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 our 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 providers enter the applicant information from faxed
applications into our front-end system. Once an application is
in the front-end system, the system automatically obtains the
applicants credit bureau information 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.

7



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##### Table of Contents



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.


Our credit analysts are responsible for properly
structuring and pricing deals to meet our risk-based criteria.
They review the applicants information and the 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 analyst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 minimum contract buy rates, contract terms,
contract advances, payment to income ratios, debt to income
ratios, collateral values and low side overrides.

Once a credit decision has been made, the
computer system automatically sends a response to the dealer
through the Internet or via fax 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 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 each 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 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



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##### 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:

|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |        | 
|-------------- | ----- | ------------------------------- | --------- | -------------------- |  | ---- | --------- | ----------------- |  | -------------------- | --------- | --------- |  | - | --------- | ---------- |  |  | ----- | ------ | 
|               |       |                                 |           |                      |  |     
|               |       | Contracts Originated            |           |                     
|               |       | For the Year Ended December 31, |           | At December 31, 2003
|               |       |                                 |           |                     
|State          |       | 2003                            |           | 2002                 |  | 2001 |           | Managed Portfolio |  | Number of Dealers(1)
|               |       |                                 |           |                      |  |      |           |                   |  |                     
|               |       |                                
|               |       | (Dollars in thousands)         
|California     |       | $                               | 2,228,877 |                      |  | $    | 2,091,347 |                   |  | $                    | 1,928,371 |           |  | $ | 3,992,899 |            |  |  | 3,025 |       
|Washington     |       |                                 | 373,111   |                      |  |      | 310,189   |                   |  |                      | 216,003   |           |  |   | 570,259   |            |  |  | 543   |       
|Arizona        |       |                                 | 299,918   |                      |  |      | 283,528   |                   |  |                      | 324,299   |           |  |   | 567,224   |            |  |  | 468   |       
|Colorado       |       |                                 | 248,667   |                      |  |      | 200,153   |                   |  |                      | 123,788   |           |  |   | 376,790   |            |  |  | 332   |       
|Oregon         |       |                                 | 206,875   |                      |  |      | 214,683   |                   |  |                      | 196,292   |           |  |   | 356,905   |            |  |  | 501   |       
|Texas          |       |                                 | 204,065   |                      |  |      | 171,761   |                   |  |                      | 181,651   |           |  |   | 371,503   |            |  |  | 823   |       
|Virginia       |       |                                 | 162,148   |                      |  |      | 123,403   |                   |  |                      | 99,056    |           |  |   | 273,485   |            |  |  | 445   |       
|Ohio           |       |                                 | 161,846   |                      |  |      | 171,109   |                   |  |                      | 174,040   |           |  |   | 351,102   |            |  |  | 788   |       
|North Carolina |       |                                 | 148,786   |                      |  |      | 144,859   |                   |  |                      | 138,956   |           |  |   | 288,587   |            |  |  | 505   |       
|Illinois       |       |                                 | 147,635   |                      |  |      | 104,576   |                   |  |                      | 93,709    |           |  |   | 233,714   |            |  |  | 534   |       
|Nevada         |       |                                 | 142,957   |                      |  |      | 131,094   |                   |  |                      | 105,747   |           |  |   | 252,167   |            |  |  | 166   |       
|Florida        |       |                                 | 132,238   |                      |  |      | 147,931   |                   |  |                      | 184,289   |           |  |   | 300,689   |            |  |  | 698   |       
|Idaho          |       |                                 | 129,838   |                      |  |      | 102,475   |                   |  |                      | 77,184    |           |  |   | 199,956   |            |  |  | 198   |       
|New York       |       |                                 | 117,377   |                      |  |      | 63,519    |                   |  |                      | 29,801    |           |  |   | 157,774   |            |  |  | 299   |       
|Michigan       |       |                                 | 109,323   |                      |  |      | 82,542    |                   |  |                      | 67,905    |           |  |   | 178,164   |            |  |  | 369   |       
|Maryland       |       |                                 | 100,620   |                      |  |      | 62,145    |                   |  |                      | 41,286    |           |  |   | 149,878   |            |  |  | 246   |       
|Georgia        |       |                                 | 98,224    |                      |  |      | 77,294    |                   |  |                      | 82,352    |           |  |   | 181,685   |            |  |  | 431   |       
|Tennessee      |       |                                 | 90,156    |                      |  |      | 86,228    |                   |  |                      | 83,892    |           |  |   | 176,717   |            |  |  | 310   |       
|South Carolina |       |                                 | 88,511    |                      |  |      | 145,892   |                   |  |                      | 129,963   |           |  |   | 231,142   |            |  |  | 283   |       
|Missouri       |       |                                 | 77,273    |                      |  |      | 70,070    |                   |  |                      | 57,883    |           |  |   | 139,082   |            |  |  | 350   |       
|Utah           |       |                                 | 74,993    |                      |  |      | 84,897    |                   |  |                      | 77,321    |           |  |   | 138,880   |            |  |  | 284   |       
|Massachusetts  |       |                                 | 69,343    |                      |  |      | 39,086    |                   |  |                      | 27,778    |           |  |   | 96,091    |            |  |  | 185   |       
|New Jersey     |       |                                 | 60,255    |                      |  |      | 42,210    |                   |  |                      | 28,280    |           |  |   | 96,137    |            |  |  | 200   |       
|Wisconsin      |       |                                 | 52,304    |                      |  |      | 44,318    |                   |  |                      | 40,826    |           |  |   | 87,105    |            |  |  | 221   |       
|Pennsylvania   |       |                                 | 47,813    |                      |  |      | 50,699    |                   |  |                      | 46,122    |           |  |   | 95,851    |            |  |  | 376   |       
|Indiana        |       |                                 | 46,530    |                      |  |      | 37,904    |                   |  |                      | 36,739    |           |  |   | 83,556    |            |  |  | 231   |       
|Minnesota      |       |                                 | 46,398    |                      |  |      | 29,708    |                   |  |                      | 18,240    |           |  |   | 63,698    |            |  |  | 115   |       
|Alabama        |       |                                 | 43,343    |                      |  |      | 36,570    |                   |  |                      | 31,967    |           |  |   | 82,560    |            |  |  | 213   |       
|Connecticut    |       |                                 | 35,183    |                      |  |      | 22,928    |                   |  |                      | 11,508    |           |  |   | 53,316    |            |  |  | 98    |       
|New Mexico     |       |                                 | 34,010    |                      |  |      | 23,930    |                   |  |                      | 24,146    |           |  |   | 52,238    |            |  |  | 110   |       
|Delaware       |       |                                 | 32,750    |                      |  |      | 26,697    |                   |  |                      | 26,173    |           |  |   | 61,660    |            |  |  | 64    |       
|New Hampshire  |       |                                 | 32,619    |                      |  |      | 24,275    |                   |  |                      | 10,563    |           |  |   | 46,790    |            |  |  | 89    |       
|Kansas         |       |                                 | 26,398    |                      |  |      | 19,448    |                   |  |                      | 21,533    |           |  |   | 45,050    |            |  |  | 126   |       
|Kentucky       |       |                                 | 23,112    |                      |  |      | 41,754    |                   |  |                      | 41,526    |           |  |   | 66,130    |            |  |  | 193   |       
|Iowa           |       |                                 | 20,712    |                      |  |      | 20,552    |                   |  |                      | 9,228     |           |  |   | 34,533    |            |  |  | 94    |       
|Oklahoma       |       |                                 | 12,874    |                      |  |      | 27,390    |                   |  |                      | 25,065    |           |  |   | 35,949    |            |  |  | 85    |       
|Mississippi    |       |                                 | 10,245    |                      |  |      | 18,051    |                   |  |                      | 19,691    |           |  |   | 33,315    |            |  |  | 91    |       
|Nebraska       |       |                                 | 8,165     |                      |  |      | 9,824     |                   |  |                      | 5,248     |           |  |   | 15,055    |            |  |  | 52    |       
|Wyoming        |       |                                 | 8,105     |                      |  |      | 12,507    |                   |  |                      | 6,918     |           |  |   | 15,985    |            |  |  | 36    |       
|West Virginia  |       |                                 | 7,111     |                      |  |      | 9,447     |                   |  |                      | 11,930    |           |  |   | 19,435    |            |  |  | 84    |       
|Rhode Island   |       |                                 | 5,170     |                      |  |      | 4,385     |                   |  |                      | 2,947     |           |  |   | 8,584     |            |  |  | 29    |       
|South Dakota   |       |                                 | 4,971     |                      |  |      | 3,843     |                   |  |                      | 2,078     |           |  |   | 6,831     |            |  |  | 14    |       
|Maine          |       |                                 | 3,782     |                      |  |      | 492       |                   |  |                      | 985       |           |  |   | 4,227     |            |  |  | 18    |       
|Montana        |       |                                 | 3,590     |                      |  |      |           |                   |  |                      |           |           |  |   | 3,303     |            |  |  | 2     |       
|Vermont        |       |                                 | 355       |                      |  |      | 21        |                   |  |                      |           |           |  |   | 349       |            |  |  | 5     |       
|Hawaii         |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   | 315       |            |  |  | 26    |       
|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |       
|               | Total |                                 | $         | 5,978,576            |  |      | $         | 5,415,734         |  |                      | $         | 4,863,279 |  |   | $         | 10,596,665 |  |  |       | 14,355 | 
|               |       |                                 |           |                      |  |      |           |                   |  |                      |           |           |  |   |           |            |  |  |       |       



---



|    |                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents number of dealers from which contracts
    were originated that remain outstanding in our servicing
    portfolio at December 31, 2003.

9



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##### 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.
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. We believe these processes are 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 when the
contract is 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 an account is delinquent and 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 for 10 days, or longer if required
by applicable 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, 2003, repossessed automobiles
outstanding managed by us were $10.3 million or 0.10% of
the total managed contract portfolio compared with
$16.4 million or 0.18% of the total managed contract
portfolio at December 31, 2002.

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 write down such contracts to fair value.

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##### Table of Contents



Transactions with Related Parties



| |                                                           
| | ----------------------------------------------------------
| | Relationship with the Bank and its
    Controlling Parties

We believe that the transactions with affiliates
described below are on terms no less favorable to us than could
be obtained from unaffiliated parties. These transactions were
approved by our Board of Directors and the Boards of Directors
of the Bank and Westcorp, including their respective independent
directors.



| |                        
| | -----------------------
| | 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 currently 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.

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. The $125 million note was paid off in the third
quarter of 2001. There was no outstanding balance on the
$125 million note at December 31, 2003. Interest
expense on this note totaled $0.5 million for the year
ended December 31, 2001.

We borrowed $150 million from the Bank under
the terms of a $150 million note, as amended. This note
matures 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. Interest payments on the $150 million note are due
quarterly in arrears, calculated at the rate of 8.875% 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
$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. We made principal payments on this note
totaling $7.2 million and $42.0 million during the
years ended December 31, 2003 and 2002, respectively. There
was $101 million outstanding on this note at
December 31, 2003 compared with $108 million at
December 31, 2002. Interest expense on this note totaled
$9.1 million, $12.4 million and $10.1 million for
the years ended December 31, 2003, 2002 and 2001,
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,
2003 and 2002. Interest expense on this note totaled
$30.8 million and $20.3 million for the years ended
December 31, 2003 and 2002, respectively.

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, 2003 and 2002. The average
amount outstanding on the line was $14.7 million for 2003
and $50.5 million for 2002. The $1.8 billion line of
credit carries an interest rate based on the one-month London
Interbank Offered 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.

Some of our subsidiaries have entered into lines
of credit with the Bank. These lines permit our subsidiaries to
draw up to a total of $330 million to fund activities
related to our securitizations. Of the total $330 million,
$10 million terminates on December 1, 2006 and
$320 million terminates on January 1, 2010, although
the terms may be extended by these subsidiaries for additional
periods of up to 60 months. At

11



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##### Table of Contents



December 31, 2003, the amount outstanding on
these lines of credit totaled $21.8 million compared with
$62.0 million at December 31, 2002. These lines of
credit with the Bank held by our subsidiaries 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 $1.0 million,
$3.0 million and $8.9 million for the years ended
December 31, 2003, 2002 and 2001, respectively. For the
years ended December 31, 2003, 2002 and 2001, the weighted
average interest rates for the lines of credit were 2.28%, 2.74%
and 4.43%, respectively. At December 31, 2003, 2002 and
2001, the weighted average interest rates for the lines of
credit were 2.28%, 2.55% and 3.08%, respectively.

Short-Term Investment 
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 on this excess cash equal to the
federal composite commercial paper rate. On January 1,
2002, the agreement was amended to revise the interest rate to
the one-month LIBOR. The weighted average interest rate was
1.23%, 1.77% and 3.80% for the years ended December 31,
2003, 2002 and 2001, respectively. We held $764 million and
$688 million excess cash with the Bank under the investment
agreement at December 31, 2003 and 2002, respectively. The
average investment during 2003 was $660 million compared
with $561 million during 2002. Interest income earned by us
under this agreement totaled $8.2 million,
$10.2 million and $4.9 million for the years ended
December 31, 2003, 2002 and 2001, respectively. The
interest rate was 1.17% at December 31, 2003 compared with
1.44% at December 31, 2002.

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 agreement.

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 paid 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 in 2003. Effective January 1, 2004, this fee was
increased to 55 basis points. We paid the Bank
$1.2 million, $1.2 million and $1.1 million for
the years ended December 31, 2003, 2002 and 2001,
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 Inc., 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 are an eligible investment for its related
securitization. There was

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$789 million and $944 million
outstanding on the trust reinvestment contracts at
December 31, 2003 and 2002, respectively.


Whole Loan Sales

We sold $1.7 billion and $1.4 billion
of contracts to Westcorp in whole loan sales for the years ended
December 31, 2003 and 2001, respectively. We sold no
contracts to Westcorp for the year ended December 31, 2002.
In these transactions, we received cash for the amount of the
principal outstanding on the contracts plus a premium of
$49.7 million and $44.3 million for the years ended
December 31, 2003 and 2001, 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.

On February 27, 2004, we sold
$1.5 billion of contracts to Westcorp in a whole loan sale.
As a result of selling contracts in a whole loan sale rather
than securitizing them in a secured financing transaction, we
recorded a cash gain on sale, net of the write-off of
outstanding dealer participation balances and the effect of
hedging activities, of $13.8 million related to the
contracts sold. These receivables were subsequently securitized
by Westcorp and continue to be managed by us under the terms of
the securitization.

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 $4.1 million,
$6.4 million and $5.9 million for the years ended
December 31, 2003, 2002 and 2001, 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.

Supervision and Regulation

General

The following discussion describes federal and
state laws and regulations that have a material effect on our
business. These laws and regulations generally are intended to
protect consumers, depositors, federal deposit insurance funds
and the banking system as a whole, rather than stockholders and
creditors. To the extent that this section refers to statutory
or regulatory provisions, it is qualified in its entirety by
reference to

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these provisions. Further, these statutes and
regulations are subject to change by Congress and federal or
state regulators. A change in the laws, regulations or
regulatory policies applicable to us could have a material
effect on our business.


Bank Operations

The Bank and its subsidiaries are subject to
examination and comprehensive regulation and reporting
requirements by the Office of Thrift Supervision, also known as
the OTS, the Banks primary federal regulator, as well as
by the FDIC. The OTS is required to conduct a full scope,
on-site examination of the Bank every twelve months. In
addition, the Bank is subject to regulation by the Board of
Governors of the Federal Reserve System, which governs reserves
required to be maintained against deposits and other matters.
The Bank also is a member of the FHLB of San Francisco, one
of twelve regional banks for federally insured savings and loan
associations and banks comprising the FHLB System. The FHLB
System is under the supervision of the Federal Housing Finance
Board. In addition, various other laws and regulations, such as
the Gramm-Leach-Bliley Act, Federal Home Loan Bank Act,
Community Reinvestment Act, Sarbanes-Oxley Act of 2002, and USA
Patriot Act, directly or indirectly affect our business.

Since we are owned by the Bank, which is a
federal savings association, we are subject to regulation and
examination primarily by the OTS as well as by the FDIC. Our
service corporation subsidiaries also are subject to regulation
by the OTS and other applicable federal and state agencies. We
and certain of our other subsidiaries are further regulated by
various departments or commissions of the states in which they
do business.

Automobile Lending Operations

We purchase automobile installment contracts in
45 states and are subject to both state and federal
regulation of our automobile lending operations. We must 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 or
federal law.

The contracts we originate and service are
subject to numerous federal and state consumer protection laws,
including 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 and
Accurate Credit Transactions Act, the California Rees-Levering
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.

Affiliate Transaction
Restrictions

The Home Owners Loan Act, also known as
HOLA, limits the type of activities and investments in which the
Bank or its subsidiaries may participate if the investment or
activity involves an affiliate of the Bank. In addition,
transactions between the Bank or its subsidiaries and an
affiliate must be on terms that are at least as favorable to the
Bank or its subsidiaries as are the terms of the transactions
with unaffiliated companies. This permits the OTS to, as
necessary, limit transactions between the Bank, Westcorp and the
subsidiaries or affiliates of Westcorp or the Bank, and to 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.

Investment Restrictions

HOLA regulations limit certain activities of the
Bank and its operating subsidiaries to a percentage of the
Banks total consolidated assets, excluding for these
purposes, assets held by its service corporations. The Bank is
precluded from holding consumer loans, including automobile
contracts, on its consolidated balance sheet, in an aggregate
principal balance in excess of 30% of its total consolidated
assets. The limitation is increased to 35% of consolidated
assets if all of the consumer loans in excess of the 30% limit
are obtained by the Bank and

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its operating subsidiaries directly from
consumers. Our securitization activities are structured to
enable the Bank to remove securitized automobile contracts from
the HOLA consumer loan limitation calculation. 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. The Bank is precluded from holding commercial loans,
including loans to our service corporations, on its consolidated
balance sheet, in an aggregate principal balance in excess of
10% of its total consolidated assets. Commercial loans secured
by real estate and small business loans with $2.0 million
or less in outstanding principal are not included in the
calculation of the percentage of commercial loans. The Bank is
precluded from investing more than 2% of its consolidated assets
in service corporations, although it may invest an additional 1%
in service corporations devoted to community service activities
as specified in the regulations. Retained earnings or losses
from the operations of our service corporations are not included
in the calculation of our investment in service corporations.


Capital Requirements

As a federally chartered savings bank, the Bank
is subject to certain minimum capital requirements imposed by
the Financial Institutions Reform, Recovery and Enforcement Act,
also known as FIRREA, and the Federal Deposit Insurance
Corporation Improvement Act, also known as FDICIA. FDICIA
separates all financial institutions into one of five capital
categories: well capitalized, adequately
capitalized, undercapitalized,
significantly undercapitalized, and critically
undercapitalized. To be considered well
capitalized, an institution must have a ratio of total
risk-based capital to risk-weighted assets of 10.0% or greater,
a Tier 1 risk-based capital ratio to risk-weighted assets
of 6.0% or greater, a leverage ratio of 5.0% or greater and not
be subject to any OTS order. To be adequately
capitalized, an institution must have a total risk-based
capital ratio of not less than 8.0%, a Tier 1 risk-based
capital ratio of not less than 4.0% and a leverage ratio of not
less than 4.0%. Any institution that is neither well-capitalized
nor adequately capitalized will be considered undercapitalized.
In addition, HOLA and the OTS regulations require savings
associations to maintain tangible capital in an
amount not less than 1.5% of adjusted total assets and
core capital in an amount not less than 3% of
adjusted total assets.

HOLA mandates that the OTS promulgate capital
regulations that include capital standards no less stringent
than the capital standards applicable to national banks. The OTS
in its regulations has defined total risk-based capital as core
capital plus supplementary capital less direct equity
investments not permissible to national banks (subject to a
phase-in schedule) and reciprocal holdings that other depository
institutions may count in their regulatory capital.
Supplementary capital is limited to 100% of core capital.
Supplementary capital is comprised of permanent capital
instruments not included in core capital, general valuation loan
and lease loss allowance, and maturing capital instruments such
as subordinated debentures. At December 31, 2003, the Bank
had two debenture issuances remaining, one with an outstanding
balance excluding discounts and issuance costs of
$101 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. 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 currently meets all capital requirements
to which it is subject and satisfies the requirements of a
well capitalized institution. Because the Bank is
well capitalized, it may accept brokered deposits
without restriction. Federal regulators must take prompt
corrective action to resolve the problems of insured depository
institutions that fall below certain capital ratios.

Distributions

The OTS has adopted regulations for determining
if capital distributions of a savings association are permitted.
Capital distributions are permissible unless the Bank would be
undercapitalized, the proposal raises

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safety and soundness concerns, or violates a
prohibition in any statute, regulation or agreement between the
Bank and the OTS.


The Bank also is subject to certain limitations
on the payment of dividends by the terms of the indentures for
its debentures. Those limitations are more severe than the OTS
capital distribution regulations. Under the most restrictive of
those limitations arising in connection with the Banks
sale of its debentures, the greatest capital distribution that
the Bank could currently make is $218 million.

Insurance of Accounts

The FDIC administers the Savings Association
Insurance Fund, also known as SAIF. Deposits with the Bank are
insured through the SAIF to the maximum amount permitted by law,
which is currently $100,000. The FDIC may terminate the deposit
insurance of any insured depository institution, including the
Bank, if it determines after a hearing that the institution has
either engaged or is engaging in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, order or any condition
imposed by an agreement with the FDIC.

Subprime Lending Programs

The OTS, along with other federal banking
regulatory agencies, has adopted guidance pertaining to subprime
lending programs. Pursuant to the guidance, lending programs
that provide credit to borrowers whose credit histories reflect
specified negative characteristics, such as recent bankruptcies
or payment delinquencies, are deemed to be subprime lending
programs. Many of the loans that we originate possess one or
more of the factors identified in the guidance as indicative of
a subprime loan. Pursuant to the guidance, examiners may require
that an institution with a subprime lending program hold
additional capital that ranges from one and one-half to three
times the normal capital required for similar loans made to
borrowers who are not subprime borrowers. Because many of the
loans we originate possess one or more of the factors identified
in the guidance as indicative of a subprime loan, the Bank
maintains its capital levels higher than those otherwise
required by the OTS. The maintainance of higher capital levels
by the Bank may slow our growth, require us to raise additional
capital or sell assets, all of which would negatively impact our
earnings. We cannot predict whether the Bank will be required by
the OTS to hold additional capital with respect to those
automobile contracts we hold as to which the borrowers are
deemed by the OTS to be subprime borrowers.

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.

During 2003, the Internal Revenue Service
completed their examination of our returns for the tax years
ended December 31, 1997 through 1999. All additional tax
and interest related to the examination have been paid, which
amount was not material to our Consolidated Statements of
Income. There were no penalties assessed as a result of this
examination.

California Franchise Tax and Other State
Provisions

At the end of 2003, we had a tax presence in
approximately 38 states. However, we expect that
approximately 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

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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%.


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 excluding Westhrift Life
Insurance. We, as 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 a 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 were treated
as sales for accounting purposes. WFAL has not purchased any
automobile contracts since March 2000. In January 2003, we
regained control over the assets of the outstanding
securitization trusts accounted for as sales for accounting
purposes and consolidated all remaining contracts and related
notes payable on automobile secured financing outstanding under
these trusts. At December 31, 2003, WFAL had
$129 million in notes payable on automobile secured
financing outstanding.

WFS Financial Auto Loans
2, Inc.

WFAL2 is a 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 Funding Inc.

WFS Funding, Inc., also known as WFSFI, is a
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 Investments, Inc.

WFS Investments, Inc. also known as WFSII,
is a 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 Receivables Corporation

WFS Receivables Corporation, also known as WFSRC,
is a 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 FSA. Securitization transactions in
which contracts are sold through WFSRC are treated as secured
financings for accounting purpose. At December 31, 2003,
WFSRC had $3.7 billion in notes payable on automobile
secured financing outstanding.

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WFS Receivables Corporation 3

WFS Receivables Corporation 3, also known as
WFSRC3, is a 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 that 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,
2003, WFSRC3 had $4.3 billion in notes payable on
automobile secured financing outstanding.

WFS Web Investments

WFS Web Investments, also known as WFSWEB, is a
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 opportunity
to be involved with a company that provides a
business-to-business Internet portal specifically designed for
the indirect automobile lending market.

Associates

At December 31, 2003, we had
2,015 full-time and 47 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, 2003, we owned one property
in Texas. Additionally, we leased 39 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, 2003, the net book value of property and
leasehold improvements was approximately $16.1 million. We
lease space at one location 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 business, including
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 similar cases. 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.

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##### 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
1995 on the Nasdaq National Market® under the symbol WFSI.
The following table illustrates the high and low sale prices by
quarter in 2003 and 2002 as reported by Nasdaq, which prices are
believed to represent actual transactions:

|               |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |       |     
|               |  | 2003 |       | 2002
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First Quarter  |  | $    | 25.25 |      |  | $    | 16.54 |     |  | $ | 25.62 |  |  | $ | 18.36 | 
|Second Quarter |  |      | 33.99 |      |  |      | 18.90 |     |  |   | 31.77 |  |  |   | 23.95 | 
|Third Quarter  |  |      | 40.89 |      |  |      | 31.76 |     |  |   | 26.32 |  |  |   | 16.90 | 
|Fourth Quarter |  |      | 45.40 |      |  |      | 36.79 |     |  |   | 21.25 |  |  |   | 16.26 | 

We had 2,865 shareholders of our common
stock at February 27, 2004. 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.

19



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##### Table of Contents








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

The following table presents summary audited
financial data for the years ended December 31, 2003, 2002,
2001, 2000 and 1999. 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,           
|                                                 |                                                           |                                                 
|                                                 |                                                           | 2003                                             |            | 2002    |  | 2001 |           | 2000    |  | 1999
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |     
|                                                 |                                                           |                                                 
|                                                 |                                                           | (Dollars in thousands, except per share amounts)
|Consolidated Summary of Operations:              |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Interest income                                  |                                                           | $                                                | 993,004    |         |  | $    | 820,449   |         |  | $    | 545,782   |         |  | $ | 314,120   |         |  | $ | 140,526   |       
|Interest expense                                 |                                                           |                                                  | 391,401    |         |  |      | 349,512   |         |  |      | 232,776   |         |  |   | 130,578   |         |  |   | 41,297    |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|                                                 | Net interest income                                       |                                                  |            | 601,603 |  |      |           | 470,937 |  |      |           | 313,006 |  |   |           | 183,542 |  |   |           | 99,229 | 
|Provision for credit losses                      |                                                           |                                                  | 233,800    |         |  |      | 249,093   |         |  |      | 144,130   |         |  |   | 68,962    |         |  |   | 36,578    |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|                                                 | Net interest income after provision for credit
    losses |                                                  |            | 367,803 |  |      |           | 221,844 |  |      |           | 168,876 |  |   |           | 114,580 |  |   |           | 62,651 | 
|Noninterest income                               |                                                           |                                                  | 142,498    |         |  |      | 119,302   |         |  |      | 137,567   |         |  |   | 184,642   |         |  |   | 195,757   |       
|Noninterest expense                              |                                                           |                                                  | 241,394    |         |  |      | 212,904   |         |  |      | 205,292   |         |  |   | 188,634   |         |  |   | 173,453   |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Income before income tax                         |                                                           |                                                  | 268,907    |         |  |      | 128,242   |         |  |      | 101,151   |         |  |   | 110,588   |         |  |   | 84,955    |       
|Income tax                                       |                                                           |                                                  | 106,519    |         |  |      | 46,152    |         |  |      | 39,503    |         |  |   | 44,216    |         |  |   | 35,580    |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Net income                                       |                                                           | $                                                | 162,388    |         |  | $    | 82,090    |         |  | $    | 61,648    |         |  | $ | 66,372    |         |  | $ | 49,375    |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Earnings per common share  diluted              |                                                           | $                                                | 3.95       |         |  | $    | 2.05      |         |  | $    | 1.90      |         |  | $ | 2.35      |         |  | $ | 1.91      |       
|                                                 |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Consolidated Summary of Financial
    Condition: |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Contracts receivable, net                        |                                                           | $                                                | 8,476,571  |         |  | $    | 7,747,830 |         |  | $    | 5,092,212 |         |  | $ | 2,978,341 |         |  | $ | 1,459,035 |       
|Total assets                                     |                                                           |                                                  | 9,768,760  |         |  |      | 8,861,466 |         |  |      | 5,490,757 |         |  |   | 3,575,137 |         |  |   | 2,130,927 |       
|Lines of credit  parent                         |                                                           |                                                  | 21,811     |         |  |      | 62,048    |         |  |      | 421,175   |         |  |   | 235,984   |         |  |   | 551,189   |       
|Notes payable  parent                           |                                                           |                                                  | 400,820    |         |  |      | 408,010   |         |  |      | 67,500    |         |  |   | 146,219   |         |  |   | 178,908   |       
|Notes payable on automobile secured financing    |                                                           |                                                  | 8,157,601  |         |  |      | 7,394,943 |         |  |      | 4,005,925 |         |  |   | 2,249,363 |         |  |   | 461,104   |       
|Total shareholders equity                       |                                                           |                                                  | 818,869    |         |  |      | 634,532   |         |  |      | 465,293   |         |  |   | 317,205   |         |  |   | 212,188   |       
|Other Selected Financial Data:                   |                                                           |                                                  |            |         |  |      |           |         |  |      |           |         |  |   |           |         |  |   |           |       
|Average managed automobile contracts             |                                                           | $                                                | 10,051,754 |         |  | $    | 8,845,635 |         |  | $    | 7,576,681 |         |  | $ | 6,076,814 |         |  | $ | 4,840,363 |       
|Return on average managed automobile contracts   |                                                           |                                                  | 1.62       | %       |  |      | 0.93      | %       |  |      | 0.81      | %       |  |   | 1.09      | %       |  |   | 1.02      | %     
|Average shareholders equity(1)                  |                                                           | $                                                | 763,056    |         |  | $    | 622,808   |         |  | $    | 425,910   |         |  | $ | 278,142   |         |  | $ | 189,698   |       
|Return on average shareholders equity(1)        |                                                           |                                                  | 21.28      | %       |  |      | 13.18     | %       |  |      | 14.47     | %       |  |   | 23.86     | %       |  |   | 26.03     | %     
|Book value per share(1)                          |                                                           | $                                                | 20.76      |         |  | $    | 16.78     |         |  | $    | 14.20     |         |  | $ | 11.16     |         |  | $ | 8.29      |       
|Equity to asset ratio(1)                         |                                                           |                                                  | 8.72       | %       |  |      | 7.83      | %       |  |      | 9.01      | %       |  |   | 8.88      | %       |  |   | 10.00     | %     
|Automobile contract originations                 |                                                           | $                                                | 5,978,576  |         |  | $    | 5,415,734 |         |  | $    | 4,863,279 |         |  | $ | 4,219,227 |         |  | $ | 3,340,146 |       
|Interest rate spread                             |                                                           |                                                  | 5.97       | %       |  |      | 6.27      | %       |  |      | 7.56      | %       |  |   | 6.64      | %       |  |   | 7.46      | %     



---



|    |                                                                             
|--- | ----------------------------------------------------------------------------
|(1) | Accumulated other comprehensive loss excluded
    from shareholders equity.

20



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

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

Overview

Our primary sources of revenue are net interest
income and noninterest income. Net interest income is the
difference between the income earned on interest earning assets
and the interest paid on interest bearing liabilities. We
generate interest income from our loan portfolio and short-term
investments. We fund our loan portfolio with securitizations,
lines of credit, notes payable to the Bank and equity.

Noninterest income is primarily made up of
revenues generated from the sale and servicing of contracts. The
primary components of noninterest income include late charges
and other collection related fee income on managed contracts,
retained interest income or expense, gain on sale of contracts,
and contractual servicing income on contracts in securitization
transactions treated as sales for accounting purposes. Since
March 2000, we have structured our securitizations as
secured financings and no longer record non-cash gain on sale at
the time of each securitization or record subsequent contractual
servicing and retained interest income, the valuation of which
is based upon subjective assumptions. Rather, the earnings of
the contracts in the trust and the related financing costs are
reflected over the life of the underlying pool of contracts as
net interest income. In addition, our provision for credit
losses has increased as we hold securitized loans on our balance
sheet.

Our decision to account for our securitizations
as secured financings rather than as sales was based upon a
business philosophy that focuses on presenting high quality,
cash-based earnings and maintaining a conservative,
well-capitalized balance sheet. We 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. Since March 2000, in
order to account for some of our securitizations as secured
financings rather than as sales, those securitizations include a
provision that provides us with the right to repurchase
contracts at any time as defined under Statement of Financial
Accounting Standards No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities. The percentage of contracts that we may repurchase
was increased from 10% to 20% as of March 2000. Other
securitization transactions since March 2000 allow the
securitization trust to invest in and sell other financial
assets. We believe that our decision to make these accounting
changes created a transitional period during which our earnings
were adversely impacted as we built our on balance sheet
portfolio of loans. This change affects the comparability of our
financial statements from 2000 through 2003.

For more than 30 years, we believe that our
business model has been successful in a variety of environments.
Nationwide recession, high unemployment, weak wholesale auction
values, record personal bankruptcies and record low interest
rates created a challenging operating landscape in 2003. Through
it all, we kept credit losses under control, maintained strong
net interest margins and leveraged our operating platform to
produce record net income. The following are highlights for 2003:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | We produced record earnings of $162 million
    in net income, a 97% increase over 2002.                                       
|
| |  | Earnings per share increased to a record
    $3.95 per share.                                                                  
|
| |  | Net interest income rose 28% to $602 million
    while risk adjusted spreads were nearly identical to 2002.                    
|
| |  | Credit losses declined in 2003 to 2.60% of
    contracts.                                                                      
|
| |  | Operating expenses represent 2.4% of average
    managed contracts, our most efficient year ever.                              
|
| |  | We originated $6.0 billion in automobile
    contracts through our relationships with 8,000 dealers
    throughout the country.
|
| |  | Our portfolio of automobile contracts of
    $10.6 billion consists of more than 80% prime credit
    quality contracts.       

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| |   |                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------
| |  | Delinquencies at year end were 2.9% of total
    outstanding contracts, which is 0.6% lower than a year earlier.          
|
| |  | We successfully expanded our securitization
    program by offering senior/subordinated securities on a regular
    basis.
|
| |  | We currently manage over $10 billion of
    securities outstanding under our securitization program.                      

Business Risks

Our operating results and financial condition
could be adversely affected by any of the following business
risks. In addition to the risks described below, we may
encounter risks that are not currently known to us or that we
currently deem immaterial, which may also impair our business
operations.



| |                                                                    
| | -------------------------------------------------------------------
| | Regulatory Requirements May Restrict Our
    Ability to Do Business

The Bank and its subsidiaries are subject to
inspection and regulation by the OTS pursuant to HOLA. The OTS
is the primary federal banking agency responsible for its
supervision and regulation. The OTS has the power to enforce
HOLA and its regulations by a variety of actions ranging from a
memorandum of understanding to cease and desist proceedings
under the Federal Deposit Insurance Act. The OTS can take such
action based solely upon its determination that we have violated
one or more of the laws or regulations to which we are subject
or that any aspect of our business is being conducted in an
unsafe or unsound manner. As such, the OTS has broad powers to,
among other things, require us to change our business practices,
hold additional capital and change management. Such action could
have a material adverse impact on our business and may impact
our securities prices, including our common stock, and access to
the capital markets.

HOLA limits the amount of our consumer loans,
commercial loans and investment in service corporations. See
Business  Supervision and
Regulation  Investment Restrictions. Our
securitization activities are structured to enable the Bank to
remove securitized automobile contracts from the HOLA consumer
loan limitation calculation. Changes in the OTSs
interpretation of HOLA as it affects our securitization
activities could cause us to change the manner in which we
securitize automobile contracts or to limit our acquisition of
such contracts, thereby negatively impacting the price of our
common stock. Furthermore, 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, or cause the Bank to fail the
regulatory limitations. Any such limitations may also have a
material adverse effect on our financial position, liquidity and
results of operations. In addition, other regulatory actions
taken by the OTS could have a negative impact on the price of
our common stock.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | OTS Guidance Regarding Subprime Lending May
    Affect the Banks Capital Requirements

The OTS, along with other federal banking
regulatory agencies, has adopted guidance pertaining to subprime
lending programs. Pursuant to the guidance, lending programs
which provide credit to borrowers whose credit histories reflect
specified negative characteristics, such as recent bankruptcies
or payment delinquencies, are deemed to be subprime lending
programs for regulatory purposes. Many of the contracts that we
originate possess one or more of the factors identified in the
guidance as indicative of a subprime loan for this purpose.
Pursuant to the guidance, examiners may require that an
institution with a lending program deemed to be subprime hold
additional capital that ranges from one and one-half to three
times the normal capital required for similar loans made to
borrowers who are not deemed to be subprime borrowers.

Because many of the automobile contracts we
originate possess one or more of the factors identified in the
guidance as indicative of a subprime loan, the Bank maintains
its capital levels higher than would otherwise be required by
regulations. Maintenance of higher capital levels by the Bank
may slow our growth, require us to raise additional capital or
sell assets, all of which could negatively impact our earnings.
We cannot predict to what extent the Bank may be required to
hold additional capital with respect to those automobile
contracts we hold as to which the borrowers are deemed by the
OTS to be subprime borrowers.

22



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| |                                                                        
| | -----------------------------------------------------------------------
| | Other Regulatory Requirements May Affect
    Our Ability to Do Business

Our operations are subject to regulation,
supervision and licensing under various federal, state and local
statutes, ordinances and regulations. In most states in which we
operate, a consumer credit regulatory agency regulates and
enforces laws relating to consumer lenders and sales finance
agencies such as us. These rules and regulations generally
provide for licensing of sales finance agencies, limitations on
the amount, duration and charges, including interest rates, for
various categories of loans, requirements as to the form and
content of finance contracts and other documentation, and
restrictions on collection practices and creditors rights.
So long as we are an operating subsidiary of the Bank, licensing
and certain other of these requirements are not applicable to us
due to federal preemption.

We are also subject to extensive federal
regulation, including the Truth in Lending Act, the Equal Credit
Opportunity Act and the Fair Credit Reporting Act. These laws
require us to provide certain disclosures to prospective
borrowers and protect against discriminatory lending practices
and unfair credit practices. The principal disclosures required
under the Truth in Lending Act include the terms of repayment,
the total finance charge and the annual percentage rate charged
on each loan. The Equal Credit Opportunity Act prohibits
creditors from discriminating against loan applicants on the
basis of race, color, sex, age or marital status. Pursuant to
Regulation B promulgated under the Equal Credit Opportunity
Act, creditors are required to make certain disclosures
regarding consumer rights and advise consumers whose credit
applications are not approved of the reasons for the rejection.
In addition, the credit scoring system we use must comply with
the requirements for such a system as set forth in the Equal
Credit Opportunity Act and Regulation B. The Fair Credit
Reporting Act requires us to provide certain information to
consumers whose credit applications are not approved on the
basis of a report obtained from a consumer reporting agency.
Additionally, we are subject to the Gramm-Leach-Bliley Act,
which requires us to maintain privacy with respect to certain
consumer data in our possession and to periodically communicate
with consumers on privacy matters. We are also subject to the
Servicemembers Civil Relief Act, and similar state laws, which
requires us to reduce the interest rate charged on each loan to
customers who have subsequently joined the military.

The dealers that originate automobile contracts
we purchase also must comply with both state and federal credit
and trade practice statutes and regulations. Failure of the
dealers to comply with these statutes and regulations could
result in consumers having rights of rescission and other
remedies that could have an adverse effect on us.

We believe that we maintain all material licenses
and permits required for our current operations and are in
substantial compliance with all applicable local, state and
federal regulations. There can be no assurance, however, that we
will be able to maintain all requisite licenses and permits, and
the failure to satisfy those and other regulatory requirements
could have a material adverse effect on our operations. Further,
the adoption of additional, or the revision of existing, rules
and regulations could have a material adverse effect on our
business.

The Bank is subject to routine periodic
examinations by the OTS on a variety of financial and regulatory
matters. The Banks most recent annual safety and soundness
examination by the OTS was completed in July 2003.



| |                                                             
| | ------------------------------------------------------------
| | Adverse Economic Conditions May Impact Our
    Profitability

Delinquencies, defaults, repossessions and credit
losses generally increase during periods of economic slowdown,
recession or higher unemployment. These periods also may be
accompanied by decreased consumer demand for automobiles and
declining values of automobiles securing outstanding contracts,
which weakens collateral coverage and increases the amount of
loss in the event of default. Significant increases in the
inventory of pre-owned automobiles during periods of economic
recession also may depress the prices at which repossessed
automobiles may be sold or delay the timing of these sales.
Because a portion of our borrowers are considered non-prime
borrowers, the actual rates of delinquencies, defaults,
repossessions and credit losses on these contracts are higher
than those experienced in the general automobile finance
industry for borrowers considered to be prime borrowers and
could be more dramatically affected by a general economic
downturn. In addition, during an economic slowdown or recession,
our servicing costs may increase

23



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##### Table of Contents



without a corresponding increase in our servicing
fee income. While we seek to manage the higher risk inherent in
non-prime contracts through the underwriting criteria and
collection methods we employ, we cannot assure you that these
criteria or methods will afford adequate protection against
these risks. Any sustained period of increased delinquencies,
defaults, repossessions, credit losses or servicing costs could
adversely affect our financial position, liquidity and results
of operations and our ability to enter into future
securitizations.




| |                                                            
| | -----------------------------------------------------------
| | Interest Rate Fluctuations May Impact Our
    Profitability

Our profitability may be directly affected by the
level of and fluctuations in interest rates, which affects the
gross interest rate spread we earn on our contracts. As interest
rates change, our gross interest rate spread on new originations
may increase or decrease depending upon the interest rate
environment. In addition, the rates charged on the contracts
originated or purchased from dealers are limited by statutory
maximums, restricting our opportunity to pass on increased
interest costs. We believe that our profitability and liquidity
could be adversely affected during any period of changing
interest rates, possibly to a material degree. We monitor the
interest rate environment and employ our hedging strategies
designed to mitigate the impact of changes in interest rates. We
cannot assure you that our hedging strategies will mitigate the
impact of changes in interest rates.



| |                                                          
| | ---------------------------------------------------------
| | Wholesale Auction Values May Impact Our
    Profitability

We sell repossessed automobiles at wholesale
auction markets located throughout the United States. Auction
proceeds from the sale of repossessed vehicles and other
recoveries usually do not cover the outstanding balance of the
contracts, and the resulting deficiencies are charged off.
Decreased auction proceeds resulting from the depressed prices
at which pre-owned automobiles may be sold during periods of
economic slowdown or recession will result in higher credit
losses for us. Furthermore, depressed wholesale prices for
pre-owned automobiles may result from significant liquidations
of rental or fleet inventories and from increased volume of
trade-ins due to promotional financing programs offered by new
vehicle manufacturers. There can be no assurance that our
recovery rates will stabilize or improve in the future.



| |                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Ownership of Our Common Stock Is
    Concentrated, Which May Result in Conflicts of Interest and
    Actions That Are Not in the Best Interests of Our Other
    Stockholders

Ernest S. Rady is the founder, Chairman of the
Board of Directors and Chief Executive Officer of Westcorp.
Mr. Rady is also the Chairman of the Board of Directors and
Chief Executive Officer of the Bank and is our Chairman of the
Board of Directors. Mr. Rady is the beneficial owner of
approximately 54% of the outstanding shares of common stock of
Westcorp and is able to exercise significant control over our
company. The Westcorp common stock ownership of Mr. Rady
enables him to elect all of Westcorps directors and
effectively control the vote on all matters submitted to a vote
of Westcorp, including mergers, sales of all or substantially
all of our assets, going private transactions,
conversions and other corporate restructurings or
reorganizations. Because of the significant block of Westcorp
common stock controlled by Mr. Rady, decisions may be made
that, while in the best interest of Mr. Rady, may not be in
the best interest of other stockholders.



| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | We May Not Be Able to Generate Sufficient
    Operating Cash Flows to Run Our Automobile Finance
    Operations

Our automobile finance operations require
substantial operating cash flows. Operating cash requirements
include premiums paid to dealers for acquisition of automobile
contracts, expenses incurred in connection with the
securitization of automobile contracts, capital expenditures for
new technologies and ongoing operating costs. Our primary source
of operating cash is the excess cash flows received from
securitizations and contracts held on the balance sheet. The
timing and amount of excess cash flows from contracts varies
based on a number of factors, including:



| |   |                                                                                 
| | - | --------------------------------------------------------------------------------
| |  | the rates and amounts of loan delinquencies,
    defaults and net credit losses;
|
| |  | how quickly and at what price repossessed
    vehicles can be resold;           

24



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| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the ages of the contracts in the portfolio;                                                                                                                                                                                                                                                             
|
| |  | levels of voluntary prepayments; and                                                                                                                                                                                                                                                                    
|
| |  | the terms of our securitizations, which include
    performance based triggers requiring higher levels of credit
    enhancements to the extent credit losses or delinquencies exceed
    certain thresholds. We have exceeded performance thresholds in
    the past and may do so again in the future.

Any adverse change in these factors could reduce
or eliminate excess cash flows to us. Although we currently have
positive operating cash flows, we cannot assure you that we will
continue to generate positive cash flows in the future, which
could have a material adverse effect on our financial position,
liquidity and results of operations.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | Changes in Our Securitization Program Could
    Adversely Affect Our Liquidity and Earnings

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



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

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



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | We Expect Our Operating Results to Continue
    to Fluctuate, Which May Adversely Impact Our
    Business

Our results of operations have fluctuated in the
past and are expected to fluctuate in the future. Factors that
could affect our quarterly earnings include:



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | variations in the volume of automobile contracts
    originated, which historically tend to be lower in the first and
    fourth quarters of the year;
|
| |  | interest rate spreads;                                                                                                                                
|
| |  | the effectiveness of our hedging strategies;                                                                                                          
|
| |  | credit losses, which historically tend to be
    higher in the first and fourth quarters of the year;                                                 
|
| |  | amount and timing of whole loan sale
    transactions; and                                                                                            
|
| |  | operating 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.



| |                                                     
| | ----------------------------------------------------
| | Securitization Transactions and Whole Loan
    Sales

Contracts sold by us to our special purpose
entity subsidiaries in connection with securitization
transactions are treated as having been sold for bankruptcy
purposes. The subsequent transfer of such

25



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##### Table of Contents



contracts to the securitization trust is treated
as a secured financing under generally accepted accounting
principles, also known as GAAP. For GAAP purposes, 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.


We occasionally sell contracts to Westcorp in
whole loan sales. 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.

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 or
we may send funds to a trustee to be held until the distribution
dates, depending on the terms of our securitizations. For loans
sold in securitization transactions that were treated as sales
and loans sold to Westcorp that we continue to service, 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 loan program and loan type, analysis of
cumulative losses 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 or foreclosures, trends in the number of days
repossessions are held in inventory, trends in the number of
loan modifications, trends in delinquency roll rates, trends in
deficiency balance collections both internally and from
collection agencies, trends in custom scores and the
effectiveness of our custom scores and trends in the economy
generally or in specific geographic locations. Despite these
analyses, we recognize that establishing allowance for credit
losses is not an exact science and can be highly judgmental in
nature.

The analysis of the adequacy of the allowance for
credit losses is not only dependent upon effective quantitative
and qualitative analyses, but also effective loan 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 loan amounts 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.

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.

The allowance for credit losses is increased by
charging the provision for credit losses and decreased by actual
losses on the loans, by reversing the allowance for credit
losses through the provision for credit losses when the amount
of loans held on balance sheet is reduced through securitization
transactions treated as sales and whole loan sales, or based on
credit trends or economic conditions.

26



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##### Table of Contents





| |                                       
| | --------------------------------------
| | 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 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 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. See
Quantitative and Qualitative Disclosure About Market
Risk. 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 monthly or quarterly basis and
recognized as an adjustment to interest expense in our
Consolidated Statements of Income.

We may also enter into interest rate swap
agreements or other derivatives that we choose not to designate
as hedges or 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. 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 and income or expense recognized on such
derivatives is recorded to noninterest income.

Off Balance Sheet Arrangements

Prior to April 1, 2000, our securitization
transactions were structured as sales for accounting purposes.
Under this structure the notes issued by our unconsolidated
securitization trusts were not recorded as a liability on our
Consolidated Statements of Financial Condition. Effective
January 1, 2003, we regained control over assets of the
securitization trusts for all of our outstanding securitization
transactions treated as sales for accounting purposes, excluding
loans sold in whole loan sales. We recorded $525 million of
automobile contracts and the related notes payable on automobile
secured financing on our Consolidated Statements of Financial
Condition and have eliminated all remaining off balance sheet
amounts related to these transactions. At December 31,
2003, we had no off balance sheet arrangements.

Results of Operations



| |                    
| | -------------------
| | Net Interest Income

Net interest income is affected by our interest
rate spread, which is the difference between the rate earned on
our interest earning assets and the rate paid on our interest
bearing liabilities, and the relative amounts of our interest
earning assets and interest bearing liabilities. Net interest
income totaled $602 million, $471 million and
$313 million for the years ended December 31, 2003,
2002 and 2001, respectively. The increase in net interest income
for the past three years is primarily the result of us holding a
greater percentage of contracts on balance sheet even as overall
net interest margins declined.

27



---



##### Table of Contents



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,
|                                             |                                               |                                
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | 2003                            |         | 2002      |  | 2001  
|                                             |                                               |                                 |         |           |  |       
|                                             |                                               | Average                         |         |           |  | Yield/ |         | Average |  |          |      | Yield/ |   | Average |         |           |  | Yield/
|                                             |                                               | Balance                         |         | Interest  |  | Rate   |         | Balance |  | Interest |      | Rate   |   | Balance |         | Interest  |  | Rate  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |       
|                                             |                                               |                                
|                                             |                                               | (Dollars in thousands)         
|Interest earning assets:                     |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Contracts receivable                          |                                 | $       | 8,721,637 |  |        | $       | 982,946 |  |          |      | 11.27  | % |         | $       | 6,593,267 |  |        | $       | 809,663 |  |  |      | 12.28 | % |  | $       | 3,937,902 |  |   | $       | 539,118 |  |  |      | 13.69 | %
|                                             | Investment securities                         |                                 |         | 838,285   |  |        |         | 10,058  |  |          |      | 1.20   |   |         |         | 607,504   |  |        |         | 10,786  |  |  |      | 1.78  |   |  |         | 163,646   |  |   |         | 6,664   |  |  |      | 4.07  |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total interest earning assets                 |                                 |         | 9,559,922 |  |        |         | 993,004 |  |          |      | 10.39  | % |         |         | 7,200,771 |  |        |         | 820,449 |  |  |      | 11.39 | % |  |         | 4,101,548 |  |   |         | 545,782 |  |  |      | 13.31 | %
|Noninterest earning assets:                  |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Amounts due from trusts                       |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         | 133,973   |  |        |         |         |  |  |      |       |   |  |         | 217,974   |  |   |         |         |  |  |      |       |  
|                                             | Retained interest in securitized assets       |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         | 15,888    |  |        |         |         |  |  |      |       |   |  |         | 79,832    |  |   |         |         |  |  |      |       |  
|                                             | Premises and equipment, net                   |                                 |         | 30,185    |  |        |         |         |  |          |      |        |   |         |         | 32,273    |  |        |         |         |  |  |      |       |   |  |         | 36,144    |  |   |         |         |  |  |      |       |  
|                                             | Other assets                                  |                                 |         | 342,156   |  |        |         |         |  |          |      |        |   |         |         | 271,761   |  |        |         |         |  |  |      |       |   |  |         | 218,263   |  |   |         |         |  |  |      |       |  
|                                             | Less: Allowance for credit losses             |                                 |         | 242,019   |  |        |         |         |  |          |      |        |   |         |         | 167,775   |  |        |         |         |  |  |      |       |   |  |         | 87,672    |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total                                         |                                 | $       | 9,690,244 |  |        |         |         |  |          |      |        |   |         | $       | 7,486,891 |  |        |         |         |  |  |      |       |   |  | $       | 4,566,089 |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Interest bearing liabilities:                |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Lines of credit  parent                      |                                 | $       | 43,532    |  |        |         | 993     |  |          |      | 2.28   | % |         | $       | 111,382   |  |        |         | 3,049   |  |  |      | 2.74  | % |  | $       | 201,744   |  |   |         | 8,930   |  |  |      | 4.43  | %
|                                             | Notes payable  parent                        |                                 |         | 402,947   |  |        |         | 39,888  |  |          |      | 9.90   |   |         |         | 335,811   |  |        |         | 32,751  |  |  |      | 9.75  |   |  |         | 112,854   |  |   |         | 10,529  |  |  |      | 9.33  |  
|                                             | Notes payable on automobile secured financing |                                 |         | 8,215,265 |  |        |         | 349,359 |  |          |      | 4.25   |   |         |         | 5,933,992 |  |        |         | 312,515 |  |  |      | 5.27  |   |  |         | 3,137,000 |  |   |         | 212,243 |  |  |      | 6.77  |  
|Other                                        |                                               |                                 | 189,555 |           |  |        | 1,161   |         |  |          | 0.61 |        |   |         | 444,214 |           |  |        | 1,197   |         |  |  | 0.27 |       |   |  | 594,988 |           |  |   | 1,074   |         |  |  | 0.18 |      
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total interest bearing liabilities            |                                 |         | 8,851,299 |  |        |         | 391,401 |  |          |      | 4.42   | % |         |         | 6,825,399 |  |        |         | 349,512 |  |  |      | 5.12  | % |  |         | 4,046,586 |  |   |         | 232,776 |  |  |      | 5.75  | %
|Noninterest bearing liabilities:             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Other liabilities                             |                                 |         | 123,137   |  |        |         |         |  |          |      |        |   |         |         | 126,802   |  |        |         |         |  |  |      |       |   |  |         | 83,861    |  |   |         |         |  |  |      |       |  
|Shareholders equity                         |                                               |                                 | 715,808 |           |  |        |         |         |  |          |      |        |   |         | 534,690 |           |  |        |         |         |  |  |      |       |   |  | 435,642 |           |  |   |         |         |  |  |      |      
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|                                             | Total                                         |                                 | $       | 9,690,244 |  |        |         |         |  |          |      |        |   |         | $       | 7,486,891 |  |        |         |         |  |  |      |       |   |  | $       | 4,566,089 |  |   |         |         |  |  |      |       |  
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Net interest income and interest rate spread |                                               |                                 |         |           |  | $      | 601,603 |         |  |          | 5.97 | %      |   |         |         |           |  | $      | 470,937 |         |  |  | 6.27 | %     |   |  |         |           |  | $ | 313,006 |         |  |  | 7.56 | %    
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      
|Net yield on average interest earning assets |                                               |                                 |         |           |  |        |         |         |  |          | 6.29 | %      |   |         |         |           |  |        |         |         |  |  | 6.54 | %     |   |  |         |           |  |   |         |         |  |  | 7.63 | %    
|                                             |                                               |                                 |         |           |  |        |         |         |  |          |      |        |   |         |         |           |  |        |         |         |  |  |      |       |   |  |         |           |  |   |         |         |  |  |      |      

The total interest rate spread decreased
30 basis points for 2003 compared with 2002 due to a
decrease of 100 basis points in the yield on interest
earning assets while the cost of funds decreased only
70 basis points. The total interest rate spread decreased
129 basis points in 2002 compared with 2001 due to a
decrease in the yield on interest earning assets of
192 basis points and a decrease in the cost of funds of
63 basis points. The decrease in the yield on interest
earning assets is due primarily to originating a higher
percentage of prime credit quality contracts and a lower
interest rate environment. The decrease in the cost of funds is
due primarily to a lower interest rate environment.

28



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##### 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):

|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |         |         | 
|---------------------------------------- | --------------------------------------------- | ------------------------ | - | ------------------------ | ------- | ----- | - | ------- | ------- | ---- | ------- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | - | ------- | ------- | ------- | 
|                                         |                                               |                          |   |                         
|                                         |                                               | 2003 Compared to 2002(1) |   | 2002 Compared to 2001(1)
|                                         |                                               |                          |   |                         
|                                         |                                               | Volume                   |   | Rate                     |         | Total |   | Volume  |         | Rate |         | Total  
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |        
|                                         |                                               |                         
|                                         |                                               | (Dollars in thousands)  
|Increase (decrease) in interest income:  |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                         | Contracts receivable                          |                          | $ | 244,238                  |         |       | $ | (70,955 | )       |      | $       | 173,283 |         |  | $ | 331,031 |         |  | $ | (60,486 | )       |   | $       | 270,545 |        
|                                         | Investment securities                         |                          |   | 3,402                    |         |       |   | (4,130  | )       |      |         | (728    | )       |  |   | 9,621   |         |  |   | (5,499  | )       |   |         | 4,122   |        
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                         |                                               | Total interest income    |   | $                        | 247,640 |       |   | $       | (75,085 | )    |         |         | 172,555 |  |   | $       | 340,652 |  |   | $       | (65,985 | ) |         |         | 274,667 | 
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Increase (decrease) in interest expense: |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                         | Lines of credit  parent                      |                          | $ | (1,612                   | )       |       | $ | (444    | )       |      |         | (2,056  | )       |  | $ | (3,176  | )       |  | $ | (2,705  | )       |   |         | (5,881  | )      
|                                         | Notes payable  parent                        |                          |   | 6,627                    |         |       |   | 510     |         |      |         | 7,137   |         |  |   | 21,727  |         |  |   | 495     |         |   |         | 22,222  |        
|                                         | Notes payable on automobile secured financing |                          |   | 105,023                  |         |       |   | (68,179 | )       |      |         | 36,844  |         |  |   | 155,692 |         |  |   | (55,420 | )       |   |         | 100,272 |        
|                                         | Other                                         |                          |   | (957                     | )       |       |   | 921     |         |      |         | (36     | )       |  |   | (318    | )       |  |   | 441     |         |   |         | 123     |        
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|                                         |                                               | Total interest expense   |   | $                        | 109,081 |       |   | $       | (67,192 | )    |         |         | 41,889  |  |   | $       | 173,925 |  |   | $       | (57,189 | ) |         |         | 116,736 | 
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        
|Increase in net interest income          |                                               |                          |   |                          |         |       |   |         |         | $    | 130,666 |         |         |  |   |         |         |  |   |         |         | $ | 157,931 |        
|                                         |                                               |                          |   |                          |         |       |   |         |         |      |         |         |         |  |   |         |         |  |   |         |         |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) were allocated
    proportionately based on the absolute value of the volume and
    rate variances. If there was no balance in the previous year,
    the total change was allocated to volume.



| |                            
| | ---------------------------
| | 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 through 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
$234 million, $249 million and $144 million for
the years ended December 31, 2003, 2002 and 2001,
respectively. Net chargeoffs were $222 million,
$158 million and $79.0 million for the same respective
periods. The decrease in provision for credit losses from 2002
to 2003 was the result of holding a greater percentage of prime
credit quality contracts, which require a lower percentage of
allowance for credit losses. The increase in the provision for
credit losses from 2001 to 2002 was the result of a greater
amount of contracts held on balance sheet.

29



---



##### Table of Contents





| |                   
| | ------------------
| | Noninterest Income



| |                          
| | -------------------------
| | Automobile Lending Income

Since the first quarter of 2000, we have not
completed a securitization that has been accounted for as an off
balance sheet arrangement. For transactions treated as off
balance sheet arrangements 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 was recognized over the life of the
transactions as contractual servicing income and retained
interest income or expense. Effective January 1, 2003, we
regained control over assets of the securitization trusts for
all of our outstanding securitization transactions treated as
sales for accounting purposes, excluding loans sold in whole
loan sales. We no longer recognize retained interest income or
expense or contractual servicing income for these securitization
transactions on our Consolidated Statements of Income. Rather,
we recognize interest income on automobile contracts held in
these trusts and record interest expense on notes payable on
automobile secured financings.

We occasionally sell contracts to Westcorp in
whole loan sales. 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. Additionally, we recognize contractual
servicing income on these contracts.

The components of servicing income were as
follows:

|                                                        |                        |                                 |        |         |  |      |         |         |  |   |         |         | 
|------------------------------------------------------- | ---------------------- | ------------------------------- | ------ | ------- |  | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                        |                        |                                
|                                                        |                        | For the Year Ended December 31,
|                                                        |                        |                                
|                                                        |                        | 2003                            |        | 2002    |  | 2001
|                                                        |                        |                                 |        |         |  |     
|                                                        |                        |                                
|                                                        |                        | (Dollars in thousands)         
|Fee income                                              |                        | $                               | 87,234 |         |  | $    | 78,773  |         |  | $ | 67,579  |        
|Contractual servicing income                            |                        |                                 | 31,781 |         |  |      | 61,830  |         |  |   | 85,845  |        
|Retained interest expense, net of RISA
    amortization |                        |                                 |        |         |  |      | (29,805 | )       |  |   | (27,839 | )      
|                                                        |                        |                                 |        |         |  |      |         |         |  |   |         |        
|                                                        | Total servicing income |                                 | $      | 119,015 |  |      | $       | 110,798 |  |   | $       | 125,585 | 
|                                                        |                        |                                 |        |         |  |      |         |         |  |   |         |        

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
$10.1 billion in 2003 from $8.8 billion in 2002 and
$7.6 billion in 2001.

According to the terms of each securitization, we
earn contractual servicing income on the outstanding balance of
securitized contracts. For accounting purposes, this income is
only recognized on contracts sold through securitizations
treated as sales and whole loan sales. Contractual servicing
income earned 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. There was no contractual servicing income earned
by us relating to sales to securitization trusts for the year
ended December 31, 2003. The decline was due to our
transition to treating our securitizations as secured financings
rather than as sales as well as our regaining control over the
assets of the trusts for all our outstanding securitization
transactions previously treated as sales for accounting
purposes. Contractual servicing income earned by us relating to
the whole loan sales to Westcorp totaled approximately
$31.8 million, $51.1 million and $62.8 million
for the years ended December 31, 2003, 2002 and 2001,
respectively.

The average balance of the sold portfolio,
excluding the loans sold in whole loan sales on which we do not
recognize retained interest income, was $840 million in
2002. There was no retained interest expense for the year ended
December 31, 2003 as a result of reconsolidating all
remaining off balance sheet trusts on January 1, 2003. For
accounting purposes, this expense is recognized only on
contracts sold through securitizations treated as sales.
Retained interest expense is dependent upon the average excess
spread on the contracts sold, credit losses, the size of the
sold portfolio and the amount of amortization of the RISA. The

30



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retained interest expense recognized in 2002 and
2001 was the result of higher chargeoffs on our sold portfolio
as well as revised estimates of further chargeoffs due to
continued slowing in the economy. Net chargeoffs on the sold
portfolio were $30.4 million in 2002 and $50.4 million
in 2001. The outstanding sold portfolio had a weighted average
gross interest rate spread of 6.71% and 6.97% in 2002 and 2001,
respectively.




| |                          
| | -------------------------
| | 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,                 
|                                                              |                                 |                                                 
|                                                              |                                 | 2003                                             |   | 2002      |           | 2001 |   | 2000      |           | 1999
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |     
|                                                              |                                 |                                                 
|                                                              |                                 | (Dollars in thousands)                          
|Contract sales and secured financings:                        |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              | Whole loan sales to Westcorp(1) |                                                  | $ | 1,650,000 |           |      |   |           |           |      | $ | 1,370,000 |           |   | $ | 1,390,000 |           |  |   |           |          
|                                                              | Sales to securitization trusts  |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   | 660,000   |           |  | $ | 2,500,000 |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              |                                 | Total sales                                      |   |           | 1,650,000 |      |   |           |           |      |   |           | 1,370,000 |   |   |           | 2,050,000 |  |   |           | 2,500,000 | 
|                                                              | Secured financings(2)           |                                                  |   | 4,239,375 |           |      | $ | 6,925,000 |           |      |   | 2,850,000 |           |   |   | 2,540,000 |           |  |   | 500,000   |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              |                                 | Total sales and secured financings               |   | $         | 5,889,375 |      |   | $         | 6,925,000 |      |   | $         | 4,220,000 |   |   | $         | 4,590,000 |  |   | $         | 3,000,000 | 
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|Gain on sale of contracts(3):                                 |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      |   |           |           |   | $ | 7,719     |           |  | $ | 54,977    |          
|                                                              | Cash gain on sale               |                                                  |   | 18,725    |           |      |   |           |           |      | $ | 6,741     |           |   |   | 6,004     |           |  |   |           |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              |                                 | Total gain on sale                               |   |           | 18,725    |      |   |           |           |      |   | $         | 6,741     |   |   | $         | 13,723    |  |   | $         | 54,977    | 
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|Hedge gain (loss) on sale of contracts(4):                    |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      |   |           |           |   | $ | 5,300     |           |  | $ | 11,051    |          
|                                                              | Cash gain (loss) on sale        |                                                  |   | 6,228     |           |      |   |           |           |      | $ | (6,700    | )         |   |   | (5,000    | )         |  |   |           |          
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              |                                 | Total hedge gain (loss) included in gain on sale |   |           | 6,228     |      |   |           |           |      |   | $         | (6,700    | ) |   | $         | 300       |  |   | $         | 11,051    | 
|                                                              |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|Gain on sale of contracts as a percent of total
    revenues: |                                 |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   |           |           |  |   |          
|                                                              | Non-cash gain on sale           |                                                  |   |           |           |      |   |           |           |      |   |           |           |   |   | 2.10      | %         |  |   | 18.64     | %        
|                                                              | Cash gain on sale               |                                                  |   | 2.52      | %         |      |   |           |           |      |   | 1.50      | %         |   |   | 1.63      | %         |  |   |           |          



---



|    |                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents loans sold to Westcorp and
    subsequently securitized by Westcorp.                                                                                                      
|   
|(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.                                                                          
|   
|(4) | Included in gain on sale of contracts.                                                                                                                                               

31



---



##### Table of Contents





| |                                   
| | ----------------------------------
| | Contract Sales and Securitizations

The following table lists each of our public
securitizations:

|                       |           |            |  |          |                 |                      |  |                  |            |             |  |                     |              |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------- | --------- | ---------- |  | -------- | --------------- | -------------------- |  | ---------------- | ---------- | ----------- |  | ------------------- | ------------ | --------- |  |  | ------ | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                       |           |            |  |          |                 |                      |  | Remaining        |            |             |  |                     |              | Gross    
|                       |           |            |  |          |                 |                      |  | Balance as a     |            | Original    |  | Original Weighted   |              | Interest 
|Issue                  |           |            |  | Original |                 | Remaining Balance at |  | Percent of       |            | Weighted    |  | Average             |              | Rate     
|Number                 |           | Close Date |  | Balance  |                 | December 31, 2003(1) |  | Original Balance |            | Average APR |  | Securitization Rate |              | Spread(2)
|                       |           |            |  |          |                 |                      |  |                  |            |             |  |                     |              |          
|                      
|(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    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.68 |   |  |  | 6.06  |   |  |  | 8.62  |  
|                       | 1998-C    |            |  |          | November, 1998  |                      |  |                  | 700,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.42 |   |  |  | 5.81  |   |  |  | 8.61  |  
|                       | 1999-A    |            |  |          | January, 1999   |                      |  |                  | 1,000,000  |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.42 |   |  |  | 5.70  |   |  |  | 8.72  |  
|                       | 1999-B(3) |            |  |          | July, 1999      |                      |  |                  | 1,000,000  |             |  | $                   | 57,856       |           |  |  | 5.79   | % |  |  | 14.62 |   |  |  | 6.36  |   |  |  | 8.26  |  
|                       | 1999-C    |            |  |          | November, 1999  |                      |  |                  | 500,000    |             |  |                     | Paid in full |           |  |  |        |   |  |  | 14.77 |   |  |  | 7.01  |   |  |  | 7.76  |  
|                       | 2000-A    |            |  |          | March, 2000     |                      |  |                  | 1,200,000  |             |  |                     | 128,805      |           |  |  | 10.73  |   |  |  | 14.66 |   |  |  | 7.28  |   |  |  | 7.38  |  
|                       | 2000-B(4) |            |  |          | May, 2000       |                      |  |                  | 1,000,000  |             |  |                     | 116,746      |           |  |  | 11.67  |   |  |  | 14.84 |   |  |  | 7.78  |   |  |  | 7.06  |  
|                       | 2000-C(5) |            |  |          | August, 2000    |                      |  |                  | 1,390,000  |             |  |                     | 230,390      |           |  |  | 16.57  |   |  |  | 15.04 |   |  |  | 7.32  |   |  |  | 7.72  |  
|                       | 2000-D    |            |  |          | November, 2000  |                      |  |                  | 1,000,000  |             |  |                     | 217,831      |           |  |  | 21.78  |   |  |  | 15.20 |   |  |  | 6.94  |   |  |  | 8.26  |  
|                       | 2001-A    |            |  |          | January, 2001   |                      |  |                  | 1,000,000  |             |  |                     | 245,123      |           |  |  | 24.51  |   |  |  | 14.87 |   |  |  | 5.77  |   |  |  | 9.10  |  
|                       | 2001-B(5) |            |  |          | May, 2001       |                      |  |                  | 1,370,000  |             |  |                     | 356,102      |           |  |  | 25.99  |   |  |  | 14.41 |   |  |  | 4.23  |   |  |  | 10.18 |  
|                       | 2001-C    |            |  |          | August, 2001    |                      |  |                  | 1,200,000  |             |  |                     | 397,936      |           |  |  | 33.16  |   |  |  | 13.90 |   |  |  | 4.50  |   |  |  | 9.40  |  
|                       | 2002-1    |            |  |          | March, 2002     |                      |  |                  | 1,800,000  |             |  |                     | 818,991      |           |  |  | 45.50  |   |  |  | 13.50 |   |  |  | 4.26  |   |  |  | 9.24  |  
|                       | 2002-2    |            |  |          | May, 2002       |                      |  |                  | 1,750,000  |             |  |                     | 927,306      |           |  |  | 52.99  |   |  |  | 12.51 |   |  |  | 3.89  |   |  |  | 8.62  |  
|                       | 2002-3    |            |  |          | August, 2002    |                      |  |                  | 1,250,000  |             |  |                     | 737,185      |           |  |  | 58.97  |   |  |  | 12.30 |   |  |  | 3.06  |   |  |  | 9.24  |  
|                       | 2002-4    |            |  |          | November, 2002  |                      |  |                  | 1,350,000  |             |  |                     | 928,067      |           |  |  | 68.75  |   |  |  | 12.18 |   |  |  | 2.66  |   |  |  | 9.52  |  
|                       | 2003-1    |            |  |          | February, 2003  |                      |  |                  | 1,343,250  |             |  |                     | 965,251      |           |  |  | 71.86  |   |  |  | 11.79 |   |  |  | 2.42  |   |  |  | 9.37  |  
|                       | 2003-2    |            |  |          | May, 2003       |                      |  |                  | 1,492,500  |             |  |                     | 1,200,666    |           |  |  | 80.45  |   |  |  | 11.57 |   |  |  | 2.13  |   |  |  | 9.44  |  
|                       | 2003-3(5) |            |  |          | August, 2003    |                      |  |                  | 1,650,000  |             |  |                     | 1,551,109    |           |  |  | 94.01  |   |  |  | 10.59 |   |  |  | 2.66  |   |  |  | 7.93  |  
|                       | 2003-4    |            |  |          | November, 2003  |                      |  |                  | 1,403,625  |             |  |                     | 1,403,625    |           |  |  | 100.00 |   |  |  | 10.89 |   |  |  | 2.70  |   |  |  | 8.19  |  
|                       | 2004-1    |            |  |          | February, 2004  |                      |  |                  | 1,477,500  |             |  |                     |              |           |  |  |        |   |  |  | 10.89 |   |  |  | 2.36  |   |  |  | 8.53  |  
|                       |           |            |  |          |                 |                      |  |                  |            |             |  |                     |              |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          | Total           |                      |  | $                | 36,088,305 |             |  | $                   | 10,282,989   |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  
|                       |           |            |  |          |                 |                      |  |                  |            |             |  |                     |              |           |  |  |        |   |  |  |       |   |  |  |       |   |  |  |       |  



---



|    |                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Represents only the note payable amounts
    outstanding at the date indicated.                                                                                                                                         
|   
|(2) | 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.
|   
|(3) | Redeemed on January 20, 2004.                                                                                                                                                                                           
|   
|(4) | Redeemed on February 20, 2004.                                                                                                                                                                                          
|   
|(5) | Represents loans sold to Westcorp and
    subsequently securitized by Westcorp. We manage these contracts
    pursuant to an agreement with Westcorp and the securitization
    trust.                                  

32



---



##### Table of Contents



Operating Expenses

Operating expenses totaled $241 million,
$213 million and $205 million for the years ended
December 31, 2003, 2002 and 2001, respectively. Operating
expenses as a percentage of average managed contracts were 2.4%
in 2003 compared with 2.4% in 2002 and 2.7% in 2001. The
improvement in operating efficiencies from 2001 to 2003 was
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 40% in 2003 compared with
36% in 2002 and 39% in 2001. The relatively lower effective tax
rate for the year ended December 31, 2002 was a result of a
one-time benefit of new legislation enacted by the State of
California that eliminated the use of the reserve method of
accounting for bad debts for large banks and financial
corporations for taxable income purposes for tax years after
January 1, 2002. In the first year of this change, 50% of
the ending reserve amount deducted from taxable income in prior
periods was included in California taxable income. The remaining
50% of the reserve was not required to be recaptured into income
but rather represented a permanent difference between GAAP and
California tax accounting. The deferred tax liability related to
this permanent difference was eliminated from our balance sheet
and the state income tax provision for 2002 was reduced
accordingly. See Business  Transactions with
Related Parties  Tax Sharing Agreement.

Financial Condition



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

We originated $6.0 billion and
$5.4 billion of contracts for the years ended
December 31, 2003 and 2002, respectively. As a result of
higher contract originations, our portfolio of managed contracts
reached $10.6 billion at December 31, 2003, up from
$9.4 billion at December 31, 2002.



| |                        
| | -----------------------
| | 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,

33



---



##### Table of Contents



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 were still under obligation to be held in the spread
accounts for securitizations treated as sales. There were no
amounts due from trusts at December 31, 2003 compared with
$101 million at December 31, 2002. The decrease is the
result of us regaining control over the assets of the trusts for
all our outstanding securitizations treated as sales for
accounting purposes, excluding loans sold to Westcorp and
subsequently securitized by Westcorp.




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

None of our securitization transactions in 2003,
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,
|                                          |  |                                
|                                          |  | 2003                            |  | 2002 |  | 2001
|                                          |  |                                 |  |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               |  |      |  | $    | 37,392  |   |  | $ | 111,558 |  
|Additions                                 |  |                                 |  |      |  |      |         |   |  |   |         |  
|Amortization                              |  |                                 |  |      |  |      | (36,461 | ) |  |   | (75,546 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 |  |      |  |      | (931    | ) |  |   | 1,380   |  
|                                          |  |                                 |  |      |  |      |         |   |  |   |         |  
|Balance at end of period(2)               |  | $                               |  |      |  | $    | 0       |   |  | $ | 37,392  |  
|                                          |  |                                 |  |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 balance of contracts 30 days or more
delinquent included in securitization transactions treated as
sales for accounting purposes totaled $35.2 million at
December 31, 2002. Net chargeoffs for these securitization
trusts totaled $30.4 million and $50.4 million for the
years ended December 31, 2002 and 2001, respectively.

Asset Quality

Overview

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

34



---



##### Table of Contents



We calculate delinquency based on the contractual
due date. 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 but are managed by us:

|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |      |  
|---------------------------------------------------------------------------------------- | --------------- | ---------------------- | ---------- | ---------- |  | ------ | ---- | ---------- | - | ------ | --------- | ---------- |  |  | ---- | ---- | - | - | --------- | ------- |  |  | ---- | ---- | -
|                                                                                         |                 |                       
|                                                                                         |                 | December 31,          
|                                                                                         |                 |                       
|                                                                                         |                 |                        |            |            |  |       
|                                                                                         |                 | 2003                   |            | 2002       |  | 2001  
|                                                                                         |                 |                        |            |            |  |       
|                                                                                         |                 | Amount                 |            | Percentage |  | Amount |      | Percentage |   | Amount |           | Percentage
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |           |           
|                                                                                         |                 |                       
|                                                                                         |                 | (Dollars in thousands)
|Contracts managed                                                                        |                 | $                      | 10,596,665 |            |  |        |      |            |   | $      | 9,389,974 |            |  |  |      |      |   | $ | 8,152,882 |         |  |  |      |     
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Period of delinquency:                                                                   |                 |                        |            |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|                                                                                         | 30 - 59 days    |                        | $          | 219,937    |  |        |      | 2.08       | % |        | $         | 238,204    |  |  |      | 2.54 | % |   | $         | 217,873 |  |  |      | 2.67 | %
|                                                                                         | 60 days or more |                        |            | 87,129     |  |        |      | 0.82       |   |        |           | 90,291     |  |  |      | 0.96 |   |   |           | 85,290  |  |  |      | 1.05 |  
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     
|Total contracts delinquent and delinquencies as a
    percentage of contracts managed(1) |                 | $                      | 307,066    |            |  |        | 2.90 | %          |   | $      | 328,495   |            |  |  | 3.50 | %    |   | $ | 303,163   |         |  |  | 3.72 | %   
|                                                                                         |                 |                        |            |            |  |        |      |            |   |        |           |            |  |  |      |      |   |   |           |         |  |  |      |     



---



|    |                                                                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Excludes Chapter 13 bankruptcy accounts
    greater than 120 days past due of $45.6 million and
    $41.5 million at December 31, 2003 and 2002,
    respectively.

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

|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ------ |  | --------- | ---------- | ------ |  | --------- | ------- | ------ |  | - | --------- | - |  |  | ------- | - |  | - | --------- | -
|                                                                                     |  |                       
|                                                                                     |  | December 31,          
|                                                                                     |  |                       
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | 2003                   |         | 2002   |  | 2001     
|                                                                                     |  |                        |         |        |  |          
|                                                                                     |  | Number of              |         |        |  | Number of |            |        |  | Number of |         |       
|                                                                                     |  | Contracts              |         | Amount |  | Contracts |            | Amount |  | Contracts |         | Amount
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |       
|                                                                                     |  |                       
|                                                                                     |  | (Dollars in thousands)
|Contracts managed                                                                    |  |                        | 826,122 |        |  | $         | 10,596,665 |        |  |           | 757,269 |        |  | $ | 9,389,974 |   |  |  | 690,401 |   |  | $ | 8,152,882 |  
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed vehicles                                                                 |  |                        | 1,522   |        |  | $         | 10,331     |        |  |           | 2,375   |        |  | $ | 16,433    |   |  |  | 1,168   |   |  | $ | 7,553     |  
|                                                                                     |  |                        |         |        |  |           |            |        |  |           |         |        |  |   |           |   |  |  |         |   |  |   |           |  
|Repossessed assets as a percentage of number and
    amount of contracts outstanding |  |                        | 0.18    | %      |  |           | 0.10       | %      |  |           | 0.31    | %      |  |   | 0.18      | % |  |  | 0.17    | % |  |   | 0.09      | %

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,
|                                                                              |  |                                
|                                                                              |  | 2003                            |            | 2002 |  | 2001
|                                                                              |  |                                 |            |      |  |     
|                                                                              |  |                                
|                                                                              |  | (Dollars in thousands)         
|Contracts managed at end of period                                            |  | $                               | 10,596,665 |      |  | $    | 9,389,974 |   |  | $ | 8,152,882 |  
|                                                                              |  |                                 |            |      |  |      |           |   |  |   |           |  
|Average contracts managed during period                                       |  | $                               | 10,051,754 |      |  | $    | 8,845,635 |   |  | $ | 7,576,681 |  
|                                                                              |  |                                 |            |      |  |      |           |   |  |   |           |  
|Gross chargeoffs                                                              |  | $                               | 350,714    |      |  | $    | 327,161   |   |  | $ | 236,834   |  
|Recoveries                                                                    |  |                                 | 89,027     |      |  |      | 82,372    |   |  |   | 64,626    |  
|                                                                              |  |                                 |            |      |  |      |           |   |  |   |           |  
|Net chargeoffs                                                                |  | $                               | 261,687    |      |  | $    | 244,789   |   |  | $ | 172,208   |  
|                                                                              |  |                                 |            |      |  |      |           |   |  |   |           |  
|Net chargeoffs as a percentage of average
    contracts managed during period |  |                                 | 2.60       | %    |  |      | 2.77      | % |  |   | 2.27      | %
|                                                                              |  |                                 |            |      |  |      |           |   |  |   |           |  

The decrease in delinquency and credit loss
experience for 2003 compared to 2002 was primarily a result of
our originating a higher percentage of prime credit quality
contracts and some stabilization of wholesale pre-owned car
prices. The increase in credit loss experience for 2002 compared
to 2001 was a result of a slowing economy.

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##### Table of Contents



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

Cumulative Static Pool Loss Curves

At December 31, 2003


|          |              |        |  |        |      |        |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|--------- | ------------ | ------ |  | ------ | ---- | ------ |  | --------- | ---- | ------ |  | ------ | ---- | --------- |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | ------ |  | ------ | ---- | --------- |  | ------ | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | - |  |  | ---- | -
|         
|         
|Period(1) |              | 1999-B |  | 2000-A |      | 2000-B |  | 2000-C(3) |      | 2000-D |  | 2001-A |      | 2001-B(3) |  | 2001-C |      | 2002-1 |  | 2002-2 |      | 2002-3 |  | 2002-4 |      | 2003-1 |  | 2003-2 |      | 2003-3(3) |  | 2003-4
|         
|         
|          | 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            |        |  |        | 0.04 | %      |  |           | 0.03 | %      |  |        | 0.02 | %         |  |        | 0.04 | %      |  |        | 0.04 | %      |  |        | 0.03 | %      |  |        | 0.03 | %         |  |        | 0.04 | % |  |  | 0.01 | % |  |  | 0.00 | % |  |  | 0.02 | % |  |  | 0.02 | % |  |  | 0.01 | % |  |  | 0.00 | % |  |  | 0.00 | % |  |  | 0.01 | %
|          | 3            |        |  |        | 0.11 | %      |  |           | 0.10 | %      |  |        | 0.09 | %         |  |        | 0.13 | %      |  |        | 0.11 | %      |  |        | 0.09 | %      |  |        | 0.10 | %         |  |        | 0.09 | % |  |  | 0.06 | % |  |  | 0.03 | % |  |  | 0.06 | % |  |  | 0.07 | % |  |  | 0.04 | % |  |  | 0.02 | % |  |  | 0.02 | % |  |  |      |  
|          | 4            |        |  |        | 0.26 | %      |  |           | 0.20 | %      |  |        | 0.24 | %         |  |        | 0.27 | %      |  |        | 0.24 | %      |  |        | 0.20 | %      |  |        | 0.21 | %         |  |        | 0.20 | % |  |  | 0.15 | % |  |  | 0.10 | % |  |  | 0.14 | % |  |  | 0.16 | % |  |  | 0.11 | % |  |  | 0.06 | % |  |  | 0.06 | % |  |  |      |  
|          | 5            |        |  |        | 0.47 | %      |  |           | 0.36 | %      |  |        | 0.39 | %         |  |        | 0.46 | %      |  |        | 0.39 | %      |  |        | 0.33 | %      |  |        | 0.33 | %         |  |        | 0.35 | % |  |  | 0.29 | % |  |  | 0.18 | % |  |  | 0.27 | % |  |  | 0.26 | % |  |  | 0.18 | % |  |  | 0.14 | % |  |  | 0.13 | % |  |  |      |  
|          | 6            |        |  |        | 0.66 | %      |  |           | 0.55 | %      |  |        | 0.59 | %         |  |        | 0.65 | %      |  |        | 0.54 | %      |  |        | 0.50 | %      |  |        | 0.50 | %         |  |        | 0.49 | % |  |  | 0.43 | % |  |  | 0.32 | % |  |  | 0.44 | % |  |  | 0.38 | % |  |  | 0.29 | % |  |  | 0.25 | % |  |  |      |   |  |  |      |  
|          | 7            |        |  |        | 0.87 | %      |  |           | 0.71 | %      |  |        | 0.78 | %         |  |        | 0.81 | %      |  |        | 0.74 | %      |  |        | 0.70 | %      |  |        | 0.69 | %         |  |        | 0.65 | % |  |  | 0.60 | % |  |  | 0.49 | % |  |  | 0.57 | % |  |  | 0.50 | % |  |  | 0.41 | % |  |  | 0.36 | % |  |  |      |   |  |  |      |  
|          | 8            |        |  |        | 1.00 | %      |  |           | 0.91 | %      |  |        | 0.99 | %         |  |        | 0.93 | %      |  |        | 0.93 | %      |  |        | 0.84 | %      |  |        | 0.87 | %         |  |        | 0.81 | % |  |  | 0.84 | % |  |  | 0.66 | % |  |  | 0.70 | % |  |  | 0.61 | % |  |  | 0.53 | % |  |  | 0.48 | % |  |  |      |   |  |  |      |  
|          | 9            |        |  |        | 1.13 | %      |  |           | 1.10 | %      |  |        | 1.17 | %         |  |        | 1.07 | %      |  |        | 1.13 | %      |  |        | 1.04 | %      |  |        | 1.05 | %         |  |        | 0.95 | % |  |  | 1.06 | % |  |  | 0.82 | % |  |  | 0.82 | % |  |  | 0.78 | % |  |  | 0.66 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 10           |        |  |        | 1.24 | %      |  |           | 1.27 | %      |  |        | 1.33 | %         |  |        | 1.24 | %      |  |        | 1.34 | %      |  |        | 1.24 | %      |  |        | 1.22 | %         |  |        | 1.07 | % |  |  | 1.28 | % |  |  | 0.96 | % |  |  | 0.96 | % |  |  | 0.94 | % |  |  | 0.80 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 11           |        |  |        | 1.35 | %      |  |           | 1.45 | %      |  |        | 1.44 | %         |  |        | 1.41 | %      |  |        | 1.50 | %      |  |        | 1.45 | %      |  |        | 1.36 | %         |  |        | 1.20 | % |  |  | 1.48 | % |  |  | 1.10 | % |  |  | 1.10 | % |  |  | 1.08 | % |  |  | 0.93 | % |  |  |      |   |  |  |      |   |  |  |      |  
|          | 12           |        |  |        | 1.44 | %      |  |           | 1.58 | %      |  |        | 1.57 | %         |  |        | 1.62 | %      |  |        | 1.74 | %      |  |        | 1.67 | %      |  |        | 1.53 | %         |  |        | 1.37 | % |  |  | 1.67 | % |  |  | 1.26 | % |  |  | 1.24 | % |  |  | 1.28 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 13           |        |  |        | 1.58 | %      |  |           | 1.73 | %      |  |        | 1.72 | %         |  |        | 1.86 | %      |  |        | 1.95 | %      |  |        | 1.90 | %      |  |        | 1.67 | %         |  |        | 1.55 | % |  |  | 1.82 | % |  |  | 1.39 | % |  |  | 1.38 | % |  |  | 1.43 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 14           |        |  |        | 1.74 | %      |  |           | 1.85 | %      |  |        | 1.86 | %         |  |        | 2.04 | %      |  |        | 2.21 | %      |  |        | 2.09 | %      |  |        | 1.81 | %         |  |        | 1.74 | % |  |  | 1.99 | % |  |  | 1.51 | % |  |  | 1.53 | % |  |  | 1.59 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 15           |        |  |        | 1.85 | %      |  |           | 2.00 | %      |  |        | 2.04 | %         |  |        | 2.25 | %      |  |        | 2.48 | %      |  |        | 2.25 | %      |  |        | 2.00 | %         |  |        | 1.97 | % |  |  | 2.14 | % |  |  | 1.68 | % |  |  | 1.70 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 16           |        |  |        | 2.03 | %      |  |           | 2.15 | %      |  |        | 2.24 | %         |  |        | 2.45 | %      |  |        | 2.71 | %      |  |        | 2.41 | %      |  |        | 2.19 | %         |  |        | 2.16 | % |  |  | 2.27 | % |  |  | 1.83 | % |  |  | 1.88 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 17           |        |  |        | 2.16 | %      |  |           | 2.37 | %      |  |        | 2.39 | %         |  |        | 2.68 | %      |  |        | 2.89 | %      |  |        | 2.54 | %      |  |        | 2.37 | %         |  |        | 2.36 | % |  |  | 2.45 | % |  |  | 1.99 | % |  |  | 2.03 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 18           |        |  |        | 2.30 | %      |  |           | 2.52 | %      |  |        | 2.55 | %         |  |        | 2.88 | %      |  |        | 3.08 | %      |  |        | 2.73 | %      |  |        | 2.60 | %         |  |        | 2.59 | % |  |  | 2.62 | % |  |  | 2.16 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 19           |        |  |        | 2.42 | %      |  |           | 2.67 | %      |  |        | 2.73 | %         |  |        | 3.08 | %      |  |        | 3.22 | %      |  |        | 2.93 | %      |  |        | 2.80 | %         |  |        | 2.78 | % |  |  | 2.80 | % |  |  | 2.31 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 20           |        |  |        | 2.50 | %      |  |           | 2.83 | %      |  |        | 2.93 | %         |  |        | 3.23 | %      |  |        | 3.40 | %      |  |        | 3.11 | %      |  |        | 3.01 | %         |  |        | 2.95 | % |  |  | 2.99 | % |  |  | 2.46 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 21           |        |  |        | 2.58 | %      |  |           | 2.99 | %      |  |        | 3.12 | %         |  |        | 3.38 | %      |  |        | 3.59 | %      |  |        | 3.34 | %      |  |        | 3.19 | %         |  |        | 3.14 | % |  |  | 3.15 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 22           |        |  |        | 2.67 | %      |  |           | 3.16 | %      |  |        | 3.27 | %         |  |        | 3.54 | %      |  |        | 3.78 | %      |  |        | 3.54 | %      |  |        | 3.34 | %         |  |        | 3.29 | % |  |  | 3.31 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 23           |        |  |        | 2.77 | %      |  |           | 3.34 | %      |  |        | 3.38 | %         |  |        | 3.67 | %      |  |        | 3.96 | %      |  |        | 3.72 | %      |  |        | 3.49 | %         |  |        | 3.41 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 24           |        |  |        | 2.87 | %      |  |           | 3.49 | %      |  |        | 3.52 | %         |  |        | 3.83 | %      |  |        | 4.18 | %      |  |        | 3.92 | %      |  |        | 3.62 | %         |  |        | 3.57 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 25           |        |  |        | 3.01 | %      |  |           | 3.63 | %      |  |        | 3.63 | %         |  |        | 4.00 | %      |  |        | 4.41 | %      |  |        | 4.10 | %      |  |        | 3.75 | %         |  |        | 3.73 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 26           |        |  |        | 3.14 | %      |  |           | 3.75 | %      |  |        | 3.73 | %         |  |        | 4.16 | %      |  |        | 4.58 | %      |  |        | 4.23 | %      |  |        | 3.87 | %         |  |        | 3.88 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 27           |        |  |        | 3.16 | %      |  |           | 3.86 | %      |  |        | 3.84 | %         |  |        | 4.35 | %      |  |        | 4.79 | %      |  |        | 4.36 | %      |  |        | 4.00 | %         |  |        | 4.04 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 28           |        |  |        | 3.29 | %      |  |           | 3.97 | %      |  |        | 3.97 | %         |  |        | 4.50 | %      |  |        | 4.96 | %      |  |        | 4.47 | %      |  |        | 4.15 | %         |  |        | 4.20 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 29           |        |  |        | 3.40 | %      |  |           | 4.09 | %      |  |        | 4.11 | %         |  |        | 4.64 | %      |  |        | 5.08 | %      |  |        | 4.56 | %      |  |        | 4.28 | %         |  |        | 4.35 | % |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 30           |        |  |        | 3.50 | %      |  |           | 4.21 | %      |  |        | 4.26 | %         |  |        | 4.79 | %      |  |        | 5.22 | %      |  |        | 4.67 | %      |  |        | 4.40 | %         |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 31           |        |  |        | 3.61 | %      |  |           | 4.33 | %      |  |        | 4.40 | %         |  |        | 4.92 | %      |  |        | 5.34 | %      |  |        | 4.81 | %      |  |        | 4.52 | %         |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 32           |        |  |        | 3.68 | %      |  |           | 4.47 | %      |  |        | 4.50 | %         |  |        | 5.02 | %      |  |        | 5.44 | %      |  |        | 4.92 | %      |  |        | 4.64 | %         |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 33           |        |  |        | 3.74 | %      |  |           | 4.59 | %      |  |        | 4.61 | %         |  |        | 5.12 | %      |  |        | 5.54 | %      |  |        | 5.04 | %      |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 34           |        |  |        | 3.81 | %      |  |           | 4.68 | %      |  |        | 4.70 | %         |  |        | 5.22 | %      |  |        | 5.66 | %      |  |        | 5.13 | %      |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 35           |        |  |        | 3.87 | %      |  |           | 4.79 | %      |  |        | 4.78 | %         |  |        | 5.29 | %      |  |        | 5.76 | %      |  |        | 5.24 | %      |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 36           |        |  |        | 3.91 | %      |  |           | 4.86 | %      |  |        | 4.85 | %         |  |        | 5.38 | %      |  |        | 5.86 | %      |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 37           |        |  |        | 3.97 | %      |  |           | 4.93 | %      |  |        | 4.94 | %         |  |        | 5.47 | %      |  |        | 5.97 | %      |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 38           |        |  |        | 4.03 | %      |  |           | 5.01 | %      |  |        | 4.99 | %         |  |        | 5.53 | %      |  |        | 6.04 | %      |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 39           |        |  |        | 4.09 | %      |  |           | 5.08 | %      |  |        | 5.05 | %         |  |        | 5.62 | %      |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 40           |        |  |        | 4.13 | %      |  |           | 5.13 | %      |  |        | 5.12 | %         |  |        | 5.68 | %      |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 41           |        |  |        | 4.18 | %      |  |           | 5.18 | %      |  |        | 5.18 | %         |  |        | 5.75 | %      |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 42           |        |  |        | 4.23 | %      |  |           | 5.24 | %      |  |        | 5.23 | %         |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 43           |        |  |        | 4.28 | %      |  |           | 5.29 | %      |  |        | 5.27 | %         |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 44           |        |  |        | 4.33 | %      |  |           | 5.34 | %      |  |        | 5.31 | %         |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 45           |        |  |        | 4.35 | %      |  |           | 5.37 | %      |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 46           |        |  |        | 4.38 | %      |  |           | 5.42 | %      |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 47           |        |  |        | 4.39 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 48           |        |  |        | 4.41 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 49           |        |  |        | 4.43 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 50           |        |  |        | 4.44 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 51           |        |  |        | 4.46 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 52           |        |  |        | 4.48 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 53           |        |  |        | 4.49 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | 54           |        |  |        | 4.50 | %      |  |           |      |        |  |        |      |           |  |        |      |        |  |        |      |        |  |        |      |        |  |        |      |           |  |        |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |   |  |  |      |  
|          | Prime Mix(2) |        |  |        | 70   | %      |  |           | 68   | %      |  |        | 69   | %         |  |        | 68   | %      |  |        | 68   | %      |  |        | 71   | %      |  |        | 71   | %         |  |        | 76   | % |  |  | 70   | % |  |  | 87   | % |  |  | 85   | % |  |  | 80   | % |  |  | 80   | % |  |  | 82   | % |  |  | 84   | % |  |  | 82   | %



---



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

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##### Table of Contents



Nonperforming Assets

Nonperforming loans, also known as NPLs, are
defined as Chapter 13 bankruptcy accounts contractually
past due over 120 days. For those accounts, all accrued
interest is reversed and income is recognized on a cash basis.
For the years ended December 31, 2003, 2002 and 2001,
interest on NPLs excluded from interest income was
$2.7 million, $2.7 million and $2.2 million,
respectively.

Nonperforming assets, also known as NPAs, consist
of NPLs and repossessed automobiles. Repossessed automobiles are
carried at a fair value. NPAs were $49.3 million at
December 31, 2003 compared with $37.5 million at
December 31, 2002. NPAs represented 0.5% of total assets at
December 31, 2003 compared with 0.4% at December 31,
2002. There were no impaired loans at December 31, 2003 or
2002.



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

Our allowance for credit losses was
$240 million at December 31, 2003 compared with
$228 million at December 31, 2002. We have decreased
our percentage of allowance for credit losses from 2.9% at
December 31, 2002 to 2.8% at December 31, 2003 as we
have originated a higher percentage of prime credit quality
contracts. 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,
|                                                                                           |  |                                
|                                                                                           |  | 2003                            |          | 2002 |  | 2001 |          | 2000 |  | 1999
|                                                                                           |  |                                 |          |      |  |      |          |      |  |     
|                                                                                           |  |                                
|                                                                                           |  | (Dollars in thousands)         
|Balance at beginning of period                                                             |  | $                               | 227,673  |      |  | $    | 136,410  |      |  | $    | 71,308   |   |  | $ | 36,682  |   |  | $ | 11,246  |  
|Chargeoffs                                                                                 |  |                                 | (297,610 | )    |  |      | (207,713 | )    |  |      | (110,359 | ) |  |   | (47,929 | ) |  |   | (18,696 | )
|Recoveries                                                                                 |  |                                 | 75,834   |      |  |      | 49,883   |      |  |      | 31,331   |   |  |   | 13,593  |   |  |   | 7,554   |  
|                                                                                           |  |                                 |          |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Net chargeoffs                                                                             |  |                                 | (221,776 | )    |  |      | (157,830 | )    |  |      | (79,028  | ) |  |   | (34,336 | ) |  |   | (11,142 | )
|Provision for credit losses                                                                |  |                                 | 233,800  |      |  |      | 249,093  |      |  |      | 144,130  |   |  |   | 68,962  |   |  |   | 36,578  |  
|                                                                                           |  |                                 |          |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Balance at end of period                                                                   |  | $                               | 239,697  |      |  | $    | 227,673  |      |  | $    | 136,410  |   |  | $ | 71,308  |   |  | $ | 36,682  |  
|                                                                                           |  |                                 |          |      |  |      |          |      |  |      |          |   |  |   |         |   |  |   |         |  
|Ratio of net chargeoffs during the period to
    average contracts owned during the period |  |                                 | 2.5      | %    |  |      | 2.4      | %    |  |      | 2.0      | % |  |   | 1.6     | % |  |   | 1.3     | %
|Ratio of allowance for credit losses to contracts
    at the end of the period             |  |                                 | 2.8      | %    |  |      | 2.9      | %    |  |      | 2.6      | % |  |   | 2.3     | % |  |   | 2.5     | %

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 consistent managed
growth, favorable loss experience and efficient operations.



| |                          
| | -------------------------
| | Principal Sources of Cash



| |                                   
| | ----------------------------------
| | Contract Sales and Securitizations

Our primary source of funds is the ability to
aggregate and securitize contracts in the form of asset-backed
securities or sell contracts through whole loan sales. These
transactions generate cash proceeds that allow us to repay
amounts borrowed and to purchase additional contracts. Since
1985, we have sold or

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securitized over $36.0 billion of automobile
contracts in 62 public offerings, making us the fourth largest
issuer by dollar amount of such securities in the nation.


Collections of Principal and Interest from
Contracts and Release of Cash from Spread Accounts

The collection of principal and interest from
contracts originated and securitized and the release of cash
from spread accounts is another significant source of funds for
us. Collections of principal and interest 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 securitizations guaranteed under a financial
guarantee insurance policy issued by FSA, we receive access to
the amounts deposited into collection accounts and amounts held
in the spread accounts for these securitizations. 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.

Pursuant to the securitization agreements for our
securitizations that are credit enhanced through the issuance of
subordinated notes, we receive cash released from the trustee
from the spread accounts on such transactions once the spread
accounts reach predetermined funding levels. The amounts
released from these spread accounts represent the return of the
initial deposits to such accounts as well as the release of
excess spread on the securitized contracts.

Principal and interest collections on contracts
owned by us and contracts securitized under a financial
guarantee insurance policy issued by an unaffiliated third-party
company and release of cash from spread accounts on
securitizations that are credit enhanced through the issuance of
subordinated notes totaled $4.3 billion, $4.9 billion
and $4.4 billion for the years ended December 31,
2003, 2002 and 2001, respectively. The increase in principal and
interest collections is primarily due to an increase in the
amount of contracts managed.

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.

These financing arrangements provide us with
another source of liquidity beyond the secondary markets,
thereby providing a source of short-term funding. 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. If we were
unable to replace these sources, we would need to curtail our
contract purchasing activities, which would have a material
adverse effect on our financial position and results of
operations and negatively impact our ability to remain a
preferred source of financing for the dealers from which we
purchase contracts.

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Conduit Financing

We have previously entered 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 asset-backed securitization. The January 2002 facility
was terminated in May 2002 in conjunction with a
$1.8 billion public asset-backed securitization. We did not
enter into a secured conduit financing in 2003.

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, 2003, the Bank owned 84% of
our common stock.



| |                       
| | ----------------------
| | Principal Uses of Cash



| |                         
| | ------------------------
| | Acquisition of Contracts

Our most significant use of cash is for the
acquisition of contracts. We acquire these contracts through our
nationwide relationship with franchised and select independent
automobile dealers. We purchased $6.0 billion of contracts
in 2003 compared with $5.4 billion in 2002 and
$4.9 billion in 2001.



| |                                                          
| | ---------------------------------------------------------
| | Payments of Principal and Interest on
    Securitizations

Under the terms of our reinvestment contract on
securitizations guaranteed under a financial guarantee insurance
policy issued by FSA, we fund quarterly payments of interest and
principal to these security holders derived from the cash flows
received on the securitized contracts that we service. Payments
of principal and interest to security holders totaled
$3.8 billion in 2003 compared with $5.5 billion and
$3.7 billion in 2002 and 2001, respectively. Payments of
principal and interest in 2002 included $1.5 billion of
payments on conduit financings.



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

Consistent with industry practice, we generally
pay dealer participation to the originating dealer for each
contract purchased. Participation paid to dealers during 2003
totaled $141 million compared with $129 million and
$120 million in 2002 and 2001, respectively. Typically, the
acquisition of 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 to Spread Accounts

At the time a securitization transaction closes,
we are required to advance monies to initially fund the spread
account. On senior/subordinated securitizations, the spread
account balance is invested in eligible mutual fund investments
by the trustee. The advanced monies are included in restricted
cash on our Consolidated Statements of Financial Condition. The
amount of such initial advances included in restricted cash was
$21.7 million at December 31, 2003 compared with
$12.5 million at December 31, 2002.

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| |                       
| | ----------------------
| | Operating Our Business

Our largest operating expenditure is salaries and
benefits paid to our associates. Other expenditures include
occupancy, collection, 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.



| |                        
| | -----------------------
| | Contractual Obligations

The following table lists our contractual
obligations:

|                                                 |                               |                        |         |             |  |             |           |            |  |       |           |           |  |   |           |           |  |   |           |           | 
|------------------------------------------------ | ----------------------------- | ---------------------- | ------- | ----------- |  | ----------- | --------- | ---------- |  | ----- | --------- | --------- |  | - | --------- | --------- |  | - | --------- | --------- | 
|                                                 |                               |                       
|                                                 |                               | At December 31, 2003  
|                                                 |                               |                       
|                                                 |                               |                        |         | More Than   |  | More Than   |           |           
|                                                 |                               |                        |         | One Year    |  | Three Years |           |           
|                                                 |                               | One Year               |         | Through     |  | Through     |           | More Than  |  |      
|                                                 |                               | or Less                |         | Three Years |  | Five Years  |           | Five Years |  | Total
|                                                 |                               |                        |         |             |  |             |           |            |  |      
|                                                 |                               |                       
|                                                 |                               | (Dollars in thousands)
|Lines of credit  parent                         |                               |                        |         |             |  | $           | 100       |            |  |       |           |           |  | $ | 21,711    |           |  | $ | 21,811    |          
|Notes payable on automobile secured financing(1) |                               | $                      | 253,660 |             |  |             | 1,279,854 |            |  | $     | 3,382,168 |           |  |   | 3,241,919 |           |  |   | 8,157,601 |          
|Notes payable  parent                           |                               |                        |         |             |  |             |           |            |  |       | 100,820   |           |  |   | 300,000   |           |  |   | 400,820   |          
|Operating leases                                 |                               |                        | 5,460   |             |  |             | 7,854     |            |  |       | 4,100     |           |  |   | 1,458     |           |  |   | 18,872    |          
|                                                 |                               |                        |         |             |  |             |           |            |  |       |           |           |  |   |           |           |  |   |           |          
|                                                 | Total contractual obligations |                        | $       | 259,120     |  |             | $         | 1,287,808  |  |       | $         | 3,487,088 |  |   | $         | 3,565,088 |  |   | $         | 8,599,104 | 
|                                                 |                               |                        |         |             |  |             |           |            |  |       |           |           |  |   |           |           |  |   |           |          



---



|    |                                            
|--- | -------------------------------------------
|(1) | Includes the effects of hedging activities.

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|         |                                                              
|-------- | -------------------------------------------------------------
|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 on a consolidated basis with
our parent 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
effects 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
our net portfolio value, also known as NPV. NPV is the
discounted value of the future cash flows (or paths
of cash flows in the presence of options based on volatility
assumptions and an arbitrage free Monte Carlo simulation method
to achieve the current market price) of all assets minus all
liabilities whose value is affected by interest rate changes
plus the book value of non-interest rate sensitive assets minus
the book value of non-interest rate sensitive 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 NPV ratio is the ratio of the NPV to
the market value of our assets as calculated above. In general,
an increase in interest rates would more adversely affect our
NPV than would a decrease in interest rates.

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. 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 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. 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 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.

As we issued certain variable rate notes payable
in connection with our securitization activities, 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 have entered into interest rate swap
agreements or other derivatives that we choose not to designate
as hedges or that do not qualify for hedge accounting under
SFAS No. 133. 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
and any income or expense recognized on such derivatives is
recorded to noninterest income.

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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.

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.

|                                                          |                       |      |           |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           |       |   |   |           |   | 
|--------------------------------------------------------- | --------------------- | ---- | --------- | ----- | - | ---- | --------- | ---------------------- | - | ---- | --------- | ---------- | - | ----- | --------- | ---------- | - | - | ------- | ---- | - | - | ------- | ----- | - | - | --------- | ----- | - | - | --------- | - | 
|                                                          |                       | 2004 |           | 2005  |   | 2006 |           | 2007                   |   | 2008 |           | Thereafter |   | Total |           | Fair Value
|                                                          |                       |      |           |       |   |      |           |                        |   |      |           |            |   |       |           |           
|                                                          |                       |      |           |       |   |      |           |                        |   |      |           |            |   |      
|                                                          |                       |      |           |       |   |      |           | (Dollars in thousands) |   |      |           |            |   |      
|Rate sensitive assets:                                    |                       |      |           |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           |       |   |   |           |  
|Fixed interest rate contracts                             |                       | $    | 3,014,924 |       |   | $    | 2,453,361 |                        |   | $    | 1,690,791 |            |   | $     | 1,005,708 |            |   | $ | 509,212 |      |   | $ | 42,272  |       |   | $ | 8,716,268 |       |   | $ | 9,420,084 |  
|                                                          | Average interest rate |      |           | 11.14 | % |      |           | 11.09                  | % |      |           | 10.92      | % |       |           | 10.53      | % |   |         | 7.30 | % |   |         | 8.71  | % |   |           | 10.78 | % |   |           |   | 
|Fixed interest rate securities                            |                       | $    | 284,804   |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   | $ | 284,804   |       |   | $ | 284,804   |  
|                                                          | Average interest rate |      |           | 0.84  | % |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 0.84  | % |   |           |   | 
|Variable interest rate securities                         |                       | $    | 763,921   |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   | $ | 763,921   |       |   | $ | 763,921   |  
|                                                          | Average interest rate |      |           | 1.17  | % |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 1.17  | % |   |           |   | 
|Rate sensitive liabilities:                               |                       |      |           |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           |       |   |   |           |  
|Notes payable in automobile secured
    financing  fixed |                       | $    | 3,098,295 |       |   | $    | 1,973,959 |                        |   | $    | 1,392,815 |            |   | $     | 609,314   |            |   |   |         |      |   |   |         |       |   | $ | 7,074,383 |       |   | $ | 7,289,263 |  
|                                                          | Average interest rate |      |           | 3.36  | % |      |           | 3.04                   | % |      |           | 3.37       | % |       |           | 2.84       | % |   |         |      |   |   |         |       |   |   |           | 3.23  | % |   |           |   | 
|Automobile secured financing  variable                   |                       | $    | 1,083,218 |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   | $ | 1,083,218 |       |   | $ | 1,083,218 |  
|                                                          | Average interest rate |      |           | 1.15  | % |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 1.15  | % |   |           |   | 
|Notes payable  parent                                    |                       |      |           |       |   |      |           |                        |   |      |           |            |   | $     | 100,820   |            |   |   |         |      |   | $ | 300,000 |       |   | $ | 400,820   |       |   | $ | 419,218   |  
|                                                          | Average interest rate |      |           |       |   |      |           |                        |   |      |           |            |   |       |           | 8.88       | % |   |         |      |   |   |         | 10.25 | % |   |           | 9.90  | % |   |           |   | 
|Lines of credit  parent                                  |                       | $    | 21,811    |       |   |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   | $ | 21,811    |       |   | $ | 21,811    |  
|                                                          | Average interest rate |      |           | 2.30  | % |      |           |                        |   |      |           |            |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 2.30  | % |   |           |   | 
|Interest rate swap agreements                             |                       | $    | 525,495   |       |   | $    | (304,282  | )                      |   | $    | (221,213  | )          |   |       |           |            |   |   |         |      |   |   |         |       |   |   |           |       |   | $ | (26,249   | )
|                                                          | Average pay rate      |      |           | 3.98  | % |      |           | 4.59                   | % |      |           | 3.65       | % |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 4.08  | % |   |           |   | 
|                                                          | Average receive rate  |      |           | 1.22  | % |      |           | 1.22                   | % |      |           | 1.23       | % |       |           |            |   |   |         |      |   |   |         |       |   |   |           | 1.22  | % |   |           |   | 
|Euro-dollar futures contracts                             |                       | $    | 346,225   |       |   | $    | (139,636  | )                      |   | $    | (107,619  | )          |   | $     | (98,970   | )          |   |   |         |      |   |   |         |       |   |   |           |       |   |   |           |  

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Glossary

ALLOWANCE FOR CREDIT
LOSSES:     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 excluding accumulated other
comprehensive income or loss 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 contract.

DERIVATIVES:     Interest
rate swaps, futures, forwards, option contracts or other
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.

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

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, as
amended, also known as SFAS 133. Under SFAS 133, a
derivative must be expected to be highly effective in reducing
the hedged risk in order to utilize the special accounting
allowed for hedges. In addition, the hedge must be assessed as
being highly effective on an ongoing basis throughout its life.
The ineffective portion of a hedge is recorded in earnings
immediately.

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 interest earning assets and the rate paid on 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 sold in whole loan sales and
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.

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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 LOANS
(NPLs):     Chapter 13 bankruptcy
accounts greater than 120 days delinquent.

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

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.

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 MANAGED
CONTRACTS:     A financial measurement
of our overall performance. Return on average managed contracts
is the ratio of net income divided by average managed contracts.

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. The contracts
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

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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
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.

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 by the Bank.

46



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##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

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






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

None.






|         |                        
|-------- | -----------------------
|Item 9A. | 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.

47



---



##### 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 26,
2004, 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. | Principal Accounting Fees and
    Services

Information regarding principal accounting fees
and services appears under the caption Audit Fees; Audit
Related Fees; Tax Fees; and Other Fees in the Proxy
Statement and is incorporated herein by reference.

48



---



##### 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, 2003 and 2002                                                                                          
|
| | Consolidated Statements of Income for the years
    ended December 31, 2003, 2002 and 2001                                                                                
|
| | Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2003, 2002 and 2001                                                   
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                                                                            
|
| | 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
|        |    |                       
|        | 3  | .1                     |  | Certificate of Amendment and Restatement of Articles of Incorporation                                                                          
|       
|        | 4  |                        |  | Specimen WFS Financial Inc Common Stock Certificate(5)                                                                                         
|       
|        | 10 | .1                     |  | Westcorp 2001 Stock Option Plan(13)                                                                                                            
|       
|        | 10 | .2                     |  | 2000 Executive Deferral Plan V(12)                                                                                                             
|       
|        | 10 | .2.1                   |  | First Amendment to the Westcorp Executive Deferral Plan V, dated as of April 1, 2003(16)                                                       
|       
|        | 10 | .3                     |  | Amended Revolving Line of Credit Agreement between WFS Funding, Inc. and Western Financial Bank, dated June 1, 2002(13)                        
|       
|        | 10 | .3.1                   |  | First Amendment dated October 15, 2002, to the Revolving Line of Credit Agreement between WFS Funding, Inc. and Western Financial Bank(13)     
|       
|        | 10 | .4                     |  | Security Agreement between WFS Funding, Inc. and Western Financial Bank, dated March 7, 2003                                                   
|       
|        | 10 | .4.1                   |  | First Amendment dated August 1, 2003, to the Security Agreement between WFS Funding, Inc. and Western Financial Bank                           
|       
|        | 10 | .5                     |  | Transfer Agreement between WFS Financial Inc and Western Financial Bank, F.S.B., dated May 1, 1995(1)                                          
|       
|        | 10 | .6                     |  |                                                                                                                                                 | Revolving Line of Credit Agreement between WFS Financial Inc and Western Financial Bank, dated June 15, 1999 | (11)
|       
|        | 10 | .6.1                   |  | 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 | .6.2                   |  | Amendment No. 2, dated May 23, 2000, to the Revolving Line of Credit Agreement between WFS Financial Inc and Western Financial Bank(13)        
|       
|        | 10 | .6.3                   |  | Amendment No. 3, dated January 1, 2002, to the Revolving Line of Credit Agreement between WFS Financial Inc and Western Financial Bank(13)     

49



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                    
|------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|       
|       
|        | 10 | .6.4                   |  | Amendment No. 4, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank(13)
|       
|        | 10 | .7                     |  | Security Agreement between WFS Financial Inc and
    Western Financial Bank, dated March 7, 2003                                                   
|       
|        | 10 | .8                     |  | Short Term Investment Agreement between WFS
    Financial Inc and Western Financial Bank, dated January 1,
    1996                                
|       
|        | 10 | .8.1                   |  | Amendment No. 1, dated as of January 1,
    2002, to the Short Term Investing Agreement between WFS
    Financial Inc and Western Financial Bank   
|       
|        | 10 | .9                     |  | Amended and Restated Tax Sharing Agreement
    between Westcorp and Subsidiaries, dated September 30,
    2002(13)                                 
|       
|        | 10 | .9.1                   |  | First Amendment to the Amended and Restated Tax
    Sharing Agreement, Dated as of January 1, 2003(14)                                             
|       
|        | 10 | .9.2                   |  | Second Amendment to the Amended and Restated Tax
    Sharing Amendment, dated August 1, 2003(14)                                                   
|       
|        | 10 | .10                    |  | Master Reinvestment Contract between WFS
    Financial Inc and Western Financial Bank, F.S.B., dated
    May 1, 1995(1)                            
|       
|        | 10 | .11                    |  | Amendment No. 1, dated as of June 1,
    1995, to the Restated Master Reinvestment Reimbursement
    Agreement(10)                                 
|       
|        | 10 | .12                    |  | Amended and Restated Master Collateral Assignment
    Agreement, dated as of March 1, 2000(11)                                                     
|       
|        | 10 | .13                    |  | Form of WFS Financial Inc Dealer Agreement(14)                                                                                                     
|       
|        | 10 | .14                    |  | Form of WFS Financial Inc
    Loan Application(14)                                                                                                 
|       
|        | 10 | .15                    |  | Amended and Restated WFS 1996 Incentive Stock
    Option Plan(6)                                                                                   
|       
|        | 10 | .16                    |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(12)                                      
|       
|        | 10 | .16.1                  |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)        
|       
|        | 10 | .16.2                  |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)        
|       
|        | 10 | .16.3                  |  | Amendment No. 3, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)        
|       
|        | 10 | .16.4                  |  | Amendment No. 4, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)        
|       
|        | 10 | .16.5                  |  | Amendment No. 5, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)        
|       
|        | 10 | .16.6                  |  | Amendment No. 6, dated as of
    November 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan           
|       
|        | 10 | .16.7                  |  | Amendment No. 7, dated as of
    December 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan           
|       
|        | 10 | .17                    |  | Employment Agreement(8)(9)                                                                                                                         
|       
|        | 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)                   

50



---



##### Table of Contents



|        |    |                        |  |                                                                                                                                                                      
|------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|       
|        | 10 | .18.3                  |  | Amendment No. 3, dated January 1, 2002,
    to the Promissory Note of WFS Financial Inc in favor of Western
    Financial Bank(13)                                   
|       
|        | 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.(13)              
|       
|        | 10 | .20                    |  | Amended and Restated Allocation Agreement, dated
    March 31, 2003(14)                                                                                              
|       
|        | 10 | .20.1                  |  | First Amendment to the Amended and Restated
    Allocation Agreement, dated as of August 1, 2003(14)                                                                 
|       
|        | 10 | .20.2                  |  | Second Amendment to the Amended and Restated
    Allocation Agreement, dated as of September 1, 2003(14)                                                             
|       
|        | 10 | .21                    |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western
    Financial Bank, dated June 1, 2002(13)                         
|       
|        | 10 | .21.1                  |  | First Amendment, dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Financial
    Auto Loans, Inc. and Western Financial Bank(13)     
|       
|        | 10 | .22                    |  | Security Agreement between WFS Financial Auto
    Loans, Inc. and Western Financial Bank, dated March 7,
    2003                                                    
|       
|        | 10 | .22.1                  |  | First Amendment to the Security Agreement, dated
    August 1, 2003, To the Security Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank 
|       
|        | 10 | .23                    |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002(13)                            
|       
|        | 10 | .23.1                  |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank(13)        
|       
|        | 10 | .24                    |  | Security Agreement between WFS Receivables
    Corporation and Western Financial Bank, dated March 7, 2003                                                           
|       
|        | 10 | .24.1                  |  | First Amendment to the Security Agreement, dated
    August 1, 2003, to the Security Agreement between WFS
    Receivables Corporation and Western Financial Bank    
|       
|        | 10 | .25                    |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002(13)                                
|       
|        | 10 | .25.1                  |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank(13)      
|       
|        | 10 | .25.2                  |  | Amendment No. 2, dated January 13,
    2003, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank          
|       
|        | 10 | .27                    |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002(13)                                                           
|       
|        | 10 | .28                    |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998(13)                              
|       
|        | 10 | .28.1                  |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency(13)
|       
|        | 10 | .29                    |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002(13)         
|       
|        | 10 | .30                    |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002(13)                             
|       
|        | 10 | .31                    |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002(13)                              
|       
|        | 10 | .31.1                  |  | Amendment No. 1, dated March 31, 2003,
    to the Referral Agreement between Western Financial Bank,
    Westfin Insurance Agency and WFS Financial Inc              

51



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##### Table of Contents



|        |    |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | -- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                       
|No.     |    | Description of Exhibit
|        |    |                       
|       
|        | 10 | .32                    |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .33                    |  | 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. dated
    October 31, 2002(13)
|       
|        | 10 | .33.1                  |  | Amendment No. 1, dated September 1,
    2003 to the Logo License Agreement(14)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .34                    |  | Travel Services Agreement between Westran
    Services Corp. and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       
|        | 10 | .34.1                  |  | Amendment No. 1, dated July 16, 2003 to
    the Travel Service Agreement Between Westran Services
    Corporation and Westcorp, Western Financial Bank, WFS Financial
    Inc, and Westfin Insurance Agency, Inc.(14)                                                                                                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10 | .35                    |  | Letter of Credit between Western Financial Bank
    and WFS Financial Inc dated May 9, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|       
|        | 10 | .36                    |  | 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(13)                                                                                                                                                                                                                                                                                                                                                         
|       
|        | 10 | .36.1                  |  | 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(13)                                                                                                                                                                                                                                                                                                                               
|       
|        | 10 | .36.2                  |  | Second 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, 2003                                                                                                                                                                                                                                                                                                                                  
|       
|        | 10 | .37                    |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency and WFS Financial Inc, dated September
    2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 10 | .39                    |  | Security Agreement between WFS Receivables
    Corporation 3 and Western Financial Bank, dated March 7,
    2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|       
|        | 10 | .39.1                  |  | First Amendment to the Security Agreement, dated
    August 1, 2003, to the Security Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|       
|        | 10 | .49                    |  | Retainer Agreement between WestFin Insurance
    Agency and WFS Financial Inc. dated March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|       
|        | 21 | .1                     |  | Subsidiaries of WFS Financial Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|       
|        | 23 | .1                     |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|       
|        | 31 | .1                     |  | CEO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 31 | .2                     |  | CFO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|       
|        | 32 | .1                     |  | Certification of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|       
|        | 32 | .2                     |  | Certification of the 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.             

52



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##### Table of Contents





| |     |                                                                                                                                                                                                         
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.                                                                                        
|    
|(13) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 2002 as filed on or about March 27, 2003.                                                                                        
|    
|(14) | Exhibit previously filed with Westcorp
    Registration Statements on Form S-3 (File
    No. 333-110244) filed November 5, 2003 and
    subsequently amended on November 10, 2003 incorporated by
    reference under Exhibit Number indicated.         

(b)Report on Form 8-K

On October 23, 2003, we filed a current
report on Form 8-K dated October 21, 2003, reporting
information under Items 7, 9 and 12.

53



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##### Table of Contents



SIGNATURES

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



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

|                      |  |                         |  | 
|--------------------- |  | ----------------------- |  | 
|Dated: March 11, 2004 |  | 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 11, 2004
|                                        
|/s/ THOMAS A. WOLFEThomas A. Wolfe       |  | President, Chief Executive Officer
    and Director                                                                                                |  | March 11, 2004
|                                        
|/s/ JUDITH M. BARDWICKJudith M. Bardwick |  | Director                                                                                                                                           |  | March 11, 2004
|                                        
|/s/ JAMES R. DOWLANJames R. Dowlan       |  | Director                                                                                                                                           |  | March 11, 2004
|                                        
|/s/ DUANE A. NELLESDuane A. Nelles       |  | Director                                                                                                                                           |  | March 11, 2004
|                                        
|/s/ RONALD I. SIMONRonald I. Simon       |  | Director                                                                                                                                           |  | March 11, 2004
|                                        
|/s/ FREDRICKA TAUBITZFredricka Taubitz   |  | Director                                                                                                                                           |  | March 11, 2004
|                                        
|/s/ LEE A. WHATCOTTLee A. Whatcott       |  | Senior Executive Vice President,
    Chief Financial Officer,
    and Chief Operating Officer
    (Principal Financial and
    Accounting Officer) |  | March 11, 2004

54



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORT OF INDEPENDENT AUDITORS


|                                                                                                                        |  |      |     | 
|----------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                        |  | Page
|                                                                                                                        |  |     
|Report of Independent Auditors                                                                                          |  |      | F-2 | 
|Consolidated Financial Statements:                                                                                      |  |      |     | 
|Consolidated Statements of Financial Condition at
    December 31, 2003 and 2002                                        |  |      | F-3 | 
|Consolidated Statements of Income for the years
    ended December 31, 2003, 2002 and 2001                              |  |      | F-4 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the years ended December 31,
    2003, 2002 and 2001 |  |      | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001                          |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                                              |  |      | F-7 | 

F-1



---



##### Table of Contents



REPORT OF INDEPENDENT AUDITORS

Shareholders and 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, 2003 and 2002, and the
related consolidated statements of income, changes in
shareholders equity and cash flows for each of the three
years in the period ended December 31, 2003. 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, 2003 and 2002, and the
consolidated results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles
generally accepted in the United States.



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

Los Angeles, California

January 20, 2004


F-2



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION

|                                                                                                                                                      |                           |                                            |           |           |           |   |           |           |           | 
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------------------------------------------ | --------- | --------- | --------- | - | --------- | --------- | --------- | 
|                                                                                                                                                      |                           |                                           
|                                                                                                                                                      |                           | December 31,                              
|                                                                                                                                                      |                           |                                           
|                                                                                                                                                      |                           | 2003                                       |           | 2002     
|                                                                                                                                                      |                           |                                            |           |          
|                                                                                                                                                      |                           |                                           
|                                                                                                                                                      |                           | (Dollars in thousands)                    
|ASSETS                                                                                                                                                |                           |                                            |           |           |           |   |           |          
|Cash                                                                                                                                                  |                           | $                                          | 79,314    |           |           | $ | 28,079    |          
|Other short-term investments  parent                                                                                                                 |                           |                                            | 763,921   |           |           |   | 687,728   |          
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      | Cash and due from banks   |                                            |           | 843,235   |           |   |           | 715,807   |          
|Restricted cash                                                                                                                                       |                           |                                            | 245,399   |           |           |   | 71,763    |          
|Investment securities available for sale                                                                                                              |                           |                                            |           |           |           |   | 3,348     |          
|Contracts receivable                                                                                                                                  |                           |                                            | 8,716,268 |           |           |   | 7,975,503 |          
|Allowance for credit losses                                                                                                                           |                           |                                            | (239,697  | )         |           |   | (227,673  | )        
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      | Contracts receivable, net |                                            |           | 8,476,571 |           |   |           | 7,747,830 |          
|Amounts due from trusts                                                                                                                               |                           |                                            |           |           |           |   | 101,473   |          
|Premises and equipment, net                                                                                                                           |                           |                                            | 29,206    |           |           |   | 32,084    |          
|Interest receivable                                                                                                                                   |                           |                                            | 55,275    |           |           |   | 53,930    |          
|Other assets                                                                                                                                          |                           |                                            | 119,074   |           |           |   | 135,231   |          
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      |                           | TOTAL ASSETS                               |           | $         | 9,768,760 |   |           | $         | 8,861,466 | 
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|LIABILITIES                                                                                                                                           |                           |                                            |           |           |           |   |           |          
|Lines of credit  parent                                                                                                                              |                           | $                                          | 21,811    |           |           | $ | 62,048    |          
|Notes payable on automobile secured financing                                                                                                         |                           |                                            | 8,157,601 |           |           |   | 7,394,943 |          
|Notes payable  parent                                                                                                                                |                           |                                            | 400,820   |           |           |   | 408,010   |          
|Amounts held on behalf of trustee                                                                                                                     |                           |                                            | 243,072   |           |           |   | 298,863   |          
|Other liabilities                                                                                                                                     |                           |                                            | 126,587   |           |           |   | 63,070    |          
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      |                           | TOTAL LIABILITIES                          |           |           | 8,949,891 |   |           |           | 8,226,934 | 
|SHAREHOLDERS EQUITY                                                                                                                                  |                           |                                            |           |           |           |   |           |          
|Common stock (no par value; authorized
    50,000,000 shares; issued and outstanding
    41,033,901 shares in 2003 and 41,020,033 shares in
    2002) |                           |                                            | 338,291   |           |           |   | 338,186   |          
|Paid-in capital                                                                                                                                       |                           |                                            | 6,280     |           |           |   | 5,372     |          
|Retained earnings                                                                                                                                     |                           |                                            | 507,188   |           |           |   | 344,800   |          
|Accumulated other comprehensive loss, net of tax                                                                                                      |                           |                                            | (32,890   | )         |           |   | (53,826   | )        
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      |                           | TOTAL SHAREHOLDERS EQUITY                 |           |           | 818,869   |   |           |           | 634,532   | 
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          
|                                                                                                                                                      |                           | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |           | $         | 9,768,760 |   |           | $         | 8,861,466 | 
|                                                                                                                                                      |                           |                                            |           |           |           |   |           |          

See accompanying notes to consolidated financial
statements.

F-3



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |            |         | 
|--------------------------------------------------------- | --------------------------------------------- | ------------------------------------------------ | ------- | ---------- | ------- | ---- | ------- | ---------- | ------- | - | ------- | ---------- | ------- | 
|                                                          |                                               |                                                 
|                                                          |                                               | For the Year Ended December 31,                 
|                                                          |                                               |                                                 
|                                                          |                                               | 2003                                             |         | 2002       |         | 2001
|                                                          |                                               |                                                  |         |            |         |     
|                                                          |                                               |                                                 
|                                                          |                                               | (Dollars in thousands, except per share amounts)
|Interest income:                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Loans, including fees                         |                                                  | $       | 982,946    |         |      | $       | 809,663    |         |   | $       | 539,118    |        
|                                                          | Other                                         |                                                  |         | 10,058     |         |      |         | 10,786     |         |   |         | 6,664      |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL INTEREST INCOME                            |         |            | 993,004 |      |         |            | 820,449 |   |         |            | 545,782 | 
|Interest expense:                                         |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Notes payable on automobile secured financing |                                                  |         | 349,359    |         |      |         | 312,515    |         |   |         | 212,243    |        
|                                                          | Other                                         |                                                  |         | 42,042     |         |      |         | 36,997     |         |   |         | 20,533     |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL INTEREST EXPENSE                           |         |            | 391,401 |      |         |            | 349,512 |   |         |            | 232,776 | 
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|NET INTEREST INCOME                                       |                                               |                                                  | 601,603 |            |         |      | 470,937 |            |         |   | 313,006 |           
|Provision for credit losses                               |                                               |                                                  | 233,800 |            |         |      | 249,093 |            |         |   | 144,130 |           
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|NET INTEREST INCOME AFTER PROVISION FOR CREDIT
    LOSSES |                                               |                                                  | 367,803 |            |         |      | 221,844 |            |         |   | 168,876 |           
|Noninterest income:                                       |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Automobile servicing                          |                                                  |         | 119,015    |         |      |         | 110,798    |         |   |         | 125,585    |        
|                                                          | Gain on sale of contracts                     |                                                  |         | 18,725     |         |      |         |            |         |   |         | 6,741      |        
|                                                          | Other                                         |                                                  |         | 4,758      |         |      |         | 8,504      |         |   |         | 5,241      |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL NONINTEREST INCOME                         |         |            | 142,498 |      |         |            | 119,302 |   |         |            | 137,567 | 
|Noninterest expense:                                      |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Salaries and associate benefits               |                                                  |         | 149,829    |         |      |         | 123,821    |         |   |         | 126,748    |        
|                                                          | Credit and collections                        |                                                  |         | 35,448     |         |      |         | 35,960     |         |   |         | 27,497     |        
|                                                          | Data processing                               |                                                  |         | 16,659     |         |      |         | 17,402     |         |   |         | 17,160     |        
|                                                          | Occupancy                                     |                                                  |         | 13,383     |         |      |         | 12,995     |         |   |         | 12,591     |        
|                                                          | Telephone                                     |                                                  |         | 4,578      |         |      |         | 5,113      |         |   |         | 5,803      |        
|                                                          | Other                                         |                                                  |         | 21,497     |         |      |         | 17,613     |         |   |         | 15,493     |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          |                                               | TOTAL NONINTEREST EXPENSE                        |         |            | 241,394 |      |         |            | 212,904 |   |         |            | 205,292 | 
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|INCOME BEFORE INCOME TAX                                  |                                               |                                                  | 268,907 |            |         |      | 128,242 |            |         |   | 101,151 |           
|Income tax                                                |                                               |                                                  | 106,519 |            |         |      | 46,152  |            |         |   | 39,503  |           
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|NET INCOME                                                |                                               | $                                                | 162,388 |            |         | $    | 82,090  |            |         | $ | 61,648  |           
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|Earnings per common share:                                |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Basic                                         |                                                  | $       | 3.96       |         |      | $       | 2.06       |         |   | $       | 1.91       |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Diluted                                       |                                                  | $       | 3.95       |         |      | $       | 2.05       |         |   | $       | 1.90       |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|Weighted average number of common shares
    outstanding: |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Basic                                         |                                                  |         | 41,026,067 |         |      |         | 39,945,285 |         |   |         | 32,308,649 |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           
|                                                          | Diluted                                       |                                                  |         | 41,069,263 |         |      |         | 39,993,524 |         |   |         | 32,398,357 |        
|                                                          |                                               |                                                  |         |            |         |      |         |            |         |   |         |           

See accompanying notes to consolidated financial
statements.

F-4



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##### Table of Contents



WFS FINANCIAL INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         |         |   |   |         |         |  
|---------------------------- | ---------------------------------------------------------------------------------------------------- | ------ | ---------- | -------------------------------------------- |  | ------- | ------- | -------- |  | -------------- | ----- | ----- |  | - | ------- | ------- |  | - | ------- | ------- | - | - | ------- | ------- | -
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  | Accumulated    |       |      
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  | Other          |       |      
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  | Comprehensive  |       |      
|                             |                                                                                                      |        |            | Common                                       |  | Paid-in |         | Retained |  | Income (Loss), |       |      
|                             |                                                                                                      | Shares |            | Stock                                        |  | Capital |         | Earnings |  | Net of Tax     |       | Total
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |      
|                             |                                                                                                      |        |            |                                              |  |        
|                             |                                                                                                      |        |            | (Dollars in thousands, except share amounts) |  |        
|Balance at January 1, 2001   |                                                                                                      |        | 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 |        
|                             | Net income                                                                                           |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         | 162,388 |  |   |         |         |   |   |         | 162,388 |  
|                             | Unrealized losses on cash flow hedges, net of
    tax(2)                                             |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         | (13,847 | ) |   |         | (13,847 | )
|                             | Reclassification adjustment for losses on cash
    flow hedges included in net income, net of tax(3) |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         | 34,783  |   |   |         | 34,783  |  
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         |         |   |   |         |        
|                             | Comprehensive income                                                                                 |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         |         |   |   |         | 183,324 |  
|                             | Issuance of common stock                                                                             |        |            | 13,868                                       |  |         |         | 105      |  |                |       | 908   |  |   |         |         |  |   |         |         |   |   |         | 1,013   |  
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         |         |   |   |         |        
|Balance at December 31, 2003 |                                                                                                      |        | 41,033,901 |                                              |  | $       | 338,291 |          |  | $              | 6,280 |       |  | $ | 507,188 |         |  | $ | (32,890 | )       |   | $ | 818,869 |        
|                             |                                                                                                      |        |            |                                              |  |         |         |          |  |                |       |       |  |   |         |         |  |   |         |         |   |   |         |        



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The pre-tax amount of unrealized gains and losses
    on retained interest in securitized assets was $0.9 million
    and $1.4 million for the year ended December 31, 2002
    and 2001, respectively.                                                                                                                                                                                                                                            
|   
|(2) | The pre-tax amount of unrealized losses on cash
    flow hedges was $23.1 million for the year ended
    December 31, 2003 compared with $100 million and
    $71.6 million for the years ended December 31, 2002
    and 2001, respectively.                                                                                                                                                                                                      
|   
|(3) | The pre-tax amount of unrealized losses on cash
    flow hedges reclassified into earnings was $58.0 million
    for the year ended December 31, 2003 compared with
    $59.8 million and $21.0 million for the years ended
    December 31, 2002 and 2001, respectively. 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,
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | 2003                            |            | 2002       |   | 2001
|                                                                                      |                                                             |                                 |            |            |   |     
|                                                                                      |                                                             |                                
|                                                                                      |                                                             | (Dollars in thousands)         
|OPERATING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Net income                                                                            |                                                             | $                               | 162,388    |            |   | $    | 82,090     |            |   | $ | 61,648     |           
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Provision for credit losses                                 |                                 |            | 233,800    |   |      |            | 249,093    |   |   |            | 144,130    |  
|                                                                                      | Amortization of participation paid to dealers               |                                 |            | 94,227     |   |      |            | 74,190     |   |   |            | 40,631     |  
|                                                                                      | Amortization of losses on cash flow hedges                  |                                 |            | 16,873     |   |      |            | 17,090     |   |   |            | 5,226      |  
|                                                                                      | Amortization of retained interest in securitized
    assets |                                 |            |            |   |      |            | 36,461     |   |   |            | 75,545     |  
|                                                                                      | Depreciation                                                |                                 |            | 9,408      |   |      |            | 10,636     |   |   |            | 10,905     |  
|                                                                                      | Gain on sale of contracts                                   |                                 |            | (18,725    | ) |      |            |            |   |   |            | (6,741     | )
|Decrease (increase) in other assets                                                   |                                                             |                                 | 83,039     |            |   |      | (63,174    | )          |   |   | (34,598    | )         
|Increase in other liabilities                                                         |                                                             |                                 | 58,148     |            |   |      | 9,117      |            |   |   | 18,304     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                             |                                                             |                                 | 639,158    |            |   |      | 415,503    |            |   |   | 315,050    |           
|                                                                                     
|INVESTING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Contracts receivable:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Purchase of contracts                                       |                                 |            | (5,978,576 | ) |      |            | (5,415,734 | ) |   |            | (4,863,279 | )
|                                                                                      | Proceeds from contract sales, net                           |                                 |            | 1,699,574  |   |      |            |            |   |   |            | 1,414,223  |  
|                                                                                      | Participation paid to dealers                               |                                 |            | (141,079   | ) |      |            | (129,272   | ) |   |            | (120,194   | )
|                                                                                      | Contract payments and payoffs                               |                                 |            | 3,900,340  |   |      |            | 2,566,105  |   |   |            | 1,284,059  |  
|Decrease in amounts due from trust                                                    |                                                             |                                 |            |            |   |      | 83,479     |            |   |   | 181,173    |           
|Purchase of premises and equipment                                                    |                                                             |                                 | (6,603     | )          |   |      | (8,925     | )          |   |   | (8,398     | )         
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH USED IN INVESTING ACTIVITIES                                                 |                                                             |                                 | (526,344   | )          |   |      | (2,904,347 | )          |   |   | (2,112,416 | )         
|                                                                                     
|FINANCING ACTIVITIES:                                                                 |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|(Payments on) proceeds from lines of credit, net                                      |                                                             |                                 | (40,237    | )          |   |      | (359,128   | )          |   |   | 185,191    |           
|Proceeds from notes payable on automobile secured
    financing                       |                                                             |                                 | 4,230,828  |            |   |      | 6,912,058  |            |   |   | 2,845,655  |           
|Payments on notes payable on automobile secured
    financing                         |                                                             |                                 | (4,110,960 | )          |   |      | (3,549,946 | )          |   |   | (1,120,844 | )         
|(Payments on) proceeds from notes
    payable  parent, net                           |                                                             |                                 | (7,190     | )          |   |      | 340,510    |            |   |   | (78,719    | )         
|Increase (decrease) in amounts held on behalf of
    trustee                          |                                                             |                                 | 121,851    |            |   |      | (178,047   | )          |   |   | (113,805   | )         
|Increase in restricted cash                                                           |                                                             |                                 | (173,636   | )          |   |      | (71,763    | )          |   |   |            |           
|Proceeds from issuance of common stock                                                |                                                             |                                 | 1,012      |            |   |      | 111,653    |            |   |   | 115,498    |           
|Payments on cash flow hedges                                                          |                                                             |                                 | (7,054     | )          |   |      | (30,786    | )          |   |   | (30,806    | )         
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                             |                                                             |                                 | 14,614     |            |   |      | 3,174,551  |            |   |   | 1,802,170  |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|INCREASE IN CASH AND DUE FROM BANKS                                                   |                                                             |                                 | 127,428    |            |   |      | 685,707    |            |   |   | 4,804      |           
|Cash and due from banks at beginning of year                                          |                                                             |                                 | 715,807    |            |   |      | 30,100     |            |   |   | 25,296     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|CASH AND DUE FROM BANKS AT END OF YEAR                                                |                                                             | $                               | 843,235    |            |   | $    | 715,807    |            |   | $ | 30,100     |           
|                                                                                      |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                     |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|Cash paid for:                                                                        |                                                             |                                 |            |            |   |      |            |            |   |   |            |           
|                                                                                      | Interest                                                    |                                 | $          | 388,397    |   |      | $          | 335,231    |   |   | $          | 220,099    |  
|                                                                                      | Income taxes                                                |                                 |            | 104,742    |   |      |            | 82,635     |   |   |            | 67,540     |  

See accompanying notes to consolidated financial
statements.

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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. 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. 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.

Effective January 1, 2003, we regained
control over assets of the securitization trusts for all of our
outstanding securitization transactions treated as sales for
accounting purposes, excluding loans sold in whole loan sales.
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 paragraph 55 of
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, and 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 financing 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 no longer recognize retained interest income or
expense or contractual servicing income for these securitization
transactions on our Consolidated Statements of Income. Rather,
we recognize interest income on automobile contracts held in
these trusts and record interest expense on notes payable on
automobile secured financings. These loans were considered in
the overall evaluation of the adequacy of our allowance for
credit losses.

During the first quarter of 2003, Chapter 13
bankruptcy accounts greater than 120 days were reclassified
to contracts receivable and the related reserves were
reclassified to the allowance for credit losses on the Statement
of Financial Condition. Previously, such amounts were reported
as nonperforming assets and were included in other assets on the
Statement of Financial Condition. The 2002 amounts have been
reclassified accordingly. These loans were considered in the
overall evaluation of the adequacy of our allowance for credit
losses for the periods presented.

During the second quarter of 2003, various cash
amounts related to certain securitization transactions were
reclassified to restricted cash on the Statement of Financial
Condition. Previously, such amounts were reported as a reduction
of notes payable on automobile secured financing on the
Statement of Financial Condition. The 2002 amounts have been
reclassified accordingly.

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.

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Restricted Cash

Restricted cash represents amounts that are held
by the trustee until such cash is released under the terms of
the securitization agreements.

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.

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, 2003 and 2002, 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.

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

Nonperforming assets consist of nonperforming
contracts that are defined as all nonaccrual contracts and
repossessed assets. Nonperforming assets were included in other
assets on the Consolidated Statements of Financial Condition and
are not material.

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

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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 other fee income. The amortization
of the RISA was calculated so as to recognize retained interest
income on an effective yield basis. These amounts were reported
as automobile lending income on our Consolidated Statements of
Income.

RISA was 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
most securitizations. For securitization transactions treated as
sales, these amounts are reported as amounts held on behalf of
trustee on our Consolidated Statements of Financial Condition.

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

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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 contracts
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
financing 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
necessarily represent the underlying value of our financial
position.

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 due from banks approximate those assets fair values.                                                                                             
|
| | Restricted cash:The
    carrying amounts reported in the Consolidated Statements of
    Financial Condition 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.                 
|
| | Contracts
    receivable:The fair values for
    contracts are estimated using discounted cash flow analysis
    based on interest rates currently being offered for contracts
    with similar terms to borrowers of similar credit quality.                                          
|
| | Interest rate swap
    agreements: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.                                                                                                                        

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Derivative Financial Instruments

Effective January 1, 2001, we adopted
Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities, as
amended, also known as SFAS No. 133, which requires
all derivatives to be 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 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), 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, 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,
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 we choose not to designate as hedges
or that do not qualify for hedge accounting under
SFAS No. 133. 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
and any income or expense recognized on such derivatives is
recorded to noninterest income.

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 our Euro-dollar futures contracts outstanding at
January 1, 2001. Of the $4.8 million,
$1.8 million was reclassified into earnings during 2001.

Accounting Pronouncements

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

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##### Table of Contents



years beginning after June 15, 2002. The
adoption of SFAS No. 143 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 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 the prospective application method of transition to the fair
value based method in the first quarter of 2003. Neither the
disclosure adoption nor the accounting adoption had 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 December 15,
2003. The adoption of FIN No. 46 did not have a material
effect on our earnings or financial position.

In April 2003, the FASB issued Statement of
Financial Accounting Standards No. 149,Amendment of
Statement 133 on Derivative Instruments and Hedging Activities,
also known as SFAS No. 149. SFAS No. 149
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under
SFAS No. 133. The adoption of SFAS No. 149
did not have a material effect on our earnings or financial
position.

In May 2003, the FASB issued Statement of
Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity, also known as SFAS No. 150.
SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). Many
of those instruments were previously classified as equity. The
adoption of SFAS No. 150 did not have a material
effect on our earnings or financial position.

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|         |                                             
|-------- | --------------------------------------------
|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 none and $3.3 million at December 31,
2003 and 2002, respectively. The book value of these investment
securities approximated fair value.



|         |                         
|-------- | ------------------------
|Note 3  | Net Contracts Receivable

Net contracts receivable consisted of the
following:

|                                                        |                          |                        |           |           |  |   |           |           | 
|------------------------------------------------------- | ------------------------ | ---------------------- | --------- | --------- |  | - | --------- | --------- | 
|                                                        |                          |                       
|                                                        |                          | December 31,          
|                                                        |                          |                       
|                                                        |                          | 2003                   |           | 2002     
|                                                        |                          |                        |           |          
|                                                        |                          |                       
|                                                        |                          | (Dollars in thousands)
|Contracts                                               |                          | $                      | 8,628,426 |           |  | $ | 7,915,769 |          
|Unearned discounts                                      |                          |                        | (53,137   | )         |  |   | (81,838   | )        
|                                                        |                          |                        |           |           |  |   |           |          
|                                                        | Net contracts            |                        |           | 8,575,289 |  |   |           | 7,833,931 | 
|Allowance for credit losses                             |                          |                        | (239,697  | )         |  |   | (227,673  | )        
|Dealer participation, net of deferred contract
    fees |                          |                        | 140,979   |           |  |   | 141,572   |          
|                                                        |                          |                        |           |           |  |   |           |          
|                                                        | Net contracts receivable |                        | $         | 8,476,571 |  |   | $         | 7,747,830 | 
|                                                        |                          |                        |           |           |  |   |           |          

Contracts managed by us totaled
$10.6 billion and $9.4 billion at December 31,
2003 and 2002, respectively. Of the $10.6 billion contracts
managed at December 31, 2003, $8.6 billion were owned
by us and $2.0 billion were owned by Westcorp, our ultimate
parent. 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, and $525 million
were owned by securitization trusts. Nonperforming loans, or
loans on which we have discontinued the accrual of interest
income, included in net loans receivable were $40.6 million
and $25.4 million at December 31, 2003 and 2002,
respectively. Repossessed assets were $8.7 million and
$12.1 million at December 31, 2003 and 2002,
respectively, and are included in other assets on our
Consolidated Statement of Financial Condition.



|         |                            
|-------- | ---------------------------
|Note 4  | Allowance for Credit Losses

Changes in the allowance for credit losses were
as follows:

|                                                                                           |                |                                 |          |          |   |      |          |          |   |   |          |         |  
|------------------------------------------------------------------------------------------ | -------------- | ------------------------------- | -------- | -------- | - | ---- | -------- | -------- | - | - | -------- | ------- | -
|                                                                                           |                |                                
|                                                                                           |                | For the Year Ended December 31,
|                                                                                           |                |                                
|                                                                                           |                | 2003                            |          | 2002     |   | 2001
|                                                                                           |                |                                 |          |          |   |     
|                                                                                           |                |                                
|                                                                                           |                | (Dollars in thousands)         
|Balance at beginning of period                                                             |                | $                               | 227,673  |          |   | $    | 136,410  |          |   | $ | 71,308   |        
|Chargeoffs                                                                                 |                |                                 | (297,610 | )        |   |      | (207,713 | )        |   |   | (110,359 | )      
|Recoveries                                                                                 |                |                                 | 75,834   |          |   |      | 49,883   |          |   |   | 31,331   |        
|                                                                                           |                |                                 |          |          |   |      |          |          |   |   |          |        
|                                                                                           | Net chargeoffs |                                 |          | (221,776 | ) |      |          | (157,830 | ) |   |          | (79,028 | )
|Provision for credit losses                                                                |                |                                 | 233,800  |          |   |      | 249,093  |          |   |   | 144,130  |        
|                                                                                           |                |                                 |          |          |   |      |          |          |   |   |          |        
|Balance at end of period                                                                   |                | $                               | 239,697  |          |   | $    | 227,673  |          |   | $ | 136,410  |        
|                                                                                           |                |                                 |          |          |   |      |          |          |   |   |          |        
|Ratio of net chargeoffs during the period to
    average contracts owned during the period |                |                                 | 2.5      | %        |   |      | 2.4      | %        |   |   | 2.0      | %      
|Ratio of allowance for credit losses to contracts
    at the end of the period             |                |                                 | 2.8      | %        |   |      | 2.9      | %        |   |   | 2.6      | %      

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|         |                                            
|-------- | -------------------------------------------
|Note 5  | Retained Interest in Securitized
    Assets

None of our securitization transactions in 2003,
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,
|                                          |  |                                
|                                          |  | 2003                            |  | 2002 |  | 2001
|                                          |  |                                 |  |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Balance at beginning of period            |  | $                               |  |      |  | $    | 37,392  |   |  | $ | 111,558 |  
|Additions                                 |  |                                 |  |      |  |      |         |   |  |   |         |  
|Amortization                              |  |                                 |  |      |  |      | (36,461 | ) |  |   | (75,546 | )
|Change in unrealized gain/loss on RISA(1) |  |                                 |  |      |  |      | (931    | ) |  |   | 1,380   |  
|                                          |  |                                 |  |      |  |      |         |   |  |   |         |  
|Balance at end of period(2)               |  | $                               |  |      |  | $    | 0       |   |  | $ | 37,392  |  
|                                          |  |                                 |  |      |  |      |         |   |  |   |         |  



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 balance of contracts 30 days or more
delinquent included in securitization transactions treated as
sales for accounting purposes totaled $35.2 million at
December 31, 2002. Net chargeoffs for securitization trusts
totaled $30.4 million and $50.4 million for the years
ended December 31, 2002 and 2001, respectively.

Note 6  Premises and
Equipment

Premises and equipment consisted of the following:

|                               |  |                        |        |      |  |   |        | 
|------------------------------ |  | ---------------------- | ------ | ---- |  | - | ------ | 
|                               |  |                       
|                               |  | December 31,          
|                               |  |                       
|                               |  | 2003                   |        | 2002
|                               |  |                        |        |     
|                               |  |                       
|                               |  | (Dollars in thousands)
|Land                           |  | $                      | 2,017  |      |  | $ | 2,017  | 
|Buildings and improvements     |  |                        | 14,088 |      |  |   | 13,733 | 
|Computers and software         |  |                        | 56,838 |      |  |   | 51,455 | 
|Furniture and equipment        |  |                        | 12,463 |      |  |   | 12,066 | 
|Other                          |  |                        | 272    |      |  |   | 292    | 
|                               |  |                        |        |      |  |   |        | 
|                               |  |                        | 85,678 |      |  |   | 79,563 | 
|Less: Accumulated depreciation |  |                        | 56,472 |      |  |   | 47,479 | 
|                               |  |                        |        |      |  |   |        | 
|                               |  | $                      | 29,206 |      |  | $ | 32,084 | 
|                               |  |                        |        |      |  |   |        | 

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 $101 million and
$108 million as of December 31, 2003 and 2002,
respectively. Interest payments on this note are due quarterly,
in arrears. Interest expense on the note totaled
$9.1 million, $12.4 million and $10.1 million for
the years ended December 31, 2003, 2002 and 2001,
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

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---



##### Table of Contents



arrears, at a rate of 7.25% per annum.
Interest expense on the note was $0.5 million for the year
ended December 31, 2001.


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 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 both
December 31, 2003 and 2002, respectively. Interest expense
on this note totaled $30.8 million and $20.3 million
for the years ended December 31, 2003 and 2002,
respectively.

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 both
December 31, 2003 and 2002, respectively. Some of our
subsidiaries have entered into lines of credit with the Bank.
These lines permit us to draw up to a total of $330 million
to fund our initial deposits to spread accounts on
securitization transactions. Of the total $330 million,
$10 million terminates on December 1, 2006 and
$320 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, 2003, the amount
outstanding on these lines of credit totaled $21.8 million
compared with $62.0 million at December 31 2002.

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 $330 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 $1.0 million, $3.0 million
and $8.9 million for the years ended December 31,
2003, 2002 and 2001, respectively. The weighted average interest
rates for the lines of credit were 2.28%, 2.74% and 4.43% for
the years ended December 31, 2003, 2002 and 2001,
respectively. The weighted average interest rates for the lines
of credit were 2.28%, 2.55% and 3.08% at December 31, 2003,
2002 and 2001, 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 1.23%, 1.77% and
3.80% for the years ended December 31, 2003, 2002 and 2001,
respectively. The interest rate was 1.17% at December 31,
2003 compared to 1.44% at December 31, 2002. We held
$764 million and $688 million excess cash with the
Bank under the investment agreement at December 31, 2003
and 2002, respectively. Interest income earned under this
agreement totaled $8.2 million, $10.2 million and
$4.9 million for the years ended December 31, 2003,
2002 and 2001, 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 $4.1 million, $6.4 million and
$5.9 million for the years ended December 31, 2003,
2002 and 2001, 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,

F-15



---



##### Table of Contents



including in our ordinary business activities. We
paid the Bank $1.2 million, $1.2 million and
$1.1 million for the years ended December 31, 2003,
2002 and 2001, respectively, pursuant to these agreements.


Note 8  Notes Payable on
Automobile Secured Financing

For the years ended December 31, 2003 and
2002, we issued $4.2 billion and $6.9 billion of notes
secured by automobile contracts, of which $4.2 billion and
$6.2 billion were through public transactions and no
amounts and $775 million, respectively, were through
conduit facilities. We had no amount outstanding on the conduit
facilities at December 31, 2003 and 2002. We terminated our
$775 million conduit facility in May 2002.

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
$349 million for the year ended December 31, 2003,
compared with $313 million and $212 million for the
years ended December 31, 2002 and 2001, respectively.

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:

|           |  |                        |           |               |  |  |      |  
|---------- |  | ---------------------- | --------- | ------------- |  |  | ---- | -
|           |  |                       
|           |  | December 31, 2003     
|           |  |                       
|           |  |                        |           | Weighted     
|           |  |                        |           | Average      
|           |  | Amount                 |           | Interest Rate
|           |  |                        |           |              
|           |  |                       
|           |  | (Dollars in thousands)
|2004       |  | $                      | 253,660   |               |  |  | 1.16 | %
|2005       |  |                        | 151,631   |               |  |  | 1.77 |  
|2006       |  |                        | 1,128,223 |               |  |  | 3.32 |  
|2007       |  |                        | 2,301,284 |               |  |  | 2.84 |  
|2008       |  |                        | 1,080,884 |               |  |  | 4.10 |  
|Thereafter |  |                        | 3,241,919 |               |  |  | 3.67 |  
|           |  |                        |           |               |  |  |      |  
|           |  | $                      | 8,157,601 |               |  |  | 3.33 | %
|           |  |                        |           |               |  |  |      |  

Note 9  Whole Loan
Sales

We sold $1.7 billion and $1.4 billion
of contracts to Westcorp, our parent company in whole loan sales
for the years ended December 31, 2003 and 2001,
respectively. These receivables were subsequently securitized by
Westcorp and continue to be managed by us under the terms of the
securitization. As a result of selling contracts in a whole loan
sale rather than securitizing them in a secured financing
transaction, we recorded cash gain on sale, net of the write-off
of outstanding dealer participation balances and the effect of
hedging activities, of $18.7 million and $6.7 million
related to the contracts sold in 2003 and 2001, respectively.

F-16



---



##### Table of Contents



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, 2003     
|           |  |                       
|           |  | (Dollars in thousands)
|2004       |  | $                      | 5,460  | 
|2005       |  |                        | 4,572  | 
|2006       |  |                        | 3,282  | 
|2007       |  |                        | 2,556  | 
|2008       |  |                        | 1,544  | 
|Thereafter |  |                        | 1,458  | 
|           |  |                        |        | 
|           |  | $                      | 18,872 | 
|           |  |                        |        | 

In certain cases, these agreements include
various renewal options and contingent rental agreements. Rental
expense for premises and equipment totaled $5.9 million,
$5.6 million and $5.4 million for the years ended
December 31, 2003, 2002 and 2001, respectively.

We have pledged certain contracts in amounts
totaling $375 million and $474 million as of
December 31, 2003 and 2002, 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.

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,          
|                                             |  |                       
|                                             |  | 2003                   |         | 2002
|                                             |  |                        |         |     
|                                             |  |                       
|                                             |  | (Dollars in thousands)
|Unrealized loss on interest rate swaps(1)    |  | $                      | (15,692 | )    |  | $ | (34,607 | )
|Realized loss on settled cash flow hedges(1) |  |                        | (17,198 | )    |  |   | (19,219 | )
|                                             |  |                        |         |      |  |   |         |  
|Total accumulated other comprehensive loss   |  | $                      | (32,890 | )    |  | $ | (53,826 | )
|                                             |  |                        |         |      |  |   |         |  



---



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

Note 12  Comprehensive
Income

The following table presents the components of
comprehensive income, net of related tax, for the periods
indicated:

|                                                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|--------------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                                                              |  |                                
|                                                                                              |  | For the Year Ended December 31,
|                                                                                              |  |                                
|                                                                                              |  | 2003                            |         | 2002 |  | 2001
|                                                                                              |  |                                 |         |      |  |     
|                                                                                              |  |                                
|                                                                                              |  | (Dollars in thousands)         
|Net income                                                                                    |  | $                               | 162,388 |      |  | $    | 82,090  |   |  | $ | 61,648  |  
|Unrealized (losses) gains on retained interest in
    securitized assets, net of tax          |  |                                 |         |      |  |      | (550    | ) |  |   | 814     |  
|Unrealized losses on cash flow hedges, net of tax                                             |  |                                 | (13,847 | )    |  |      | (59,248 | ) |  |   | (42,237 | )
|Reclassification adjustment for losses on cash
    flow hedges included in income, net of tax |  |                                 | 34,783  |      |  |      | 35,294  |   |  |   | 12,365  |  
|                                                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  
|Comprehensive income                                                                          |  | $                               | 183,324 |      |  | $    | 57,586  |   |  | $ | 32,590  |  
|                                                                                              |  |                                 |         |      |  |      |         |   |  |   |         |  

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---



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Note 13  Equity
Offerings

We completed rights offerings in March 2002 and
May 2001 that 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, 2003, the Bank owned 84% of
our common stock.

Note 14  Dividends

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

Note 15  Servicing
Income

Servicing income consisted of the following
components:

|                                                        |  |                                 |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------------- |  | ------------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                        |  |                                
|                                                        |  | For the Year Ended December 31,
|                                                        |  |                                
|                                                        |  | 2003                            |         | 2002 |  | 2001
|                                                        |  |                                 |         |      |  |     
|                                                        |  |                                
|                                                        |  | (Dollars in thousands)         
|Fee income                                              |  | $                               | 87,234  |      |  | $    | 78,773  |   |  | $ | 67,579  |  
|Contractual servicing income                            |  |                                 | 31,781  |      |  |      | 61,830  |   |  |   | 85,845  |  
|Retained interest expense, net of RISA
    amortization |  |                                 |         |      |  |      | (29,805 | ) |  |   | (27,839 | )
|                                                        |  |                                 |         |      |  |      |         |   |  |   |         |  
|Total servicing income                                  |  | $                               | 119,015 |      |  | $    | 110,798 |   |  | $ | 125,585 |  
|                                                        |  |                                 |         |      |  |      |         |   |  |   |         |  

Fee income consists primarily of documentation
fees, late charges, deferment fees and other servicing fees.
According to the terms of each securitization transaction, we
earn contractual servicing income on the outstanding balance of
contracts serviced. For the year ended December 31, 2003,
there was no contractual servicing income received by us
relating to sales to securitization trusts, compared with
$10.7 million and $23.0 million for the years ended
December 31, 2002 and 2001, respectively. For the year
ended December 31, 2003, contractual servicing fees
received by us relating to whole loan sales to Westcorp totaled
$31.8 million, compared with $51.1 million and
$62.8 million for the years ended December 31, 2002
and 2001, respectively.

Note 16  Employee Benefit
Plans

We participate in Westcorps employee
benefit programs, 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, the Long Term Incentive Plan and Stock Option
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. 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 $5.8 million,
$2.8 million and $8.4 million in 2003, 2002 and 2001,
respectively. Compensation expense related to the ESOP and
401(k) Plan totaled $9.8 million, $1.4 million and
$4.8 million in 2003, 2002 and 2001, respectively. As of
December 31, 2003, the ESOP and 401(k) plan held a total of
1,844,293 shares of Westcorps common stock.

F-18



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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, 2003, expense
related to the EDP for Westcorp and its subsidiaries totaled
$2.1 million compared with $0.7 million and
$0.3 million for the years ended December 31, 2002 and
2001, 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. For the year ended
December 31, 2003, Westcorp expensed $0.9 million,
compared with $0.8 million and $0.9 million in 2002
and 2001, respectively, related to the LTIP.

The Westcorp Stock Option Plan covers a select
group of associates and directors. Under the plan, Westcorp has
reserved a total of 3,000,0000 shares of its common stock
for future issuance. As of December 31, 2003, a total of
2,185,750 shares were available for future grants. The
options may be exercised within seven years after the date of
the grant.

Note 17  Income
Taxes

Income tax expense consisted of the following:

|          |         |                                 |         |        |  |      |         |         |   |   |         |         |  
|--------- | ------- | ------------------------------- | ------- | ------ |  | ---- | ------- | ------- | - | - | ------- | ------- | -
|          |         |                                
|          |         | For the Year Ended December 31,
|          |         |                                
|          |         | 2003                            |         | 2002   |  | 2001
|          |         |                                 |         |        |  |     
|          |         |                                
|          |         | (Dollars in thousands)         
|Current:  |         |                                 |         |        |  |      |         |         |   |   |         |        
|          | Federal |                                 | $       | 82,135 |  |      | $       | 79,048  |   |   | $       | 68,625  |  
|          | State   |                                 |         | 17,696 |  |      |         | 13,551  |   |   |         | 10,007  |  
|          |         |                                 |         |        |  |      |         |         |   |   |         |        
|          |         |                                 | 99,831  |        |  |      | 92,599  |         |   |   | 78,632  |        
|         
|Deferred: |         |                                 |         |        |  |      |         |         |   |   |         |        
|          | Federal |                                 |         | 5,531  |  |      |         | (37,711 | ) |   |         | (34,817 | )
|          | State   |                                 |         | 1,157  |  |      |         | (8,736  | ) |   |         | (4,312  | )
|          |         |                                 |         |        |  |      |         |         |   |   |         |        
|          |         |                                 | 6,688   |        |  |      | (46,447 | )       |   |   | (39,129 | )      
|          |         |                                 |         |        |  |      |         |         |   |   |         |        
|          |         | $                               | 106,519 |        |  | $    | 46,152  |         |   | $ | 39,503  |        
|          |         |                                 |         |        |  |      |         |         |   |   |         |        

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,
|                                          |  |                                
|                                          |  | 2003                            |         | 2002 |  | 2001
|                                          |  |                                 |         |      |  |     
|                                          |  |                                
|                                          |  | (Dollars in thousands)         
|Tax at statutory rate                     |  | $                               | 94,118  |      |  | $    | 44,885 |   |  | $ | 35,403 | 
|State tax (net of federal tax benefit)(1) |  |                                 | 12,254  |      |  |      | 3,130  |   |  |   | 3,701  | 
|Other                                     |  |                                 | 147     |      |  |      | (1,863 | ) |  |   | 399    | 
|                                          |  |                                 |         |      |  |      |        |   |  |   |        | 
|                                          |  | $                               | 106,519 |      |  | $    | 46,152 |   |  | $ | 39,503 | 
|                                          |  |                                 |         |      |  |      |        |   |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | State tax for 2002 includes the result of a
    one-time benefit of legislation enacted by the State of
    California which eliminated the use of reserve method of
    accounting for bad debts for large banks and financial
    corporations for taxable income purposes for tax years after
    January 1, 2002.

F-19



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

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

|                                          |                                |                        |         |         |   |   |         |         |  
|----------------------------------------- | ------------------------------ | ---------------------- | ------- | ------- | - | - | ------- | ------- | -
|                                          |                                |                       
|                                          |                                | December 31,          
|                                          |                                |                       
|                                          |                                | 2003                   |         | 2002   
|                                          |                                |                        |         |        
|                                          |                                |                       
|                                          |                                | (Dollars in thousands)
|Deferred tax assets:                      |                                |                        |         |         |   |   |         |        
|Reserves for credit losses                |                                | $                      | 84,114  |         |   | $ | 81,285  |        
|State tax deferred benefit                |                                |                        | 5,068   |         |   |   | 4,732   |        
|Deferred compensation accrual             |                                |                        | 1,042   |         |   |   | 1,213   |        
|Tax basis difference  derivatives        |                                |                        | 21,927  |         |   |   | 37,404  |        
|Other assets                              |                                |                        | 11,032  |         |   |   | 10,109  |        
|                                          |                                |                        |         |         |   |   |         |        
|                                          | Total deferred tax assets      |                        |         | 123,183 |   |   |         | 134,743 |  
|Deferred tax liabilities:                 |                                |                        |         |         |   |   |         |        
|Accelerated depreciation for tax purposes |                                |                        | (7,194  | )       |   |   | (1,985  | )      
|Other liabilities                         |                                |                        | (27,022 | )       |   |   | (21,625 | )      
|                                          |                                |                        |         |         |   |   |         |        
|                                          | Total deferred tax liabilities |                        |         | (34,216 | ) |   |         | (23,610 | )
|                                          |                                |                        |         |         |   |   |         |        
|                                          | Net deferred tax assets        |                        | $       | 88,967  |   |   | $       | 111,133 |  
|                                          |                                |                        |         |         |   |   |         |        

Note 18  Fair Value of
Financial Instruments

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

|                                                                          |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |         |  
|------------------------------------------------------------------------- | ----------------------------- | ------------ | --------- | ---------------------- | - | -------- | --------- | ---------- | - | - | --------- | ------- | - | - | --------- | ------- | -
|                                                                          |                               |             
|                                                                          |                               | December 31,
|                                                                          |                               |             
|                                                                          |                               |              |           |                       
|                                                                          |                               | 2003         |           | 2002                  
|                                                                          |                               |              |           |                       
|                                                                          |                               | Carrying     |           |                        |   | Carrying |           |           
|                                                                          |                               | Amounts      |           | Fair Value             |   | Amounts  |           | Fair Value
|                                                                          |                               |              |           |                        |   |          |           |           
|                                                                          |                               |              |           |                        |   |         
|                                                                          |                               |              |           | (Dollars in thousands) |   |         
|Financial assets:                                                         |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|Cash and due from banks                                                   |                               | $            | 843,235   |                        |   | $        | 843,235   |            |   | $ | 715,807   |         |   | $ | 715,807   |        
|Restricted cash                                                           |                               |              | 245,399   |                        |   |          | 245,399   |            |   |   | 71,763    |         |   |   | 71,763    |        
|Investment securities available for sale                                  |                               |              |           |                        |   |          |           |            |   |   | 3,348     |         |   |   | 3,348     |        
|Contracts receivable                                                      |                               |              | 8,716,268 |                        |   |          | 9,420,084 |            |   |   | 7,975,503 |         |   |   | 8,868,653 |        
|Financial instrument agreements held for purposes
    other than trading: |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|                                                                          | Interest rate swap agreements |              |           | (26,249                | ) |          |           | (26,249    | ) |   |           | (59,244 | ) |   |           | (59,244 | )
|Financial liabilities:                                                    |                               |              |           |                        |   |          |           |            |   |   |           |         |   |   |           |        
|Lines of credit  parent                                                  |                               |              | 21,811    |                        |   |          | 21,811    |            |   |   | 62,048    |         |   |   | 62,111    |        
|Notes payable on automobile secured financing                             |                               |              | 8,157,601 |                        |   |          | 8,372,482 |            |   |   | 7,394,943 |         |   |   | 7,639,375 |        
|Notes payable  parent                                                    |                               |              | 400,820   |                        |   |          | 419,218   |            |   |   | 408,010   |         |   |   | 426,738   |        
|Amounts held on behalf of trustee                                         |                               |              | 243,072   |                        |   |          | 243,072   |            |   |   | 298,863   |         |   |   | 298,863   |        

The methods and assumptions used in estimating
the fair values of our financial instruments are included in
Note 1.

F-20



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##### Table of Contents



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, 2003 the terms of our interest
rate swap agreements were to pay a weighted average fixed rate
of 4.0% and to receive a weighted average variable rate of 1.4%,
with expiration dates ranging from 2004 to 2010 and collateral
requirements generally ranging from 3% to 4%. At
December 31, 2002, the terms of our interest rate swap
agreements were to pay a weighted average fixed rate of 4.1% and
to receive a weighted average variable rate of 1.7%, with
expiration dates ranging from 2004 to 2010 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, therefore, 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, 2003, the
unrealized loss on cash flow hedges was $13.8 million, net
of taxes of $9.2 million, compared to $59.2 million,
net of taxes of $41.2 million, for the year ended
December 31, 2002. We reclassified $34.8 million and
$35.3 million, net of tax, into earnings which is included
in interest expense on the Consolidated Statements of Income for
the years ended December 31, 2003 and 2002, respectively.
The amount recognized in earnings due to ineffectiveness was
immaterial. 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
$3.7 million of hedge gains in 2003 and $4.0 million
of hedge losses in 2001, net of tax, from accumulated other
comprehensive loss related to hedges of future interest payments
on the forecasted secured financing. The hedge gain or loss was
included in 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, 2003.

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,                 
|                                          |  |                                                 
|                                          |  | 2003                                             |            | 2002 |  | 2001
|                                          |  |                                                  |            |      |  |     
|                                          |  |                                                 
|                                          |  | (Dollars in thousands, except per share amounts)
|Basic:                                    |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 162,388    |      |  | $    | 82,090     |  |  | $ | 61,648     | 
|Average basic common shares outstanding   |  |                                                  | 41,026,067 |      |  |      | 39,945,285 |  |  |   | 32,308,649 | 
|Earnings per common share  basic         |  | $                                                | 3.96       |      |  | $    | 2.06       |  |  | $ | 1.91       | 
|Diluted:                                  |  |                                                  |            |      |  |      |            |  |  |   |            | 
|Net income                                |  | $                                                | 162,388    |      |  | $    | 82,090     |  |  | $ | 61,648     | 
|Average basic common shares outstanding   |  |                                                  | 41,026,067 |      |  |      | 39,945,285 |  |  |   | 32,308,649 | 
|Stock option adjustment                   |  |                                                  | 43,196     |      |  |      | 48,239     |  |  |   | 89,708     | 
|Average diluted common shares outstanding |  |                                                  | 41,069,263 |      |  |      | 39,993,524 |  |  |   | 32,398,357 | 
|Earnings per common share  diluted       |  | $                                                | 3.95       |      |  | $    | 2.05       |  |  | $ | 1.90       | 

F-21



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##### Table of Contents



Note 21  Quarterly Results of
Operations (Unaudited)

The following is a summary of unaudited quarterly
results of operations for 2002 and 2003. 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)
|2003                                |  |                                                  |         |         |  |              |         |             |  |   |         |  |  |   |         | 
|Interest income                     |  | $                                                | 247,132 |         |  | $            | 257,232 |             |  | $ | 253,697 |  |  | $ | 234,943 | 
|Interest expense                    |  |                                                  | 105,312 |         |  |              | 102,822 |             |  |   | 96,277  |  |  |   | 86,990  | 
|Net interest income                 |  |                                                  | 141,820 |         |  |              | 154,410 |             |  |   | 157,420 |  |  |   | 147,953 | 
|Provision for credit losses         |  |                                                  | 72,795  |         |  |              | 66,876  |             |  |   | 24,551  |  |  |   | 69,578  | 
|Income before income tax            |  |                                                  | 40,856  |         |  |              | 55,417  |             |  |   | 125,161 |  |  |   | 47,473  | 
|Income tax                          |  |                                                  | 16,241  |         |  |              | 21,832  |             |  |   | 49,610  |  |  |   | 18,836  | 
|Net income                          |  |                                                  | 24,615  |         |  |              | 33,585  |             |  |   | 75,551  |  |  |   | 28,637  | 
|Earnings per common share  basic   |  |                                                  | 0.60    |         |  |              | 0.82    |             |  |   | 1.84    |  |  |   | 0.70    | 
|Earnings per common share  diluted |  |                                                  | 0.60    |         |  |              | 0.82    |             |  |   | 1.84    |  |  |   | 0.70    | 
|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    |  |  |   | 0.40    | 
|Earnings per common share  diluted |  |                                                  | 0.50    |         |  |              | 0.55    |             |  |   | 0.57    |  |  |   | 0.40    | 

Note 22  Subsequent Events
(Unaudited)

On February 27, 2004, we sold
$1.5 billion of contracts to Westcorp, our parent company
in a whole loan sale. These receivables were subsequently
securitized by Westcorp and continue to be managed by us under
the terms of the securitization. As a result of selling
contracts in a whole loan sale rather than securitizing them in
a secured financing transaction, we recorded a cash gain on
sale, net of the write-off of outstanding dealer participation
balances and the effect of hedging activities, of
$13.8 million related to the contracts sold.

F-22



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##### Table of Contents



EXHIBIT INDEX

|        |        |                        |  |                                                                                                                                                        
|------- | ------ | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                       
|No.     |        | Description of Exhibit
|        |        |                       
|        | 3.1    |                        |  | Certificate of Amendment and Restatement of
    Articles of Incorporation                                                                              
|        | 4      |                        |  | Specimen WFS Financial Inc Common Stock
    Certificate(5)                                                                                             
|        | 10.1   |                        |  | Westcorp 2001 Stock Option Plan(13)                                                                                                                    
|        | 10.2   |                        |  | 2000 Executive Deferral Plan V(12)                                                                                                                     
|        | 10.2.1 |                        |  | First Amendment to the Westcorp Executive
    Deferral Plan V, dated as of April 1, 2003(16)                                                           
|        | 10.3   |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Funding, Inc. and Western Financial Bank, dated
    June 1, 2002(13)                        
|        | 10.3.1 |                        |  | First Amendment dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS
    Funding, Inc. and Western Financial Bank(13)     
|        | 10.4   |                        |  | Security Agreement between WFS Funding, Inc.
    and Western Financial Bank, dated March 7, 2003                                                       
|        | 10.4.1 |                        |  | First Amendment dated August 1, 2003, to the
    Security Agreement between WFS Funding, Inc. and Western
    Financial Bank                           
|        | 10.5   |                        |  | Transfer Agreement between WFS Financial Inc and
    Western Financial Bank, F.S.B., dated May 1, 1995(1)                                              
|        | 10.6   |                        |  | Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank, dated June 15,
    1999(11)                               
|        | 10.6.1 |                        |  | 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)
|        | 10.6.2 |                        |  | Amendment No. 2, dated May 23, 2000, to
    the Revolving Line of Credit Agreement between WFS Financial Inc
    and Western Financial Bank(13)        
|        | 10.6.3 |                        |  | Amendment No. 3, dated January 1, 2002,
    to the Revolving Line of Credit Agreement between WFS Financial
    Inc and Western Financial Bank(13)     
|        | 10.6.4 |                        |  | Amendment No. 4, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Financial Inc and Western Financial Bank(13)    
|        | 10.7   |                        |  | Security Agreement between WFS Financial Inc and
    Western Financial Bank, dated March 7, 2003                                                       
|        | 10.8   |                        |  | Short Term Investment Agreement between WFS
    Financial Inc and Western Financial Bank, dated January 1,
    1996                                    
|        | 10.8.1 |                        |  | Amendment No. 1, dated as of January 1,
    2002, to the Short Term Investing Agreement between WFS
    Financial Inc and Western Financial Bank       
|        | 10.9   |                        |  | Amended and Restated Tax Sharing Agreement
    between Westcorp and Subsidiaries, dated September 30,
    2002(13)                                     
|        | 10.9.1 |                        |  | First Amendment to the Amended and Restated Tax
    Sharing Agreement, Dated as of January 1, 2003(14)                                                 
|        | 10.9.2 |                        |  | Second Amendment to the Amended and Restated Tax
    Sharing Amendment, dated August 1, 2003(14)                                                       
|        | 10.10  |                        |  | Master Reinvestment Contract between WFS
    Financial Inc and Western Financial Bank, F.S.B., dated
    May 1, 1995(1)                                
|        | 10.11  |                        |  | Amendment No. 1, dated as of June 1,
    1995, to the Restated Master Reinvestment Reimbursement
    Agreement(10)                                     
|        | 10.12  |                        |  | Amended and Restated Master Collateral Assignment
    Agreement, dated as of March 1, 2000(11)                                                         
|        | 10.13  |                        |  | Form of WFS Financial Inc Dealer Agreement(14)                                                                                                         
|        | 10.14  |                        |  | Form of WFS Financial Inc
    Loan Application(14)                                                                                                     
|        | 10.15  |                        |  | Amended and Restated WFS 1996 Incentive Stock
    Option Plan(6)                                                                                       
|        | 10.16  |                        |  | Amended and Restated Westcorp Employee Stock
    Ownership and Salary Savings Plan, dated January 1, 2001(12)                                          



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##### Table of Contents



|        |         |                        |  |                                                                                                                                                                     
|------- | ------- | ---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.16.1 |                        |  | Amendment No. 1, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)                         
|        | 10.16.2 |                        |  | Amendment No. 2, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(12)                         
|        | 10.16.3 |                        |  | Amendment No. 3, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)                         
|        | 10.16.4 |                        |  | Amendment No. 4, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)                         
|        | 10.16.5 |                        |  | Amendment No. 5, dated as of January 1,
    2001, to Amended and Restated Westcorp Employee Stock Ownership
    and Salary Savings Plan(14)                         
|        | 10.16.6 |                        |  | Amendment No. 6, dated as of
    November 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan                            
|        | 10.16.7 |                        |  | Amendment No. 7, dated as of
    December 1, 2003, to Amended and Restated Westcorp Employee
    Stock Ownership and Salary Savings Plan                            
|        | 10.17   |                        |  | Employment Agreement(8)(9)                                                                                                                                          
|        | 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(13)                                  
|        | 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.(13)             
|        | 10.20   |                        |  | Amended and Restated Allocation Agreement, dated
    March 31, 2003(14)                                                                                             
|        | 10.20.1 |                        |  | First Amendment to the Amended and Restated
    Allocation Agreement, dated as of August 1, 2003(14)                                                                
|        | 10.20.2 |                        |  | Second Amendment to the Amended and Restated
    Allocation Agreement, dated as of September 1, 2003(14)                                                            
|        | 10.21   |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Financial Auto Loans, Inc. and Western
    Financial Bank, dated June 1, 2002(13)                        
|        | 10.21.1 |                        |  | First Amendment, dated October 15, 2002, to
    the Revolving Line of Credit Agreement between WFS Financial
    Auto Loans, Inc. and Western Financial Bank(13)    
|        | 10.22   |                        |  | Security Agreement between WFS Financial Auto
    Loans, Inc. and Western Financial Bank, dated March 7,
    2003                                                   
|        | 10.22.1 |                        |  | First Amendment to the Security Agreement, dated
    August 1, 2003, To the Security Agreement between WFS
    Financial Auto Loans, Inc. and Western Financial Bank
|        | 10.23   |                        |  | Amended Revolving Line of Credit Agreement
    between WFS Receivables Corporation and Western Financial Bank,
    dated June 1, 2002(13)                           
|        | 10.23.1 |                        |  | Amendment No. 1, dated October 15,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation and Western Financial Bank(13)       
|        | 10.24   |                        |  | Security Agreement between WFS Receivables
    Corporation and Western Financial Bank, dated March 7, 2003                                                          
|        | 10.24.1 |                        |  | First Amendment to the Security Agreement, dated
    August 1, 2003, to the Security Agreement between WFS
    Receivables Corporation and Western Financial Bank   
|        | 10.25   |                        |  | Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank, dated
    August 8, 2002(13)                               



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##### Table of Contents



|        |         |                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- | ------- | ---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |                       
|No.     |         | Description of Exhibit
|        |         |                       
|        | 10.25.1 |                        |  | Amendment No. 1, dated November 7,
    2002, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.25.2 |                        |  | Amendment No. 2, dated January 13,
    2003, to the Revolving Line of Credit Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.27   |                        |  | Promissory Note of WFS Financial Inc in favor of
    Western Financial Bank, F.S.B., dated May 3, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        | 10.28   |                        |  | Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency, dated
    May 15, 1998(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.28.1 |                        |  | Amendment No. 1, dated September 26,
    2002, to the Customer List Agreement between Western Financial
    Bank, WFS Financial Inc, and Westfin Insurance Agency(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.29   |                        |  | Interest Rate Swap Guarantee Agreement between
    Western Financial Bank, WFS Financial Inc, and WFS Receivables
    Corporation, dated August 30, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.30   |                        |  | Security Agreement between WFS Receivable
    Corporation 2, WFS Financial Inc, and Western Financial Bank,
    dated March 21, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        | 10.31   |                        |  | Referral Agreement between Western Financial
    Bank, Westfin Insurance Agency and WFS Financial Inc, dated
    September 16, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.31.1 |                        |  | Amendment No. 1, dated March 31, 2003,
    to the Referral Agreement between Western Financial Bank,
    Westfin Insurance Agency and WFS Financial Inc                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        | 10.32   |                        |  | Future Interest Payment Hedge Guarantee and
    Reimbursement Agreement between Western Financial Bank and WFS
    Financial Inc, dated September 19, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.33   |                        |  | 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. dated
    October 31, 2002(13)
|        | 10.33.1 |                        |  | Amendment No. 1, dated September 1,
    2003 to the Logo License Agreement(14)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.34   |                        |  | Travel Services Agreement between Westran
    Services Corp. and Westcorp, Western Financial Bank, WFS
    Financial Inc, and Westfin Insurance Agency, Inc., dated
    August 28, 2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.34.1 |                        |  | Amendment No. 1, dated July 16, 2003 to
    the Travel Service Agreement Between Westran Services
    Corporation and Westcorp, Western Financial Bank, WFS Financial
    Inc, and Westfin Insurance Agency, Inc.(14)                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.35   |                        |  | Letter of Credit between Western Financial Bank
    and WFS Financial Inc dated May 9, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 10.36   |                        |  | 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(13)                                                                                                                                                                                                                                                                                                                                                         
|        | 10.36.1 |                        |  | 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(13)                                                                                                                                                                                                                                                                                                                               
|        | 10.36.2 |                        |  | Second 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, 2003                                                                                                                                                                                                                                                                                                                                  
|        | 10.37   |                        |  | Collateral Protection Insurance Agreement between
    Westfin Insurance Agency and WFS Financial Inc, dated September
    2002(13)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.39   |                        |  | Security Agreement between WFS Receivables
    Corporation 3 and Western Financial Bank, dated March 7,
    2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.39.1 |                        |  | First Amendment to the Security Agreement, dated
    August 1, 2003, to the Security Agreement between WFS
    Receivables Corporation 3 and Western Financial Bank                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



---



##### Table of Contents



|        |       |                        |  |                                                                                                                                                              
|------- | ----- | ---------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                       
|No.     |       | Description of Exhibit
|        |       |                       
|        | 10.49 |                        |  | Retainer Agreement between WestFin Insurance
    Agency and WFS Financial Inc. dated March 31, 2003.                                                         
|        | 21.1  |                        |  | Subsidiaries of WFS Financial Inc.                                                                                                                           
|        | 23.1  |                        |  | Consent of Independent Auditors, Ernst &
    Young LLP                                                                                                       
|        | 31.1  |                        |  | CEO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                              
|        | 31.2  |                        |  | CFO Certification Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                                                              
|        | 32.1  |                        |  | Certification of the Chief Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|        | 32.2  |                        |  | Certification of the 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.
|    
|(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.                                                                                        
|    
|(15) | Exhibits previously filed with Annual Report on
    Form 10-K of WFS Financial Inc for the year ended
    December 31, 2002 as filed on or about March 27, 2003.                                                                                        
|    
|(16) | Exhibit previously filed with Westcorp
    Registration Statements on Form S-3 (File
    No. 333-110244) filed November 5, 2003 and
    subsequently amended on November 10, 2003 incorporated by
    reference under Exhibit Number indicated.